FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 8: Pricing Decisions

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 61

True/False

Review LaterAdd Note

Review Later

The most difficult part of using cost-plus pricing is determining the demand function.

Correct Answer

verified

Show Answer

Question 62

Multiple Choice

Review LaterAdd Note

Review Later

First Décor has analyzed the indirect costs associated with servicing its various customers in order to assess customer profitability. Results for the year appear below: $\begin{array}{lrlr}\hline \text { Cost Pool } & \text { Cost } & \text { Cost Driver } & \text { Quantity } \\\hline \text { Processing electronic orders } & \$ 400,000 & \text { Number of orders } & 40,000 \\\text { Processing non-electronic orders } & 120,000 & \text { Number of orders } & 8,000 \\\text { Picking orders } & 240,000 & \text { Number of different products ordered } & 120,000 \\\text { Packaging orders } & 180,000 & \text { Number of items ordered } & 150,000 \\\text { Returns } & 15,000 & \text { Number of returns } & 3,000\end{array}$ What is the cost allocation for two Internet orders for 22 items with 7 different products and one return?

A) $65.40
B) $33.20
C) $60.40
D) $40.40

Correct Answer

verified

Show Answer

Question 63

Multiple Choice

Review LaterAdd Note

Allstate HVAC recently developed a low-end electronic thermostat that it plans on selling via a cable channel marketing program. The cable program's fee for selling the item is 20% of revenue. For this fee, the program will advertise the thermostat over six 10-minute segments in September. Allstate's fixed costs of producing the thermostats are $110,000 per production run. The company plans to wait for all orders to come in, and then it will produce exactly the number of units ordered. Variable production costs are $25 per unit. In addition, it will cost approximately $5 per unit to ship the thermostats to customers. Production time will be less than three weeks. Henry Kristen, a product manager at Allstate, is charged with recommending a price for the thermostat. Based on his experience with similar items, focus group responses, and survey information, he has estimated the number of units that can be sold at various prices: $\begin{array}{lr}\text { UnitPrice } & \text { Quantity } \\\$ 90 & 5,000 \\\$ 77 & 8,000 \\\$ 65 & 11,000 \\\$ 62 & 13,000\end{array}$ At which price should the company sell it products?

A law firm uses activity-based pricing. The company's annual activity pools and related information are as follows: $\begin{array}{lclr}\text { Cost Pool}& \text { Estimated Cost }& \text { CostDriver } & \text { Driver Ouantit }\\\hline\text { Consultation } & \$ 125,000 & \text { Number of consultations } & 200 \text { consul tations } \\\text { Administrative costs } & 66,000 & \text { Admin labor hours } & 6,000 \text { labor hours } \\\text { Client service } & 34,000 & \text { Number of clients } & 400 \text { clients}\end{array}$ The pricing structure is to charge customers for the cost of the services that are provided. The firm had two consultations with Randall's Auto Shop and required 64 administrative labor hours. What additional costs will be charged to this customer?

What occurs to the quantity demanded as the price decreases?

Mays Tools believes it can sell 80,000 of its proposed new Dirt Dodgers at a price of $50 each. If the company desires to make a profit of 60% of selling price, what is the target variable cost per Dirt Dodger?

Element Boards makes skateboard wheels. Budget information regarding current period operations reflecting the sale of 200,000 wheels appears below: $\begin{array}{lr}\text { Revenue }(200,000 \text { wheels at } \$ 3.00) & \$ 600,000 \\\text { Direct materials } & 120,000 \\\text { Direct labor } & 220,000 \\\text { Variable manufacturing overhead } & 50,000 \\\text { Fixed manufacturing overhead } & 70,000\end{array}$ The USA Skate Team has approached Element with a special order for 6,000 wheels at a price of $2.75 per wheel. Variable costs will be the same as the current production and accepting the special order will not have any impact on the rest of the company's orders. However, Element is operating at capacity and will incur an additional $5,000 in fixed manufacturing overhead if the order is accepted. What is the incremental revenue associated with accepting the special order?

