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Exam 13: Pricing Decisions and Cost Management

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Question 31

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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

E) All of the above
F) None of the above

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Question 32

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Which of the following statements is true of the cost of producing a product?

A) It controls pricing in highly competitive markets.
B) It affects the willingness of a company to supply a product.
C) It includes manufacturing costs, but not product design costs for pricing decisions.
D) It is not a factor to be taken into account while pricing a product.

E) All of the above
F) A) and D)

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Question 33

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Rework is an example of a value-added cost.

Answer the following questions using the information below: Crimpson Company has invested $2,000,000 in a plant to make commercial juicer machines. The target operating income desired from the plant is $299,000 annually. The company plans annual sales of 7,000 juicer machines at a selling price of $400 each. -What is the cost base of each juicer machine for Crimpson Company?

Price discrimination is permissible if the intent is only to lessen or prevent competition.

Answer the following questions using the information below: Gracius 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. Gracius Manufacturing has a policy of adding a 10% markup to full costs and currently has excess capacity. The following per unit data apply for sales to regular customers: $\begin{array}{l}\text { Variable costs: }\\\begin{array}{lr}\text { Direct materials } & \$ 30 \\\text { Direct labor } & 10 \\\text { Manufacturing overhead } & 20 \\\text { Marketing costs } & 10\end{array}\\\text { Fixed costs: }\\\begin{array}{lr}\quad {\text { Manufacturing overhead }} & 100 \\\quad \text { Marketing costs } & 20 \\\text { Total costs } & 190 \\\text { Markup (10\% of total costs) } & 19 \\\text { Estimated æelling price } & \$ 209\end{array}\end{array}$ -For Gracius Manufacturing,what is the minimum acceptable price of this one-time-only special order?

The department usually in the best position to identify customers' needs is the ________.

Whether the firm uses the market-based approach or the cost-based approach for pricing decisions,the market forces must be considered.

Answer the following questions using the information below: Sales of Blair Inc. have been on a steady decline for the last 12 months. A market research study conducted revealed that the product of Blair Inc. can be sold only for $400 as opposed to the current market price charged of $500 per unit. Blair Inc. has decided to revise its sales price to $400. The annual sales target volume of the product after price revision is 200 units. Blair Inc. wants to earn 18% on its sales amount. -What is the total target cost?

Companies seek to minimize value-added costs because they do not provide benefits to customers.

All costs are locked in at the design stage itself.

Which of the following statements is true regarding cost-plus pricing?

In cost-plus pricing,the markup is a rigid number that determines the actual selling price.

Long-run pricing decisions ________.

Value engineering seeks to reduce value-added costs as well as nonvalue-added costs.

________ describes when a resource is consumed or benefit forgone to meet a specific objective.

________ is a cost that,if eliminated,would reduce the actual or perceived value or utility (usefulness) customers experience from using the product or service.

Answer the following questions using the information below: Crimpson Company has invested $2,000,000 in a plant to make commercial juicer machines. The target operating income desired from the plant is $299,000 annually. The company plans annual sales of 7,000 juicer machines at a selling price of $400 each. -What is the markup percentage as a percentage of cost for Crimpson Company?

Answer the following questions using the information below: After conducting a market research study, Ed Manufacturing decided to produce a new interior door to complement its exterior door line. It is estimated that the new interior door can be sold at a target price of $240. The annual target sales volume for interior doors is 20,000. Ed has target operating income of 20% of sales. -What are target sales revenues?

Companies operating in markets that are not competitive favor cost-based approaches.