Question : 21) Backwoods Incorporated manufactures rustic furniture. The cost accounting system : 1216943

 

21) Backwoods Incorporated manufactures rustic furniture. The cost accounting system estimates manufacturing costs to be $80 per table, consisting of 70% variable costs and 30% fixed costs. The company has surplus capacity available. It is Backwoods’ policy to add a 50% markup to full costs.

 

a.Backwoods Incorporated is invited to bid on an order to supply 100 rustic tables. What is the lowest price Backwoods should bid on this one-time-only special order?

 

b.A large hotel chain is currently expanding and has decided to decorate all new hotels using the rustic style. Backwoods Incorporated is invited to submit a bid to the hotel chain. What is the lowest price per unit Backwoods should bid on this long-term order?

 

Objective 12.3

 

1) Long-run pricing decisions:

A) have a time horizon of less than one year

B) include adjusting product mix in a competitive environment

C) and short-run pricing decisions generally have the same relevant costs

D) use prices that include a reasonable return on investment

 

2) Long-run pricing:

A) needs to cover only incremental costs

B) only utilizes the market-based approach to pricing and not the cost-based approach

C) is a strategic decision

D) strives for flexible pricing that can respond to temporary changes in demand

3) For long-run pricing decisions, using stable prices has the advantage of:

A) minimizing the need to monitor competitor’s prices frequently

B) reducing the need to change cost structures frequently

C) reducing competition

D) helping to build buyer-seller relationships

 

Answer the following questions using the information below:

 

Black Forrest manufactures rustic furniture. The cost accounting system estimates manufacturing costs to be $240 per table, consisting of 60% variable costs and 40% fixed costs. The company has surplus capacity available. It is Black Forrest policy to add a 50% markup to full costs.

 

4) A large hotel chain is currently expanding and has decided to decorate all new hotels using the rustic style. Black Forrest is invited to submit a bid to the hotel chain. What per unit price will Black Forrest most likely bid on this long-term order?

A) $144 per unit

B) $216 per unit

C) $360 per unit

D) $240 per unit

Answer the following questions using the information below:

 

Rogers’ Heaters is approached by Ms. Sushi, a new customer, to fulfill a large one-time-only special order for a product similar to one offered to regular customers. Rogers’ Heaters has excess capacity. The following per unit data apply for sales to regular customers:

 

Direct materials$400

Direct manufacturing labor120

Variable manufacturing support60

Fixed manufacturing support200

Total manufacturing costs780

Markup (30%)234

Estimated selling price$1,014

 

5) If Ms. Sushi wanted a long-term commitment for supplying this product, what price would most likely be quoted to her?

A) $580

B) $780

C) $520

D) $1,014

Answer the following questions using the information below:

 

Gerry’s Generator Supply is approached by Mr. Sandman, a new customer, to fulfill a large one-time-only special order for a product similar to one offered to regular customers. Gerry’s Generator Supply has excess capacity. The following per unit data apply for sales to regular customers:

 

Direct materials$1,700.00

Direct manufacturing labor100.00

Variable manufacturing support200.00

Fixed manufacturing support150.00

Total manufacturing costs2,150.00

Markup (20%)430.00

Estimated selling price$2,580.00

 

6) If Mr. Sandman wanted a long-term commitment for supplying this product, what price would most likely be quoted to him?

A) $2,000

B) $2,150

C) $2,580

D) $2,800

Answer the following questions using the information below:

 

Marcia Manufacturing is approached by a European customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers. Marcia Manufacturing has a policy of adding a 20% markup to full costs and currently has excess capacity. The following per unit data apply for sales to regular customers:

 

Variable costs:

Direct materials$30

Direct labor10

Manufacturing overhead15

Marketing costs5

Fixed costs:

Manufacturing overhead100

Marketing costs20

Total costs180

Markup (10%)36

Estimated selling price$216

 

7) If the European customer wanted a long-term commitment for supplying this product, what price would most likely be quoted?

A) $66.00

B) $180.00

C) $216.00

D) $236.00

 

Answer the following questions using the information below:

 

Ferryman Products manufactures coffee tables. Ferryman Products has a policy of adding a 20% markup to full costs and currently has excess capacity. The following information pertains to the company’s normal operations per month:

 

Output units30,000tables

Machine-hours8,000hours

Direct manufacturing labor-hours10,000hours

 

Direct materials per unit$100

Direct manufacturing labor per hour$12

Variable manufacturing overhead costs$322,500

Fixed manufacturing overhead costs$1,200,000

Product and process design costs$900,000

Marketing and distribution costs$1,125,000

 

8) For long-run pricing of the coffee tables, what price will most likely be used by Berryman?

A) $134.76

B) $161.70

C) $222.25

D) $266.70