Exam 13: Pricing Decisions and Cost Management

Ocean Grove Vending Company has invested $1,450,000 in a plant to make vending machines. The target operating income desired from the plant is $362,500 annually. The company plans annual sales of 1500 vending machines at a selling price of $1000 each. What is the markup percentage as a percentage of cost for Ocean Grove Vending Company?

Which one of the following activities would most likely be considered a long-run pricing decision?

In some industries, such as legal and consulting, most costs are locked in ________.

Expo Manufacturing Inc., is in the process of evaluating a new product using the following information: -A new transformer has three production runs each year, each with $15,000 in setup costs. -The new transformer incurred $50,000 in development costs and is expected to be produced over the next three years. -Direct costs of producing the transformers are $40,000 per run of 5700 transformers each. -Indirect manufacturing costs charged to each run are $115,000. -Destination charges for each transformer average $2.00. -Customer service expenses average $0.70 per transformer. -The transformers are selling for $35 the first year and will increase by $2 each year thereafter. -Sales units equal production units each year. What is the estimated life-cycle operating income for the first three years?

Life-cycle budgeting and life-cycle costing can help highlight which of the following measures?

Peak-load pricing is the practice of charging a lower price for the same product or service when the demand for it approaches the physical limit of the capacity to produce that product or service.

Customer life-cycle costs focus on the total costs incurred by a customer to acquire, use, maintain, and dispose of a product or service.

The Big Tool Company has budgeted sales of $300,000 with the following budgeted costs: Compute the average markup percentage for setting prices as a percentage of: a.The full cost of the product b.The variable cost of the product c.Variable manufacturing costs d.Total manufacturing costs

At what point are direct material costs per unit "locked in"?

Which of the following statements is true of the cost of producing a product?

Reverse engineering has the objective of reducing costs while still satisfying customer needs.

Which of the following statements is true of costs and pricing decisions?

Einstein Motors, has a capacity to produce 38,000 electric cars. Due to a temporary subsidy announced, there is a sudden increase in demand. Einstein decides to adopt peak-load pricing and charge a premium of 30% over its normal selling price of $4000. It has already accepted orders for 29,000 units at normal selling price. What is the total contribution to the company on sale of additional 9000 units if the variable cost per unit is $2000?

Which of the following best defines the term: product life cycle?

Harry and Sally are starting a new business venture and are in the process of evaluating their product lines. Information for one new product, hand-made lamps, is as follows: -Every six months a new lamp pattern will be put into production. Each new pattern will require $8,000 in setup costs. -The lamp product line incurred $40,000 in development costs and is expected to be produced over the next six years. -Direct costs of producing the lamps average $144 each. Each lamp requires 12 labor-hours and 2 machine-hours. -Indirect manufacturing costs are estimated at $168,000 per year. -Customer service expenses average $16 per lamp. -Current sales are expected to be 2,000 units of each lamp pattern. Each lamp sells for $300. -Sales units equal production units each year. Required: a.What are the estimated life-cycle revenues? b.What is the estimated life-cycle operating income for the first year?

Value engineering cannot decrease value-added costs.

All of the following are typical results of value engineering except:

A non-value-added cost is a cost that, if eliminated, would reduce the actual or perceived value or utility (usefulness) customers experience from using the product or service.

Two different approaches to pricing decisions are market based and cost-plus.

Long-run pricing is an operational decision and not a strategic decision as perceived by many.