Exam 12: Pricing Decisions and Cost Management

Answer the following questions using the information below: Oscar Corporation budgeted the following costs for the production of its one and only product for the next fiscal year: Oscar has an annual target operating income of $900,000. -The markup percentage for setting prices as a percentage of the variable cost of the product is:

In a one-time-only special order, variable manufacturing costs are irrelevant.

Customer life-cycle costs focus on total costs incurred by the customer from purchase to disposal.

Answer the following questions using the information below: Moises, Black, Elderberry and Associates are in the process of evaluating its new client services for the business consulting division. -What are estimated life-cycle revenues?

Companies that produce high quality products do NOT have to pay attention to the actions of their competitors.

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 for the first year?

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

Price dumping occurs when a domestic company is trying to get rid of out-of-style products at a substantially reduced price.

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 operating income?

Answer the following questions using the information below: After conducting a market research study, Harry 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 $23. 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?

Answer the following questions using the information below: Marcia 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. Marcia Manufacturing has a policy of adding a 20% markup to full costs and currently has excess capacity. The following per unit data apply for sales to regular customers: -For Marcia Manufacturing, what is the minimum acceptable price of this one-time-only special order?

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: -For long-run pricing of the coffee tables, what price will most likely be used by Berryman?

Prices are decreased when demand is weak and competition is strong and increased when demand is strong and competition is weak.

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 cost base of each juicer machine for Thornton Company?

Customers are sometimes willing to pay for nonvalue-added costs.

What factors may influence the level of markups?

________ focuses on reducing costs during the manufacturing stage.

What is the primary reason a firm would adopt target costing?

Life-cycle budgeting is particularly important when:

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