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
