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Exam 28: Pricing Decisions

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Question 1

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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%.)

A) -6.0%
B) -24.9%
C) -10.0%
D) -20.1%

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

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D

Question 2

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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.)

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a.The profit at the price of $51.84 per ...

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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:

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.)

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:

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?

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:

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.)

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.

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:

"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.

"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?

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?

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?

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?

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?

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.)

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.)

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.