Element Boards makes skateboard wheels. Budget information regarding the current period is given below: $\begin{array}{lr}\text { Revenue (200,000 wheels at } \$ 3.00) & \$ 600,000 \\\text { Direct materials } & 120,000 \\\text { Direct labor } & 220,000 \\\text { Variable manufacturing overhead } & 50,000 \\\text { Fixed manufacturing overhead } & 70,000\end{array}$ The USA Skate Team has approached Element with a special order for 6,000 wheels at a price of $2.75 per wheel. Variable costs will be the same as the current production and accepting the special order will not have any impact on the rest of the company's orders. However, Element is operating at capacity and will incur an additional $5,000 in fixed manufacturing overhead if the order is accepted. What is the incremental income (loss) associated with accepting the special order?

A company estimates that ordering costs are $2.00 per order, picking costs are $1.00 for each different item ordered, packing costs are $0.07 per item, and return costs are $40.00 per return. A customer orders $8,000 worth of goods with direct costs of $6,200. The customer places 70 orders, orders 24 unique items, 940 total items, and makes 7 returns. What is the customer profit?

Which of the following statements about price, demand, and profit is generally true?

Magic Fun has total fixed costs of $4,000,000 and total variable cost of $2,000,000 during a month when it sold 200,000 units. What price will Magic Fun charge if it uses cost-plus pricing and a markup of 20%?

Marquez Enterprises uses activity-based pricing and marks up the direct cost of goods by 40%. In addition, the customer is charged for indirect costs based on the activities utilized. Indirect costs are as follows: $7 per order placed and $11 per return. A customer places 12 orders with a direct cost of $6,100 and makes 2 returns. How much in indirect costs will the customer be charged?

Activity-based pricing is utilized when a customer buying products is charged for the full cost of a product or service plus a markup added to the cost.

Winslow Carpet produces and sells berber carpet by the yard with a variable cost of $16 per yard. Total fixed costs are $280,000. The following chart represents the estimated demand at various price levels. $\begin{array} { c c } \text { Yards Demanded } & \text { Unit Price } \\57,000 & \$ 25 \\67,500 & \$ 24 \\72,500 & \$ 23 \\86,000 & \$ 21\end{array}$ Which price will generate the largest profit for Winslow Carpets?

A company uses cost-plus pricing and has a total cost of $40.00 per unit at a volume of 120,000 units. The variable cost per unit is $25.00. What will the price be if the company expects a volume of 110,000 units and uses a markup of 50%?

Which of the following stays constant when the price per unit changes?

Element Boards makes skateboard wheels. Budget information regarding the current period is given below: $\begin{array}{lr}\text { Revenue }(200,000 \text { wheels at } \$ 3.00) & \$ 600,000 \\\text { Direct materials } & 120,000 \\\text { Direct labor } & 220,000 \\\text { Variable manufacturing overhead } & 50,000 \\\text { Fixed manufacturing overhead } & 70,000\end{array}$ The USA Skate Team has approached Element with a special order for 6,000 wheels at a price of $2.75 per wheel. Variable costs will be the same as the current production and accepting the special order will not have any impact on the rest of the company's orders. However, Element is operating at capacity and will incur an additional $5,000 in fixed manufacturing overhead if the order is accepted. What is the incremental cost associated with accepting the special order?

Which of the following statements is true of fixed costs of production in determining whether to accept or reject a special order?

A company estimates that ordering costs are $4.00 per order, picking costs are $3.00 per unique item ordered, packing costs are $0.04 per item, and return costs are $70.00 per return. A customer makes 50 orders, orders 80 unique items, and 900 total items. The customer makes 11 returns. The pricing structure is to charge customers for the cost of the services that are provided. Using activity-based pricing for each of the above items, what will be the total amount of additional cost paid by the customer?

For which of the following items might a customer be charged extra for an order under activity-based pricing?