Question : Objective 13.7 1) Knowledge Transfer Associates in the process of evaluating : 1211814

 

Objective 13.7

 

1) Knowledge Transfer Associates is in the process of evaluating its new client services for the business systems consulting division.

•Server Planning, a new service, incurred $250,000 in development costs.

•The direct costs of providing the service, which is all labor, averages $50 per hour.

•Other costs for this service are estimated at $300,000 per year.

•The current program for server planning is expected to last for two years. At that time, expected new operating systems are likely to make the service non viable.

•Customer service expenses average $250 per client, with each job lasting an average of 40 hours. The current staff expects to bill 15,000 hours for each of the two years the program is in effect. Billing averages $90 per hour.

 

What is the estimated life-cycle operating income for both years combined?

A) $206,250

B) $162,500

C) $(43,750)

D) $(87,500)

 

2) Price discrimination is the practice of ________.

A) setting different prices for different products

B) charging different prices for quantity amounts

C) using variable costing for some products and full costing for other products when setting prices

D) charging different prices to different customers or clients for the same products or services

3) Roberto Inc., operates a chain of luxury hotels in the Asia-Pacific region. It charges $150 for one night stay. However when 90% of the rooms are occupied, Roberto charges a premium of 20% on room tariff for the remaining rooms. What pricing method has Roberto Inc. adopted?

A) customer-preference pricing

B) seasonal-load pricing

C) peak-load pricing

D) capacity pricing

 

4) ________ is the practice of charging a higher price for the same product or service when demand approaches the physical limit of the capacity to produce that product or service.

A) Price discrimination

B) Peak-load pricing

C) Demand-based pricing

D) Customer preference pricing

 

5) When demand for a product is very elastic and prices are increased, demand will ________.

A) remain the same, and operating profits will increase

B) remain the same, and operating profits may either increase or decrease

C) decrease, and operating profits will decrease

D) decrease, and operating profits may either increase or decrease

 

6) Which of the following is an example of price discrimination?

A) Larry’s offers a 30% discount to buyers making repeat purchases within 30 days.

B) Enrique Corp sells different kind of goods at different prices.

C) Chang sells his wares at different prices based on the market conditions.

D) Nathan sells his ice-creams for a discount during winter season.

Answer the following questions using the information below:

 

Bright Inc., manufactures table lamps and is considering raising the price by $30 a unit for the coming year. With a $30 price increase, demand is expected to fall by 2,000 units.

 

CurrentlyProjected

Demand20,000 units18,000 units

Selling price$150$180

Variable costs per unit$100$100

 

7) Would you recommend the $30 price increase?

A) No, because demand decreased.

B) No, because the contribution margin decreases.

C) Yes, because inventory turnover increases.

D) Yes, because operating income increases.

 

8) Bright Inc., has a capacity to produce 25,000 units. Due to an increase in the electricity costs, there is a sudden spike in demand by 2,000 units. If the company adopts peak-load pricing policy and charges a premium of 30% over the current sales price, what is the total contribution on the sale of additional units?

A) $190,000

B) $200,000

C) $390,000

D) $290,000

Total contribution from sale of additional units = 2,000 × ($195 – $100) = $190,000.

Answer the following questions using the information below:

 

Velim Electronics manufactures electric shavers and is considering decreasing the price by $2 a unit for the coming year. With a $2 price decrease, the unit demand is expected to increase by 25%, and a high volume materials discount is expected to decrease the variable costs per unit by $1 per unit.

 

CurrentlyProjected

Demand10,000 units12,500 units

Selling price$51$49

Variable costs per unit$45$44

 

9) Would you recommend the $2 price decrease?

A) Yes, because demand decreases.

B) No, because the selling price decreases.

C) Yes, because operating income increases.

D) No, because contribution margin per unit increases.

 

10) Einstein Motors, has a capacity to produce 25,000 electric cars. Due to a temporary subsidy announced, there is a sudden increase in demand. Einstein decides to adopt peak-load pricing and charge a premium of 25% over its normal selling price of $2,000. It has already accepted orders for 20,000 units at normal selling price. What is the total contribution to the company on sale of additional 5,000 units if the variable cost per unit is $900?

A) $10,000,000

B) $8,000,000

C) $4,500,000

D) $4,000,000