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Exam 28: Pricing Decisions

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Question 1

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The management of Musselman 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 9,000 units of the new product annually. The new product would require an investment of $1,305,000 and has a required return on investment of 10%. -The selling price would be closest to:

A) $28.71
B) $26.50
C) $22.00
D) $32.67

E) A) and B)
F) B) and D)

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Question 2

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Saulsberry Corporation manufactures numerous products,one of which is called Beta70.The company has provided the following data about this product: Required: a.What net operating income is the company earning now on its sales of Beta70? b.Management is considering increasing the price of Beta70 by 10%,from $60.00 to $66.00.The company's marketing managers estimate that this price hike would decrease unit sales by 15%,from 90,000 units to 76,500 units.Assuming that the total traceable fixed expense does not change,what net operating income will Beta70 earn at a price of $66.00 if this sales forecast is correct? c.Assuming that the total traceable fixed expense does not change,how many units of Beta70 would Saulsberry need to sell at a price of $66.00 to earn the same net operating income that it currently earns at a price of $60.00? (Round your answer up to the nearest whole number.)

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b.The profit at the price of $66.00...

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Question 3

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Timdat 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 $30.The company requires a return on investment of 25% on all new products.The plan is to produce and sell 40,000 watches each year.This would require a $600,000 investment.The target cost per watch would be:

Wyler Logistic Solutions Corporation has developed a new forklift-model IM-40-that has been designed to outperform a competitor's best-selling forklift.The competitor's product has a useful life of 40,000 hours of service,has operating costs that average $1.30 per hour,and sells for $139,000.In contrast,model IM-40 has a useful life of 120,000 hours of service and its operating cost is $0.80 per hour.Wyler has not yet established a selling price for model IM-40. Required: From a value-based pricing standpoint what is the differentiation value offered by model IM-40 relative to the competitor's offering for each 120,000 hours of service?

Inscho Corporation manufactures numerous products,one of which is called Delta10.The company has provided the following data about this product: Assume that the total traceable fixed expense does not change.How many units of product Delta10 would Inscho need to sell at a price of $90.95 to earn the same net operating income that it currently earns at a price of $85.00? (Round your answer up to the nearest whole number.)

Rapson Pure Water Solutions Corporation has developed a new water purification system-model EN-78-that has been designed to outperform a competitor's best-selling water purification system.Model EN-78 has a useful life of 120,000 hours of service and its operating cost is $0.70 per hour.In contrast,the competitor's product has a useful life of 40,000 hours of service and has operating costs that average $1.20 per hour.The competitor's water purification system sells for $149,000.Rapson has not yet established a selling price for model EN-78. From a value-based pricing standpoint what range of possible prices should Rapson consider when setting a price for EN-78?

Powel Corporation manufactures numerous products,one of which is called Gamma54.The company has provided the following data about this product: Required: a.What net operating income is the company earning now on its sales of Gamma54? b.Management is considering increasing the price of Gamma54 by 10%,from $16.00 to $17.60.The company's marketing managers estimate that this price hike would decrease unit sales by 15%,from 180,000 units to 153,000 units.Assuming that the total traceable fixed expense does not change,what net operating income will Gamma54 earn at a price of $17.60 if this sales forecast is correct? c.Assuming that the total traceable fixed expense does not change,if Powel increases the price of Gamma54 to $17.60,what percentage change in unit sales would provide the same net operating income that it currently earns at a price of $16.00? (Round your answer to the nearest one-tenth of a percent.)

Cabebe Corporation manufactures numerous products,one of which is called Omicron55.The company has provided the following data about this product: Required: a.Management is considering decreasing the price of Omicron55 by 4%,from $54.00 to $51.84.The company's marketing managers estimate that this price reduction would increase unit sales by 10%,from 140,000 units to 154,000 units.Assuming that the total traceable fixed expense does not change,what net operating income will Omicron55 earn at a price of $51.84 if this sales forecast is correct? b.Assuming that the total traceable fixed expense does not change,if Cabebe decreases the price of Omicron55 to $51.84,what percentage change in unit sales would provide the same net operating income that it currently earns at a price of $54.00? (Round your answer to the nearest one-tenth of a percent.)

