Exam 12: Pricing Decisions and Cost Management

Answer the following questions using the information below: Timothy Company has invested $1,000,000 in a plant to make vending machines. The target operating income desired from the plant is $150,000 annually. The company plans annual sales of 1,500 vending machines at a selling price of $1,000 each. -What is the markup percentage as a percentage of cost for Timothy Company?

Advantages of using the full cost of the product as the cost base include all of the following EXCEPT that:

Answer the following questions using the information below: 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 change in operating income if marketing is correct and only the sales price is changed?

Value-added costs:

Locked-in costs have already been incurred.

Costs are a major factor:

Answer the following questions using the information below: Caruso Cool manufactures single room sized air conditioners. The cost accounting system estimates manufacturing costs to be $190 per air conditioner, consisting of 75% variable costs and 25% fixed costs. The company has surplus capacity available. It is Caruso Cool's policy to add a 30% markup to full costs. -A medium sized motel chain is currently expanding and has decided to create more rooms and air condition all of its rooms, which are currently not air conditioned. Caruso Cool is invited to submit a bid to the motel chain. What per unit price will Caruso Cool MOST likely bid for this special order of 50 units?

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 is the estimated life-cycle operating income for both years combined?

The Maize Eagles are evaluating ticket prices for its basketball games. Studies show that Friday and Saturday night games average more than twice 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 operating hours on each day a game is played. All employees work by the hour except for the administrators. A maximum of one game is played per day and each fan has only one ticket per game. The stadium authority wants to charge more for games on Friday and Saturday. What is the minimum price that should be charged for peak attendance nights?

All of the following are true regarding target costing EXCEPT:

The target rate of return on investment is another way of referring to the markup percentage.

________ starts with estimated product costs and next adds desired operating income.

To design costs out of products is a goal of:

In markets with little or no competition, the key factor affecting price is the customers' willingness to pay, not costs or competitors.

In a noncompetitive environment, the key factor affecting pricing decisions is the:

Claudia Geer, controller, discusses the pricing of a new product with the sales manager, James Nolan. What major influences must Claudia and James consider in pricing the new product? Discuss each briefly.

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 are the target sales revenues?

The product life cycle spans the time from initial R&D on a product to when customer service and support is no longer offered for that product.

In cost-plus pricing, the markup component:

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: -If Ms. Sushi wanted a long-term commitment for supplying this product, what price would most likely be quoted to her?