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Exam 12: Pricing Products and Services

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Question 21

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The formula for target cost is: Target cost = Anticipated selling price + Desired profit

A) True
B) False

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Question 22

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Erdahl Corporation's management believes that every 7% increase in the selling price of one of the company's products leads to a 11% decrease in the product's total unit sales.The product's price elasticity of demand as defined in the text is closest to:

A) -1.72
B) -1.84
C) -1.05
D) -2.05

E) A) and C)
F) A) and B)

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Question 23

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Finn Corporation's management believes that every 5% increase in the selling price of one of the company's products results in a 6% decrease in the product's total unit sales.The variable production cost of this product is $38.30 per unit and the variable selling and administrative cost is $1.00 per unit. The product's profit-maximizing price according to the formula in the text is closest to:

Trepan Corporation is contemplating the introduction of a new product.The company has gathered the following information concerning the product: The company uses the absorption costing approach to cost-plus pricing as described in the text. Required: a.Compute the markup on absorption cost. b.Compute the selling price. c.If the price computed in "b" above is charged, and costs turn out as projected, can the company be assured that no loss will be sustained on the new product? Explain.

Hepler Corporation would like to use target costing for a new product that is under consideration.At a selling price of $76 per unit, management projects sales of 50, 000 units.The new product would require an investment of $400, 000.The desired return on investment is 12%. Required: Determine the target cost per unit for the new product.

Dickson Corporation makes a product with the following costs: The company uses the absorption costing approach to cost-plus pricing described in the text.The pricing calculations are based on budgeted production and sales of 60, 000 units per year. The company has invested $320, 000 in this product and expects a return on investment of 15%. Direct labor is a variable cost in this company. If every 10% increase in price leads to a 14% decrease in quantity sold, the profit-maximizing price is closest to:

Holding all other things constant, an increase in the company's required return on investment (ROI) will affect:

Dickson Corporation makes a product with the following costs: The company uses the absorption costing approach to cost-plus pricing described in the text.The pricing calculations are based on budgeted production and sales of 60, 000 units per year. The company has invested $320, 000 in this product and expects a return on investment of 15%. Direct labor is a variable cost in this company. The selling price based on the absorption costing approach is closest to:

Joeston Corporation makes a product with the following costs: The company uses the absorption costing approach to cost-plus pricing described in the text.The pricing calculations are based on budgeted production and sales of 14, 000 units per year.The company has invested $540, 000 in this product and expects a return on investment of 10%.The markup on absorption cost would be closest to:

Okamoto Corporation's management believes that every 7% increase in the selling price of one of the company's products would lead to a 10% decrease in the product's total unit sales.The variable cost per unit of this product is $69.20. Required: a.Compute the product's price elasticity of demand as defined in the text to two decimal places. b.Compute the product's profit-maximizing price according to the formula in the text.

Minden Corporation estimates that the following costs and activity would be associated with the manufacture and sale of product A: If the company uses the absorption costing approach to cost-plus pricing described in the text and desires a 25% rate of return on investment (ROI) , the required markup on absorption cost for Product A would be closest to:

In target costing, the selling price is the starting point and the cost follows from the selling price.

A new product, an automated crepe maker, is being introduced at Miyake Corporation.At a selling price of $73 per unit, management projects sales of 20, 000 units.Launching the crepe maker as a new product would require an investment of $400, 000.The desired return on investment is 17%.The target cost per crepe maker is closest to:

Samples Corporation would like to use target costing for a new product it is considering introducing.At a selling price of $21 per unit, management projects sales of 20, 000 units.The new product would require an investment of $400, 000.The desired return on investment is 12%. The desired profit according to the target costing calculations is:

Alley Corporation's vice president in charge of marketing believes that every 8% increase in the selling price of one of the company's products would lead to a 13% decrease in the product's total unit sales.The product's absorption costing unit product cost is $17.40.The variable production cost is $4.10 per unit and the variable selling and administrative cost is $4.80 per unit. The product's profit-maximizing price according to the formula in the text is closest to:

Timax Corporation, a manufacturer of moderate-priced time pieces, would like to introduce a new electronic watch.To compete effectively, the watch could not be priced at more than $50.The company requires a return on investment of 25% on all new products.The plan is to produce and sell 20, 000 watches each year.This would require a $500, 000 investment.The target cost per watch would be:

Under the absorption approach to costs-plus pricing described in the text, selling and administrative costs are included in the cost base when computing a selling price.

The management of Kizer Corporation would like to set the selling price on a new product using the absorption costing approach to cost-plus pricing.The company's accounting department has supplied the following estimates for the new product: Management plans to produce and sell 8, 000 units of the new product annually.The new product would require an investment of $1, 580, 000 and has a required return on investment of 10%. The absorption costing unit product cost is:

Green Hornet Corporation is contemplating the introduction of a new product.The company has gathered the following information concerning the product: The company uses the absorption costing approach to cost-plus pricing as described in the text. Required: a.Compute the markup on absorption cost. b.Compute the selling price.

The management of Rispoli Corporation is considering introducing a new product-a compact lawn blower.At a selling price of $38 per unit, management projects sales of 10, 000 units.The lawn blower would require an investment of $700, 000.The desired return on investment is 11%. The target cost per lawn blower is closest to: