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

Do-It Company manufactures sinker molds for fishing.A sinker mold has a price of $7.00, and costs currently assigned to it of $5.44.A competitor is introducing a new sinker mold that will sell for $6.00.Management believes it must lower the price to $6.00 in order to compete in the highly cost-conscious sinker mold market.Marketing believes that the new price will maintain the current sales level.Do-It Company's sales are currently 200,000 molds per year.Required: a.What is the target cost for the new price if target profit is 20 percent of sales? b.What is the target selling price if costs cannot be reduced and target profit is changed to 15 percent of sales? c.What is the change in operating income for the year if $6.00 is the new price and costs remain the same? d.What is the target cost per unit if the selling price is reduced to $6.00 and the company wants to maintain its same income level?

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 target cost if operating income is 25% of sales?

Frost Inc.has budgeted sales of $150,000 with the following budgeted costs: Factory overhead: Selling and administrative expenses: Compute the target profit percentage for setting prices as a percentage of: a.Total costs b.Total variable costs c.Variable manufacturing costs d.Total manufacturing costs

Decisions on the price to bid on a one-time-only special order should include

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 variable costs would be

Explain the difference between locked in costs and costs incurred.Which of these types of costs does a traditional accounting system emphasize? At which stage of the value chain are most costs locked-in? At which stage of the value chain are most costs incurred? What implication does this have for good cost management?

Stone and Bicker 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: 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?

Reuter Avionics currently sells radios for $1,800.It has costs of $1,400.A competitor is bringing a new radio to market that will sell for $1,600.Management believes it must lower the price to $1,600 to compete in the market for radios.Marketing believes that the new price will cause sales to increase by 10%, even with a new competitor in the market.Reuter's sales are currently 1,000 radios 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?

Robert's Medical Equipment Company manufactures hospital beds.Its' most popular model, Deluxe, sells for $5,000.It has variable costs of $2,800 and fixed costs of $1,000 per unit, base on an average production run of 5,000 units.It normally has four production runs a year, with $400,000 in setup costs each time.Plant capacity can handle up to six runs a year for a total of 30,000 beds.A competitor is introducing a new hospital bed similar to Deluxe that will sell for $4,000.Management believes it must lower the price to compete.Marketing believes that the new price will increase sales by 25% a year.The plant manager thinks that production can increase by 25% with the same level of fixed costs.The company currently sells all the Deluxe beds it can produce.Required: a.What is the annual operating income from Deluxe at the current price of $5,000 and normal production? b.What is the annual operating income from Deluxe if the price is reduced to $4,000 and sales in units increase by 25%? c.What is the target cost per unit for the new price if target operating income is 20% of sales?

Customer life-cycle costs focus on the total costs to a customer of acquiring and using a product or service until it is replaced.

The three major influences on pricing decisions are

Which of the following is TRUE concerning value-engineering?

The current selling price for the Pluto, a mid-sized car, is $19,000.For next year it is anticipated that Pluto will have a $12,000 cost base.What is its prospective selling price, using cost-plus pricing, if the company desires a markup component of 15 percent?

Answer the following question(s)using the information below.After conducting a market research study, Schultz Manufacturing decided to produce a new interior door to complement its exterior door line.It is estimated that the new interior door can be sold at a target price of $60.The annual target sales volume for interior doors is 20,000.Schultz has target operating income of 20% of sales. -What are target sales revenues?

The target pricing approach is easier when

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

Answer the following question(s)using the information below.After conducting a market research study, Schultz Manufacturing decided to produce a new interior door to complement its exterior door line.It is estimated that the new interior door can be sold at a target price of $60.The annual target sales volume for interior doors is 20,000.Schultz has target operating income of 20% of sales. -What is the target cost?

Warthog Avionics currently sells radios for $3,600.It has costs of $2,800.A competitor is bringing a new radio to market that will sell for $3,200.Management believes it must lower the price to $3,200 to compete in the market for radios.Marketing believes that the new price will cause sales to increase by 10%, even with a new competitor in the market.Warthog's sales are currently 1,000 radios 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?

An airline charges business and pleasure travellers different amounts.This is an example of

Peak-load pricing focuses on direct costs when setting prices for peak and nonpeak periods.