Exam 12: Pricing Decisions, Product Profitability Decisions, and Cost Management

Use the information below to answer the following question(s).N-C Associates is in the process of evaluating its new client services for the business consulting division.Estate Planning, a new service, incurred $600,000 in development costs and employee training.The direct costs of providing this service, which is all labour, averages $100 per hour.Other costs for this service are estimated at $2,000,000 per year.The current program for estate planning is expected to last for two years.At that time a new law will be in place which will require new operating guidelines for the tax consulting.Customer service expenses average $400 per client, with each job lasting an average of 400 hours.The current staff expects to bill 40,000 hours for each of the two years the program is in effect.Billing averages $140 per hour. -What is the N-C Associates' life-cycle operating income (loss)?

Developing life-cycle reports for each product requires tracking both costs and revenues on a product-by-product basis over a number of accounting periods.

Which of the following best describes the cost-plus pricing approach?

The target rate of return on investment is the target operating income that an organization must earn divided by invested capital.

Financial reporting systems emphasize cost incurrence by recognizing and recording costs only when a resource is sacrificed or consumed.

Timothy Company has budgeted sales of $780,000 with the following budgeted costs: Factory overhead: Selling and administrative expenses: Compute the average markup percentage for setting prices as a percentage of: a.Total manufacturing costs b.The variable cost of the product c.The full cost of the product d.Variable manufacturing costs

When the firm uses the target-costing approach to pricing, the target cost per unit is the difference between the per unit target price and the per unit target

Your company produces 700,000 widgets per year but has the capacity to produce 950,000 units.Company records show the following; full product costs = $85 per unit, which includes fixed manufacturing overhead of $11, and variable overhead of $4 per unit, and direct variable costs of $22, all based on the current 700,000 production run.If the company wanted to bid on a special one-time order, based on the above information only, what would be its minimum bid?

Bicker, Inc., is in the process of evaluating a new product using the following information: Required: a.What are the estimated life-cycle revenues? b.What is the estimated life-cycle operating income if the product life cycle is one year?

Use the information below to answer the following question(s).Pershing Company budgeted the following costs for the production of its one and only product, blades, for the next fiscal year: Pershing has a target profit of $150,000. -What is the target profit percentage as a percentage of total manufacturing costs?

Long-run pricing is a strategic decision designed to build long-run relationships with customers in competitive markets.

Kezer Crafts currently sells motor boats for $6,000.It has costs of $4,650.A competitor is bringing a new motor boat to the market that will sell for $5,500.Management believes it must lower the price to $5,500 to compete in the market for motor boats.Marketing believes that the new price will cause sales to increase by 12.5%, even with a new competitor in the market.Kezer Crafts' sales are currently 2,000 motor boats per year.Required: a.What is the target cost if target operating income is 25% of sales? b.What is the change in operating income if marketing is correct and only the sales price is changed? c.What is the target cost if the company wants to maintain its same income level, and marketing is correct?

Which of the following is TRUE of alternative long-run pricing approaches?

Henderson Company is in the process of evaluating a new part using the following information. Required: a.What are the estimated life-cycle revenues? b.What is the estimated life-cycle operating income if the product life cycle is one year?

What advice would you give a company to avoid the appearance of predatory pricing?

Eliminating non-value added activities by reducing their cost drivers, is referred to as

Use the information below to answer the following question(s).Ferryman Products manufactures coffee tables.Ferryman Products has a policy of adding a 20% markup to full costs and currently has excess capacity.The following information pertains to the company's normal operations per month: -What is the Ferryman Products full product cost for long-run pricing purposes?

Life-cycle costing, from an environmental sustainability perspective, considers the end of a products life-cycle to include disposal and recycling costs.

Valley West Amusement Park is evaluating its ticket prices.It is open during the summer months for 15 weeks.The following information pertains to last year's tourist season.Costs are expected to remain the same for this year. Required: What is the unit cost when establishing a long-run price for tour tickets?

For the current year, Babcock Ltd., forecast sales of 42,000 units and production of 40,000 units.Other budget information for the year included: The standard costs remained the same as in the previous year.Babcock Ltd.is considering various cost bases.The company management require a 15% return on an investment base of $2,500,000; and, wants this cost built into all cost base options.Required: a.Compute the cost-plus price per unit using direct costing. b.Compute the cost-plus price per unit using absorption costing. c.Compute the cost-plus price per unit using the full product cost.