Question :
11) Companies that produce high quality products do NOT have : 1216942
11) Companies that produce high quality products do NOT have to pay attention to the actions of their competitors.
12) Relevant costs for pricing decisions include manufacturing costs, but NOT costs from other value-chain functions.
13) Prices are decreased when demand is weak and competition is strong and increased when demand is strong and competition is weak.
14) In markets with little or no competition, the key factor affecting price is the customers’ willingness to pay, not costs or competitors.
15) When prices are set in a competitive marketplace, product costs are the most important influence on pricing decisions.
16) The only competition a firm must be concerned about when setting prices are those in the local market.
17) Claudia Geer, controller, discusses the pricing of a new product with the sales manager, James Nolan. What major influences must Claudia and James consider in pricing the new product? Discuss each briefly.
Objective 12.2
1) Short-term pricing decisions:
A) use costs that may be irrelevant for long-term pricing decisions
B) are more opportunistic
C) tend to decrease prices when demand is strong
D) have a time horizon of more than one year
2) Relevant costs for pricing a special order include:
A) existing fixed manufacturing overhead
B) nonmanufacturing costs that will not change even if the special order is accepted
C) additional setup costs for the special order
D) All of these answers are correct.
3) Which of the following factors should NOT be considered when pricing a special order?
A) the likely bids of competitors
B) the incremental cost of one unit of product
C) revenues that will be lost on existing sales if prices are lowered
D) stable pricing to earn the desired long-run return
4) A price-bidding decision for a one-time-only special order includes an analysis of all:
A) manufacturing costs
B) cost drivers related to the product
C) direct and indirect variable costs of each function in the value chain
D) fixed manufacturing costs
5) For pricing decisions, full product costs:
A) include all costs that are traceable to the product
B) include all manufacturing and selling costs
C) include all direct costs plus an appropriate allocation of the indirect costs of all business functions
D) allow for the highest possible product prices
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.
6) Black Forrest is invited to bid on a one-time-only special order to supply 200 rustic tables. What is the lowest price Black Forrest should bid on this special order?
A) $43,200
B) $14,400
C) $24,000
D) $28,800
Answer the following questions using the information below:
Caruso Cool manufactures single room sized air conditioners. The cost accounting system estimates manufacturing costs to be $190 per air conditioner, consisting of 75% variable costs and 25% fixed costs. The company has surplus capacity available. It is Caruso Cool’s policy to add a 30% markup to full costs.
7) Caruso is invited to bid on a one-time-only special order to supply 50 air conditioners. What is the lowest price Caruso should bid on this special order?
A) $9,500
B) $7,125
C) $12,500
D) $12,350
8) A medium sized motel chain is currently expanding and has decided to create more rooms and air condition all of its rooms, which are currently not air conditioned. Caruso Cool is invited to submit a bid to the motel chain. What per unit price will Caruso Cool MOST likely bid for this special order of 50 units?
A) $190.00 per unit
B) $142.50 per unit
C) $247.00 per unit
D) $250.00 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
9) For Rogers’ Heaters, what is the minimum acceptable price of this one-time-only special order?
A) $580
B) $780
C) $520
D) $1,014
10) Before accepting this one-time-only special order, Rogers’ Heaters should consider the impact on:
A) current plant capacity
B) long-term customers
C) competitors
D) All of these answers are correct.
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
11) For Gerry’s Generators, what is the minimum acceptable price of this one-time-only special order?
A) $1,800
B) $2,000
C) $2,150
D) $2,580
12) Before accepting this one-time-only special order, Gerry’s Generators wants to know how much profit would be made on the order:
A) $2,000
B) Loss of $150
C) $0
D) $430
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
13) For Marcia Manufacturing, what is the minimum acceptable price of this one-time-only special order?
A) $40
B) $55
C) $60
D) $66
14) What is the full cost of the product per unit?
A) $60
B) $180
C) $198
D) $66
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
15) Ferryman Products is approached by an overseas customer to fulfill a one-time-only special order for 1,000 units. All cost relationships remain the same except for a one-time setup charge of $20,000. No additional design, marketing, or distribution costs will be incurred. What is the minimum acceptable bid per unit on this one-time-only special order?
A) $134.75
B) $154.76
C) $222.25
D) $161.70
Answer the following questions using the information below:
Delgreco Products manufactures high-tech cell phones. Delgreco Products has a policy of adding a 30% markup to full costs and currently has excess capacity. The following information pertains to the company’s normal operations per month:
Output units10,000phones
Machine-hours8,000hours
Direct manufacturing labor-hours5,000hours
Direct materials per unit$25
Direct manufacturing labor per hour$15
Variable manufacturing overhead costs$175,000
Fixed manufacturing overhead costs$425,000
Product and process design costs$400,000
Marketing and distribution costs$475,000
16) Delgreco Products is approached by an overseas customer to fulfill a one-time-only special order for 1,000 units. All cost relationships remain the same except for a one-time setup charge of $15,000. No additional design, marketing, or distribution costs will be incurred. What is the minimum acceptable bid per unit on this one-time-only special order?
A) $180.00
B) $92.50
C) $65.00
D) $234.00
17) A short-run pricing decision typically has a time horizon of less than:
A) one year
B) two years
C) five years
D) None of these answers is correct.
18) Short-run pricing decisions include adjusting product mix in a competitive environment.
19) Profit margins are often set to earn a reasonable return on investment for short-term pricing decisions, but NOT long-term pricing decisions.
20) In a one-time-only special order, variable manufacturing costs are irrelevant.
