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

Value engineering is a time-and-motion system that can result in: improvements in product designs, changes in material specifications, or modifications in process methods.

A price-bidding decision for a one-time-only special order includes an analysis of

Answer the following question(s)using the information below.Welch Manufacturing is approached by a European customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers.Welch Manufacturing has a policy of adding a 10% markup to full costs and currently has excess capacity.The following per unit data apply for sales to regular customers: -If the European customer wanted a long-term commitment for supplying this product, what price would most likely be quoted?

A product's markup percentage would need to cover fixed manufacturing costs if

Use the information below to answer the following question(s).Satellite Inc.is in the process of evaluating its new products.A new signal receiver has two production runs each year, each with $20,000 in setup costs.The new receiver incurred $60,000 in development costs and is expected to be produced for three years.The direct costs of producing the receivers are $80,000 per run of 5,000 receivers.Indirect manufacturing costs charged to each run are $90,000.Destination charges for each receiver average $2.00.Customer service expenses average $0.40 per receiver.The receivers are going to sell for $50 the first year and increase by $6 each year thereafter.Sales units equal production units each year. -What is the Satellite Inc.life cycle operating income?

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. -If total invested capital is $1,000,000, what is the company's target rate of return on investment?

Explain the differences between short-run pricing decisions and long-run pricing decisions.

When are a product's direct materials cost most likely to be locked in?

Answer the following question(s)using the information below.Frank's Computer Monitors Inc..currently sells 17" monitors for $270.It has costs of $210.A competitor is bringing a new 17" monitor to market that will sell for $225.Management believes it must lower the price to $225 to compete in the market for 17" monitors.Marketing believes that the new price will cause sales to increase by 10%, even with a new competitor in the market.Frank's sales are currently 10,000 monitors per year. -What is the change in operating income if marketing is correct and only the sales price is changed?

Managers have little discretion in setting prices in market situations which are not competitive.

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. -The target profit percentage for setting prices as a percentage of total costs would be

Johnson Petroleum Company is considering pricing its 5,000 litre petroleum tanks using either variable manufacturing or full product costs as the base.The variable cost base provides a prospective price of $2,800 and the full cost base provides a prospective price of $2,850.The difference between the two prices is

Delgreco Products manufactures high-tech cell phones.Delgreco Products has a policy of adding a 30% markup to full costs and currently has excess capacity.The following information pertains to the company's normal operations per month: Delgreco Products is approached by an overseas customer to fulfill a one-time-only special order for 1,000 units.All cost relationships remain the same except for a one-time setup charge of $15,000.No additional design, marketing, or distribution costs will be incurred.Required: a.What is the minimum acceptable bid per unit on this one-time-only special order? b.What is the full product cost?

Life-cycle budgeting is necessary before a company can determine the product life cycle of a given product.

Answer the following question(s)using the information below.Sheltar's TV currently sells small televisions for $180.It has costs of $140.A competitor is bringing a new small television to market that will sell for $150.Management believes it must lower the price to $150 to compete in the market for small televisions.Marketing believes that the new price will cause sales to increase by 10%, even with a new competitor in the market.Sheltar's sales are currently 100,000 televisions per year. -What is the change in operating income if marketing is correct and only the sales price is changed?

Answer the following question(s)using the information below.Rogers' Heaters is approached by Ms.Yukki, a new customer, to fulfill a large one-time-only special order for a product similar to one offered to regular customers.Rogers' Heaters has excess capacity.The following per unit data apply for sales to regular customers: -For Rogers' Heaters, what is the minimum acceptable price of this one-time-only special order?

App World Inc.develops apps for sporting enthusiasts.They have decided to create a new app for golfers that they are calling Slice.The total life cycle of Slice is expected to be three years, with the design phase taking the first year.Following are the estimated costs for the three years: The management team is considering two pricing strategies: Required: Which pricing strategy is more profitable over the products life cycle?

Steven Corporation manufactures fishing poles that have a price of $42.00.It has costs of $32.64 A competitor is introducing a new fishing pole that will sell for $36.00.Management believes it must lower the price to $36.00 to compete in the highly cost-conscious fishing pole market.Marketing believes that the new price will maintain the current sales level.Steven Corporation's sales are currently 200,000 poles per year.Required: a.What is the target cost for the new price if target operating income is 20% of sales? b.What is the change in operating income for the year if $36.00 is the new price and costs remain the same? c.What is the target cost per unit if the selling price is reduced to $36.00 and the company wants to maintain its same income level?

Answer the following question(s)using the information below.After conducting a market research study, Potter Products decided to produce an electric coffee pot to complement its line of kitchen products.It is estimated that the new coffee pot can be sold at a target price of $46.The annual target sales volume for the coffee pot is 300,000.Potter has target operating income of 18% of sales. -What is the target cost for each coffee pot?

Use the information below to answer the following question(s).Block Island TV currently sells large televisions for $360.It has costs of $280.A competitor is bringing a new large television to market that will sell for $300.Management believes it must lower the price to $300 to compete in the market for large televisions.Marketing believes that the new price will cause sales to increase by 10%, even with a new competitor in the market.Block Island TV sales are currently 100,000 televisions per year. -What is the target cost if target operating income is 25% of the new sales price?