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

Knowledge of long-run product costs helps guide decisions about entering or remaining in the market for a given product when in a highly competitive price-setting situation.

The controller and sales manager are at odds over the pricing of a new product.What major influences should be considered in pricing the new product? Discuss each briefly.

Most of a product's life-cycle costs are locked in by decisions made during the ________ business function of the value chain.

Steven Corporation manufactures fishing poles that have a price of $21.00.It has costs of $16.32.A competitor is introducing a new fishing pole that will sell for $18.00.Management believes it must lower the price to $18.00 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 $18.00 is the new price and costs remain the same? c.What is the target cost per unit if the selling price is reduced to $18.00 and the company wants to maintain its same income level?

The strategy in which companies systematically evaluate all aspects of the value-chain business functions with the objective of reducing costs to meet customers' needs is referred to as

Answer the following question(s)using the information below.Gerry's Generator Supply is approached by Mr.Gladstone, a new customer, to fulfill a large one-time-only special order for a product similar to one offered to regular customers.Gerry's Generator Supply has excess capacity.The following per unit data apply for sales to regular customers: -If Mr.Gladstone wanted a long-term commitment for supplying this product, what price would most likely be quoted to him?

Collusive pricing occurs when

Use the information below to answer the following question(s).Acorn Products currently sells small boats for $360.It has costs currently assigned to it of $280.A competitor is bringing a new small boat to market that will sell for $300.Management believes it must lower the price to $300 to compete in the market for small boats.Marketing believes that the new price will cause sales to increase by 10 percent, even with a new competitor in the market.Acorn's sales are currently 100,000 per year. -What is the target cost if target profit is 25 percent of the competitor's selling price?

Under section 50(1)of the Competition Act companies cannot engage in price discrimination between two customers with the intent to reduce or obstruct competition among customers.Provide the four key elements of the price discrimination laws in Canada.

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 target cost if the company wants to maintain its same income level, and marketing is correct (rounded to the nearest cent)?

To minimize the chances of violating pricing laws, a company should

Use the information below to answer the following question(s).Acorn Products currently sells small boats for $360.It has costs currently assigned to it of $280.A competitor is bringing a new small boat to market that will sell for $300.Management believes it must lower the price to $300 to compete in the market for small boats.Marketing believes that the new price will cause sales to increase by 10 percent, even with a new competitor in the market.Acorn's sales are currently 100,000 per year. -What is Acorn's target cost if the company wants to maintain its same income level, and marketing is correct?

Relevant costs for pricing decisions include manufacturing costs, but not costs from other value-chain functions.

In a graph with cumulative costs per unit as the Y-axis, with two curves, one being the cumulative costs locked-in, and a second curve showing the cumulative costs per unit incurred in different business functions, which of the following is TRUE?

Taylor Stadium is evaluating ticket prices for its baseball games.Studies have shown that Monday and Tuesday ball games average less than half the fans of games on other days.The following information pertains to the stadium's normal operations per season. The stadium is open for 5 hours on each day a game is played.The stadium is available for some type of use 300 days a year.All employees work by the hour except for the administrators.In addition, only one game is played per day and each fan would have only one ticket per game.Required: What is the unit cost when establishing a long-run price for ball games assuming all tickets are priced the same?

Use the information below to answer the following question(s).Patton Company budgeted the following costs for the production of its one and only product, bells, for the next fiscal year: Patton has a target profit of $750,000. -The target profit percentage for setting prices as a percentage of total variable costs would be

Profit margins are often set to earn a reasonable return on investment for short-term pricing decisions, but not long-term pricing decisions.

Price discrimination to customers is the practice of

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

A business that engages in predatory pricing violates Canadian law.