Exam 12: Pricing Decisions and Cost Management

Answer the following questions using the information below: Thornton Company has invested $2,000,000 in a plant to make commercial juicer machines. The target operating income desired from the plant is $360,000 annually. The company plans annual sales of 7,000 juicer machines at a selling price of $400 each. -What is the markup percentage as a percentage of cost for Thornton Company?

Price discrimination is only illegal if the intent is to destroy competition.

Answer the following questions using the information below: Knowledge Transfer Associates is in the process of evaluating its new client services for the business systems consulting division. -What are the estimated life-cycle revenues?

Spending more on the design phase of a new product usually reduces subsequent product-related costs.

Collusive pricing occurs when:

Under the cost-plus approach to pricing products, all of the following are prospective cost bases EXCEPT:

Answer the following questions using the information below: 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: -Ferryman 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 $20,000. No additional design, marketing, or distribution costs will be incurred. What is the minimum acceptable bid per unit on this one-time-only special order?

Answer the following questions 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. -Action Toys has a new video game cassette for the upcoming holiday season. It is trying to determine the target cost for the game if the selling price per unit will be set at $60, the going price for video games, and the firm wants to earn a target operating income of 12% of sales. What will be the target cost per unit for the new game?

Answer the following questions using the information below: After conducting a market research study, Ed 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 $120. The annual target sales volume for interior doors is 20,000. Ed has target operating income of 20% of sales. -What is the target cost for each interior door?

Concerns about target costing include all the following EXCEPT:

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.

Value engineering can reduce all of the following EXCEPT:

Life-cycle budgeting is particularly important when nonproduction costs are significant.

Too high a price may:

Answer the following questions using the information below: Rogers' Heaters is approached by Ms. Sushi, 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: -Before accepting this one-time-only special order, Rogers' Heaters should consider the impact on:

An understanding of life-cycle costs can lead to:

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

Schlickau Company manufactures basketball backboards. The following information pertains to the company's normal operations per month: Required: a. For long-run pricing, what is the full-cost base per unit? b. Schlickau Company is approached by an overseas city to fulfill a one-time-only special order for 1,000 units. All cost relationships remain the same except for an additional one-time setup charge of $40,000. No additional design, marketing, or distribution costs will be incurred. What is the minimum acceptable bid per unit on this one-time-only special order?

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

Long-run pricing decisions: