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Exam 28: Pricing Decisions

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Question 51

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Boggess Corporation manufactures numerous products, one of which is called Alpha41. The company has provided the following data about this product: -Management is considering increasing the price of Alpha41 by 10%,from $86.00 to $94.60.The company's marketing managers estimate that this price hike would decrease unit sales by 20%,from 120,000 units to 96,000 units.Assuming that the total traceable fixed expense does not change,what net operating income will product Alpha41 earn at a price of $94.60 if this sales forecast is correct?

A) $459,600
B) $4,512,000
C) $3,609,600
D) $1,362,000

E) B) and D)
F) B) and C)

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Question 52

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After introducing the product,the company finds that it has excess capacity.A foreign dealer has offered to purchase 5,000 units of the product at a special price of $21 per unit.This sale would not disturb regular business.If the special price is accepted on the 5,000 units,the effect on total net income for the year should be:

A) $45,000 increase
B) $30,000 increase
C) $5,000 increase
D) $26,250 decrease

E) A) and D)
F) None of the above

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Question 53

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Wenner Corporation would like to use target costing for a new product it is considering introducing. At a selling price of $44 per unit, management projects sales of 10,000 units. The new product would require an investment of $900,000. The desired return on investment is 10%. -The target cost per unit is closest to:

Generally speaking,managers should set higher prices when demand is elastic and lower prices when demand is inelastic.

Thoen Heavy Machinery Corporation has developed a new drill press-model OU-84-that has been designed to outperform a competitor's best-selling drill press.The competitor's product has a useful life of 30,000 hours of service,has operating costs that average $1.60 per hour,and sells for $189,000.In contrast,model OU-84 has a useful life of 120,000 hours of service and its operating cost is $1.00 per hour.Thoen has not yet established a selling price for model OU-84. Required: From a value-based pricing standpoint what range of possible prices should Thoen consider when setting a price for model OU-84?

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

Perwin Corporation estimates that an investment of $800,000 would be needed to produce and sell 50,000 units of Product B each year.At this level of activity,the unit product cost would be $50.Selling and administrative expenses would total $400,000 each year.The company uses the absorption costing approach to cost-plus pricing described in the text.If a 20% rate of return on investment is desired,then the required markup for Product B would be closest to:

Kopec Corporation manufactures numerous products,one of which is called Delta42.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 Delta42 would Kopec need to sell at a price of $60.50 to earn the same net operating income that it currently earns at a price of $55.00? (Round your answer up to the nearest whole number.)

Weitman Corporation manufactures numerous products, one of which is called Epsilon50. The company has provided the following data about this product: -Management is considering increasing the price of Epsilon50 by 9%,from $29.00 to $31.61.The company's marketing managers estimate that this price hike would decrease unit sales by 15%,from 130,000 units to 110,500 units.Assuming that the total traceable fixed expense does not change,what net operating income will product Epsilon50 earn at a price of $31.61 if this sales forecast is correct?

Pascal Corporation manufactures numerous products, one of which is called Gamma66. The company has provided the following data about this product: -Management is considering decreasing the price of Gamma66 by 4%,from $51.00 to $48.96.The company's marketing managers estimate that this price reduction would increase unit sales by 10%,from 100,000 units to 110,000 units.Assuming that the total traceable fixed expense does not change,what net operating income will product Gamma66 earn at a price of $48.96 if this sales forecast is correct?

Reppond Corporation manufactures numerous products,one of which is called Gamma38.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 Gamma38 would Reppond need to sell at a price of $94.05 to earn the same net operating income that it currently earns at a price of $99.00? (Round your answer up to the nearest whole number.)

Turnhilm,Inc.is considering adding a small electric mower to its product line.Management believes that in order to be competitive,the mower cannot be priced above $139.The company requires a minimum return of 25% on its investments.Launching the new product would require an investment of $8,000,000.Sales are expected to be 40,000 units of the mower per year. Required: Compute the target cost of a mower.

Demand for a product is said to be elastic if a change in price has little effect on the number of units sold.

Wenner Corporation would like to use target costing for a new product it is considering introducing. At a selling price of $44 per unit, management projects sales of 10,000 units. The new product would require an investment of $900,000. The desired return on investment is 10%. -The desired profit according to the target costing calculations is:

The management of Giammarino Corporation is considering introducing a new product--a compact barbecue.At a selling price of $78 per unit,management projects sales of 10,000 units.Launching the barbecue as a new product would require an investment of $100,000.The desired return on investment is 11%.The target cost per barbecue is closest to:

Herrell Corporation manufactures numerous products, one of which is called Delta11. The company has provided the following data about this product: -Assume that the total traceable fixed expense does not change.If Herrell increases the price of Delta11 to $30.45,what percentage change in unit sales would provide the same net operating income as is currently being earned at a price of $29.00? (Your answer should be rounded to the nearest 0.1%.)

Kinsley Corporation manufactures numerous products, one of which is called Kappa03. The company has provided the following data about this product: -What is the net operating income for product Kappa03 at the current price?

Kingsford Pure Water Solutions Corporation has developed a new water purification system-model PC-97-that has been designed to outperform a competitor's best-selling water purification system.Model PC-97 has a useful life of 100,000 hours of service and its operating cost is $0.70 per hour.In contrast,the competitor's product has a useful life of 20,000 hours of service and operating costs that average $1.00 per hour.The competitor's water purification system sells for $149,000.Kingsford has not yet established a selling price for model PC-97. Required: From a value-based pricing standpoint what range of possible prices should Kingsford consider when setting a price for model PC-97?

Lodholz Corporation would like to use target costing for a new product that is under consideration.At a selling price of $93 per unit,management projects sales of 10,000 units.The new product would require an investment of $900,000.The desired return on investment is 17%. Required: Determine the target cost per unit for the new product.

In value-based pricing,the value of what differentiates a product from the best available alternative is known as the differentiation value