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

Use the information below to answer the following question(s). Acorn Products currently sells small boats for $360.It has costs currently assigned to it of $280.A competitor is bringing a new small boat to market that will sell for $300.Management believes it must lower the price to $300 to compete in the market for small boats.Marketing believes that the new price will cause sales to increase by 10 percent,even with a new competitor in the market.Acorn's sales are currently 100,000 per year. -What is Acorn's target cost if the company wants to maintain its same income level,and marketing is correct?

Johnson Petroleum Company is considering pricing its 5,000 litre petroleum tanks using either variable manufacturing or full product costs as the base.The variable cost base provides a prospective price of $2,800 and the full cost base provides a prospective price of $2,850.The difference between the two prices is

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?

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

Life-cycle budgeting is necessary before a company can determine the product life cycle of a given product.

Use the information below to answer the following question(s). 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 target cost if target operating income is 25% of the new sales price?

What advice would you give a company to avoid the appearance of predatory pricing?

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?

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?

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?

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

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

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

Relevant pricing information for the short-run and long-run should be the same.

Predatory pricing is a type of price discrimination that

Which of the following best describes the cost-plus pricing approach?

Use the information below to answer the following question(s). Satellite Inc.is in the process of evaluating its new products.A new signal receiver has two production runs each year,each with $20,000 in setup costs.The new receiver incurred $60,000 in development costs and is expected to be produced for three years.The direct costs of producing the receivers are $80,000 per run of 5,000 receivers.Indirect manufacturing costs charged to each run are $90,000.Destination charges for each receiver average $2.00.Customer service expenses average $0.40 per receiver.The receivers are going to sell for $50 the first year and increase by $6 each year thereafter.Sales units equal production units each year. -What is the Satellite Inc.life cycle operating income?

Delgreco Products manufactures high-tech cell phones.Delgreco Products has a policy of adding a 30% markup to full costs and currently has excess capacity.The following information pertains to the company's normal operations per month: Delgreco 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 $15,000.No additional design,marketing,or distribution costs will be incurred. Required: a.What is the minimum acceptable bid per unit on this one-time-only special order? b.What is the full product cost?

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. Required: What is the unit cost when establishing a long-run price for ball games assuming all tickets are priced the same?

The life-cycle reporting process