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Exam 28: Pricing Decisions

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Question 41

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Paluso Corporation manufactures numerous products,one of which is called Alpha42.The company has provided the following data about this product: Management is considering increasing the price of Alpha42 by 4%,from $18.00 to $18.72.The company's marketing managers estimate that this price hike would decrease unit sales by 10%,from 180,000 units to 162,000 units.Assuming that the total traceable fixed expense does not change,what net operating income will product Alpha42 earn at a price of $18.72 if this sales forecast is correct?

A) $764,640
B) $209,600
C) $849,600
D) $124,640

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

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Question 42

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The markup over cost under the absorption costing approach would decrease if the unit product cost increases,holding everything else constant.

A) True
B) False

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Question 43

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Ohanlon Corporation manufactures numerous products,one of which is called Delta27.The company has provided the following data about this product: Required: a.Management is considering increasing the price of Delta27 by 5%,from $62.00 to $65.10.The company's marketing managers estimate that this price hike would decrease unit sales by 10%,from 180,000 units to 162,000 units.Assuming that the total traceable fixed expense does not change,what net operating income will Delta27 earn at a price of $65.10 if this sales forecast is correct? b.Assuming that the total traceable fixed expense does not change,if Ohanlon increases the price of Delta27 to $65.10,what percentage change in unit sales would provide the same net operating income that it currently earns at a price of $62.00? (Round your answer to the nearest one-tenth of a percent.)

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 model LS-88's economic value to the customer over its 2,000 hour life?

Hill 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.

Pascal Corporation manufactures numerous products, one of which is called Gamma66. The company has provided the following data about this product: -Assume that the total traceable fixed expense does not change.If Pascal decreases the price of Gamma66 to $48.96,what percentage change in unit sales would provide the same net operating income as is currently being earned at a price of $51.00? (Your answer should be rounded to the nearest 0.1%.)

Morice Industries Inc. has developed a new injection mold, model IA-05, that is designed to offer superior performance to a comparable injection mold sold by Morice's main competitor. The competing injection mold sells for $54,000 and needs to be replaced after 1,000 hours of use. It also requires $7,000 of preventive maintenance during its useful life. Model IA-05's performance capabilities are similar to the competing product with two important exceptions-it needs to be replaced only after 2,000 hours of use and it requires $8,000 of preventive maintenance during its useful life. -From a value-based pricing standpoint what is the differentiation value offered by model IA-05 relative to the competitor's offering for each 2,000 hours of usage?

Bohmker Corporation is introducing a new product whose direct materials cost is $25 per unit,direct labor cost is $13 per unit,variable manufacturing overhead is $9 per unit,and variable selling and administrative expense is $4 per unit.The annual fixed manufacturing overhead associated with the product is $18,000 and its annual fixed selling and administrative expense is $9,000.Management plans to produce and sell 1,000 units of the new product annually.The new product would require an investment of $110,500 and has a required return on investment of 10%.Management would like to set the selling price on a new product using the absorption costing approach to cost-plus pricing. Required: a.Determine the unit product cost for the new product. b.Determine the markup percentage on absorption cost for the new product. c.Determine the selling price for the new product using the absorption costing approach.

A new product,an automated crepe maker,is being introduced at Knutt Corporation.At a selling price of $59 per unit,management projects sales of 70,000 units.Launching the crepe maker as a new product would require an investment of $500,000.The desired return on investment is 12%.The target cost per crepe maker is closest to:

Ritner 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 29,000 units per year. The company has invested $360,000 in this product and expects a return on investment of 9%. Required: a.Compute the markup on absorption cost. b.Compute the selling price of the product using the absorption costing approach.

The markup over cost under the absorption costing approach would decrease if the required rate of return increases,holding everything else constant.

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 GZ-29's economic value to the customer over its 30,000 hour useful life?

Magney,Inc.,uses the absorption costing approach to cost-plus pricing described in the text to set prices for its products.Based on budgeted sales of 84,000 units next year,the unit product cost of a particular product is $40.80.The company's selling and administrative expenses for this product are budgeted to be $1,705,200 in total for the year.The company has invested $300,000 in this product and expects a return on investment of 14%. The selling price for this product based on the absorption costing approach would be closest to:

Chruch Corporation manufactures numerous products, one of which is called Tau42. The company has provided the following data about this product: -What is the net operating income for product Tau42 at the current price?

Hammen Corporation manufactures numerous products,one of which is called Omicron43.The company has provided the following data about this product: Assume that the total traceable fixed expense does not change.If Hammen decreases the price of Omicron43 to $16.20,what percentage change in unit sales would provide the same net operating income as is currently being earned at a price of $18.00? (Your answer should be rounded to the nearest 0.1%.)

Bellini Robotics Corporation has developed a new robot-model EM-28-that has been designed to outperform a competitor's best-selling robot.The competitor's product has a useful life of 30,000 hours of service,has operating costs that average $1.40 per hour,and sells for $129,000.In contrast,model EM-28 has a useful life of 90,000 hours of service and its operating cost is $0.80 per hour.Bellini has not yet established a selling price for model EM-28. Required: From a value-based pricing standpoint: a.What is the reference value that Bellini should consider when pricing model EM-28? b.What is the differentiation value offered by model EM-28 relative to the competitor's offering for each 90,000 hours of service? c.What is model EM-28's economic value to the customer over its 90,000 hour useful life? d.What range of possible prices should Bellini consider when setting a price for model EM-28?

Hanisch Corporation would like to use target costing for a new product it is considering introducing.At a selling price of $22 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 14%.The target cost per unit is closest to:

Holding all other things constant,if the expected unit sales increase,then the markup under absorption costing will:

Seamons Corporation has the following information available on Product K: The company uses the absorption costing approach to cost-plus pricing described in the text and a 40% markup.Based on these data,the company's total selling and administrative expenses associated with Product K each year are:

If the formula for the markup percentage on absorption cost is used for setting prices,then the company's desired return on investment (ROI)will be attained regardless of how many units are actually sold.