Kinsley Corporation manufactures numerous products, one of which is called Kappa03. The company has provided the following data about this product: -Assume that the total traceable fixed expense does not change.If Kinsley increases the price of Kappa03 to $38.52,what percentage change in unit sales would provide the same net operating income as is currently being earned at a price of $36.00? (Your answer should be rounded to the nearest 0.1%.)

Olivier Industries Inc.has developed a new instrument,model AG-06,that is designed to offer superior performance to a comparable instrument sold by Olivier's main competitor.The competing instrument sells for $74,000 and needs to be replaced after 1,000 hours of use.It also requires $7,000 of preventive maintenance during its useful life.Model AG-06's performance capabilities are similar to the competing product with two important exceptions-it needs to be replaced only after 4,000 hours of use and it requires $14,000 of preventive maintenance during its useful life. From a value-based pricing standpoint what is the differentiation value offered by model AG-06 relative to the competitor's offering for each 4,000 hours of usage?

Chruch Corporation manufactures numerous products, one of which is called Tau42. The company has provided the following data about this product: -From a value-based pricing standpoint what is the reference value that Blauvelt should consider when pricing model GZ-29?

Weitman Corporation manufactures numerous products, one of which is called Epsilon50. The company has provided the following data about this product: -What is the net operating income for product Epsilon50 at the current price?

The markup on absorption cost is closest to:

Gildersleeve Corporation manufactures a product that has the following costs: The company uses the absorption costing approach to cost-plus pricing as described in the text.The pricing calculations are based on budgeted production and sales of 30,000 units per year.The company has invested $600,000 in this product and expects a return on investment of 15%. Required: a.Compute the markup on absorption cost. b.Compute the selling price of the product using the absorption costing approach.

"Trueba Electronics Corporation" has developed a new testing instrument—model JJ-92—that has been designed to outperform a competitor’s best-selling instrument. Model JJ-92 has a useful life of 100,000 hours of service and its operating cost is $0.50 per hour. In contrast, the competitor’s product has a useful life of 20,000 hours of service and has operating costs that average $0.80 per hour. The competitor’s instrument sells for $109,000. Trueba has not yet established a selling price for model JJ-92. Required: From a value-based pricing standpoint: a. What is the reference value that "Trueba " should consider when pricing model JJ-92? b. What is the differentiation value offered by model JJ-92 relative to the competitor’s offering for each 100,000 hours of service? c. What is model JJ-92’s economic value to the customer over its 100,000 hour useful life? d. What range of possible prices should "Trueba" consider when setting a price for model JJ-92?

Hennig Plastics Equipment Corporation has developed a new injection mold-model XP-30-that has been designed to outperform a competitor's best-selling injection mold.Model XP-30 has a useful life of 60,000 hours of service and its operating cost is $1.20 per hour.In contrast,the competitor's product has a useful life of 30,000 hours of service and has operating costs that average $2.10 per hour.The competitor's injection mold sells for $149,000.Hennig has not yet established a selling price for model XP-30. From a value-based pricing standpoint what is XP-30's economic value to the customer over its 60,000 hour useful life?

Variable selling and administrative costs are excluded from the cost base used to set a selling price under the absorption approach to cost-plus pricing described in the text.

Ecob Corporation uses the absorption costing approach to cost-plus pricing as described in the text to set prices for its products. Based on budgeted sales of 19,000 units next year, the unit product cost of a particular product is $16.00. The company's selling and administrative expenses for this product are budgeted to be $250,800 in total for the year. The company has invested $440,000 in this product and expects a return on investment of 14%. -The markup on absorption cost for this product would be closest to:

Boggess Corporation manufactures numerous products, one of which is called Alpha41. The company has provided the following data about this product: -Assume that the total traceable fixed expense does not change.How many units of product Alpha41 would Boggess need to sell at a price of $94.60 to earn the same net operating income that it currently earns at a price of $86.00? (Round your answer up to the nearest whole number.)

"Cost-plus" pricing means that all costs--manufacturing,selling,and administrative--are included in the cost base from which the target selling price is derived.