Exam 20: Pricing and Product Mix Decisions

A firm employs average assets of $600 000 and calculates its mark-up on full cost based on a desired return on investment of 20 per cent.Expected production is 10 000 units,and the full cost per unit is $80.If the firm changed its pricing policy and determined in future to calculate its mark-up based on absorption cost,which of the following statements (if any)is correct about the firm's new mark-up percentage?

Which of the following statements regarding the profit maximising model is/are true? i.The profit maximising model is limited because a firm's demand and marginal revenue are difficult to discern ii.The marginal revenue and marginal cost model is valid for all forms of market. iii.Costing systems are not usually designed to measure the marginal changes in cost incurred as production and sales increase unit by unit.

Waverly Ltd produces commercial grade washing machines.The Karewasher is currently selling for $2000 per unit.The company wants to introduce a new model,Supawasher,which uses less water per load.The comparative life-time costs of the two models are as follow: The economic value of a Supawasher is: (ignore time value of money)

One of the consequences of traditional methods of overhead allocation combined with cost-based pricing is that:

Gossip Goose (GG)and Tabloid Chicks (TC)are two magazines renowned for their reporting of unverifiable entertainment news.Steven Hassaloff is the marketing director of GG,and Jasmine Trotter is the advertising manager of TC.Steven and Jasmine met at the local pub one day and decided to both sell their magazines at the same lower-than-average price ($3),in order to increase their market shares and lower the level of competitive pressure in the market.Steven and Jasmine's agreement is an example of:

If the target profit is $60 000 for an annual volume of 480 units,the total annual fixed costs are $168 000 and the total variable cost per unit is $450,then what is the mark-up percentage on total variable cost?

The Houston Company manufactures office equipment.They are ready to introduce a new line of desktop copiers.The following data concerns the copiers: If the company uses cost-plus pricing based on absorption cost,what price must the company charge when the mark-up percentage is 120 per cent?

The Houston Company manufactures office equipment.They are ready to introduce a new line of desktop copiers.The following data concerns the copiers: If the company uses cost-plus pricing based on variable manufacturing cost,what price must the company charge when the mark-up percentage is 200 per cent?

Which of the following statements about competitive bidding is/are true? i.The higher the price that is bid,the greater the profit,if the firm gets the contract ii.Bidding a higher price increases the probability of obtaining the contract. iii.A company bidding low enough to ensure the acceptance of a contract may have bid too low to make an acceptable profit on the job.

A firm has excess capacity,and has received an order for 50 000 units at $20 each over and above its normal production activity of 600 000 units.To meet this order,new equipment at a cost of $200 000 would have to be bought,and this equipment would have to be scrapped after the order had been filled.The firm currently sells for $50 per unit,has variable costs of $15.80,and fixed costs of $600 000.Assuming the firm had been aggressively seeking the business of the customer who requested the special order,what would be the minimum price that the firm would be prepared to charge?

Gossip Goose (GG)is a magazine renowned for their reporting of unverifiable entertainment news.Dee Hassaloff is the marketing director of GG.Recently,Hassaloff decided to lower the price of GG to $2 in order to drive out some of the smaller competitors.Hassaloff's behaviour is best described as an example of:

Which of the following statements about product-cost distortions and product pricing is/are true? i.Under conventional volume-based product costing systems,high volume and relatively simple products are often overcosted while low volume and complex products are undercosted ii.The use of a conventional volume-based product costing system may result in significant cost distortions among product lines. iii.Overpricing high-volume products can lead to pricing errors.

Which of the following is not prohibited by the ACCC?

Which of the following statements regarding cost-plus pricing is/are true?

The managing director of H Limited is setting the production plan for the next financial year.H has a shortage of skilled labour and wishes to maximise the profitability of the company.H manufactures three products X,Y and Z.There is 200 000 hours of skilled labour available in the year at a cost of $10 per hour.The following information relates to each product.Assuming all relevant information is provided,in what order should H manufacture its products to maximise profit in the current year?