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

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. -Under cost-plus pricing, what is the required selling price to achieve a 15% markup?

When prices are set in a competitive marketplace, product costs are the most important influence on pricing decisions.

Cost systems emphasize cost incurrence by recognizing and recording costs only when a resource is sacrificed or consumed.

Which of the following is true of alternative long-run pricing approaches?

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?

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

Answer the following question(s) using the information below. Rogers' Heaters is approached by Ms. Yukki, 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. Yukki wanted a long-term commitment for supplying this product, what price would most likely be quoted to her?

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. -What is the target cost if target profit is 25 percent of the competitor's selling price?

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. -What is the target operating income?

Use the information below to answer the following question(s). Action Mopeds manufactures mopeds. The following information pertains to the company's normal operations per month: -What is the unit cost when establishing a long-run price for mopeds?

In target costing, what are at least two techniques used to achieve target costing goals?

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.

Max and Marv are starting a new business venture and are in the process of evaluating their product lines. One new product, hand-made wooden tables, has incurred $30,000 in development costs. These costs are to be amortized over a three-year period, the expected product life cycle. The direct costs of each table averages $90. Other costs for making the tables are estimated at $100,000 per year. The current sales program for tables is expected to change every six months. At that time a new pattern will be put in place with $7,000 of setup costs. Each table requires 12 labour hours and 2 machine hours. Current annual sales are expected to be 2,000 units of each table at $140 each. Customer service expenses average $10 per table. Required: What is the life-cycle operating income?

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. 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). 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. -What is the target cost if operating income is 25% of sales?

Collusive pricing occurs when companies in an industry conspire in their pricing and output decisions to achieve a price above the competitive price.

Bridget, a college student, plans to operate a hot dog stand at the beach during the summer for three months. Her fixed costs for the booth, which include utilities, will be $2,600. Variable costs per hot dog will be $1.50 for materials and $0.40 for a franchise fee from the hot dog supplier. This year's sales are expected to be 20,000 units based upon the operation of the same booth the prior year. Bridget needs to earn $10,000 so that she can pay part of her college expenses for the coming academic year. Based on competitor's prices, her target price is $2.40 Required: Determine whether she can expect to earn the $10,000 at the target price.

Brady Lumber Company, a producer of oak lumber for furniture companies has an offer to supply a special load of lumber for an exporter. It will take three months to fill the order of 1,000,000 board metres. During the three months half of its production capacity will be utilized for the special order. The total fixed costs for the three months will be $6,000,000. Variable costs per 1,000 board metres will be $2,500. The marketing manager believes that half of the capacity taken up by the special order can be utilized with regular business which will generate income of $240,000. Required: Determine the minimum price that needs to be charged for the special order.

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. -Seneca Company has invested $1,000,000 in a plant to make gas pumps for service stations. The average long-run income desired from the plant is $150,000 annually. The annual cost base for each pump is $1,000. What should be the prospective selling price for each pump if the company uses a target return on investment as the markup base?

Pricing for one-time-only special orders is, typically,