24) Ski Valet provides materials that let people teach themselves how to snow ski. It has six different skill-level programs. Each one includes visual and audio learning aids along with a workbook that can be submitted to the company for grading and evaluation purposes, if the person so desires.
The accounting system of Ski Valet is very traditional in its reporting functions with the calendar year being the company's fiscal year. It includes an abundance of information that can be used for various reporting purposes.
The company has found that any new idea soon runs its course with an effective life of about three years. Therefore, the company is always in the development stage of some new program. Program development requires experts in the area to provide the know-how of the item being developed and a development team that puts together the video, audio, and workbook materials. The actual costs of reproducing the packages are relatively inexpensive when compared to the development costs.
Required:
How might product life-cycle budgeting aid the company in improving its overall operations?
Objective 12.8
Answer the following questions using the information below:
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.
1) 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) Iowa Utility Company charges its high-usage commercial customers a lower rate per kilowatt-hour than other customers. This is an example of:
A) customer-preference pricing
B) high-load pricing
C) peak-load pricing
D) price discrimination
4) When demand for a product is inelastic and prices are increased, usually demand will:
A) increase, and operating profits will increase
B) remain the same, and operating profits will increase
C) decrease, and operating profits will decrease
D) remain the same, and operating profits will decrease
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) Costs are a major factor:
A) when demand is price-inelastic
B) when demand is price-elastic
C) when the opportunity for price discrimination exists
D) for peak-load pricing
Answer the following questions using the information below:
Cox Lighting manufactures table lamps and is considering raising the price by $20 a unit for the coming year. With a $20 price increase, demand is expected to fall by 2,000 units.
CurrentlyProjected
Demand20,000 units18,000 units
Selling price$150$170
Variable costs per unit$100$100
7) Would you recommend the $20 price increase?
A) No, because demand decreased.
B) No, because the selling price increases.
C) Yes, because contribution margin per unit increases.
D) Yes, because operating income increases.
8) The demand for this product is:
A) greatly inelastic
B) slightly inelastic
C) elastic
D) indeterminable
Answer the following questions using the information below:
Ernie Shavers, Inc. manufactures electric shavers and is considering decreasing the price by $3 a unit for the coming year. With a $3 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$48
Variable costs per unit$45$44
