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

In a graph with cumulative costs per unit as the Y-axis,with two curves,one being the cumulative costs locked-in,and a second curve showing the cumulative costs per unit incurred in different business functions,which of the following is TRUE?

Special orders increase income if the revenue from the order exceeds the incremental variable and fixed costs incurred to fill the order.

A price-bidding decision for a one-time-only special order includes an analysis of

Answer the following question(s)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. -What is the target cost if operating income is 25% of sales?

CIMA Engineering uses a manufacturing costing system with one direct cost category (direct materials)and three indirect cost categories: a.Setup,production order,and materials-handling costs that vary with the number of batches. b.Manufacturing operations costs that vary with machine-hours. c.Costs of engineering changes that vary with the number of engineering changes made. In response to competitive pressures at the end of 2016,Medical Instruments used value-engineering techniques to reduce manufacturing costs.Actual information for 2015 and 2016 is: The management of CIMA Engineering wants to evaluate whether value engineering has succeeded in reducing the target manufacturing cost per unit of one of its flow controllers by 10%.Actual results for 2015 and 2016 for the flow controller are: Required: a.Calculate the manufacturing cost for both years. b.Did the company achieve the target manufacturing cost per unit in 2016? Explain.

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.

Dumping occurs when a company is trying to get rid of out-of-style products and substantially reduces their prices.

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

Answer the following question(s)using the information below. After conducting a market research study,Potter 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 $46.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 question(s)using the information below. After conducting a market research study,Potter 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 $46.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?

Ski Vallet provides materials that let people teach themselves how to snow ski.It has six different skill-level programs.Each one includes visual and audio learning aids along with a workbook that can be submitted to the company for grading and evaluation purposes,if the person so desires. The accounting system of Ski Vallet is very traditional in its reporting functions with the calendar year being the company's fiscal year.It does include an abundance of information that can be used for various reporting purposes. The company has found that any new idea soon runs its course with an effective life of about three years.Therefore,the company is always in the development stage of some new program.Program development requires experts in the area to provide the know-how of the item being developed and a development team that puts together the video,audio,and workbook materials.The actual costs of reproducing the packages is relatively cheap when compared to the development costs. Required: How might product-life-cycle reporting aid the company in improving its overall operations?

The current selling price for the Pluto,a mid-sized car,is $19,000.For next year it is anticipated that Pluto will have a $12,000 cost base.What is its prospective selling price,using cost-plus pricing,if the company desires a markup component of 15 percent?

Target pricing includes: (1)developing a needed product, (2)choosing a target price, (3)deriving a target cost per unit,and (4)performing cost analysis.

Use the information below to answer the following question(s). 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?

In less competitive markets where products can be differentiated by their features the pricing decision depends on the pricing strategies of competitors.

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?

List three advantages for including unitized fixed costs for pricing decisions.

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 profit percentage as a percentage of total manufacturing costs?

Customer life-cycle costs

Life-cycle costing,from an environmental sustainability perspective,considers the end of a products life-cycle to include disposal and recycling costs.