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Exam 16: The Art and Science of Pricing to Optimize Revenue

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Question 71

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If the existing unit cost is above a target cost per unit, then

A) the unit selling price is adjusted upward to cover the unit cost.
B) cost analysis is performed to identify which components of the product/service can be targeted for cost reduction.
C) the company should not manufacture and sell this particular product/service.
D) the company should recompute the cost per unit only using the variable unit costs.

E) None of the above
F) A) and B)

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Question 72

Multiple Choice

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Which of the following statements is true regarding price discrimination?

A) Differential pricing due to race, religion, disability, or gender is legal.
B) Price discrimination that causes a competitive injury to another company is not illegal.
C) Price discrimination segments the market based on customers' willingness to pay.
D) A company will most likely decrease its profits by having different prices.

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

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Question 73

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Khan Manufacturing Company has the following unit manufacturing cost for products currently sold to outside customers: A special order for 3,000 units has been received from a foreign company. The unit price requested is $65. The normal unit price is $90. If the order is accepted, unit variable costs will increase by $2 for additional shipping costs. The company currently has excess operating capacity. If the order is accepted, what will the differential operating income or loss be?

How is an expected selling price determined in a cost-plus pricing approach?

In a target costing pricing approach, the desired profit per unit is

If a company sets its product or service price too high, it might cause

How is a special-order price determined for a product or service?

You are presented with the following three scenarios for Yeng Company: With regards to Yeng's price, cost, and product, what can be concluded from Scenario #1?

Target costing is used for products and services sold

The first step in the target costing for target pricing approach is

MEX Company manufactures a product with a cost of $52 per unit ($30 variable and $22 fixed). This product normally sells to customers for $60 per unit. Ixtapa Industries, a foreign company, offers to purchase 5,000 units at $42 each. MEX Company would incur $4 of special packaging and shipping costs if the order is accepted. MEX Company has sufficient unused capacity to produce the 5,000 special-order units. If the special order is accepted, what will the effect be on MEX Company's income?

Quigley, Inc. is introducing a new product. Since the market for this product is very competitive, the company plans to use a target cost approach. Projected sales revenue is $950,000 ($95 per unit) and target costs are $700,000. a. What is the desired profit per unit? b. What is the target cost for the product?

In highly competitive markets, players are

If a company that has opted to use target costing for target pricing computes a unit production cost that exceeds the target unit cost, then the company should

What four factors must management consider when making pricing decisions? Briefly discuss each factor.

Winters Company is considering accepting a special order. Based on 10,000 units, the following costs are incurred by Winters: direct materials of $5, direct labor of $10, variable overhead of $8, and fixed overhead of $6. The wholesaler requesting the special order wants to only pay $25 for 2,000 units when the normal retail unit selling price is $50. If Winters accepts the special order, assuming it has sufficient capacity to fill the order, what amount of differential operating income (loss) would it recognize?

Kringle Company produces holiday ornaments that it sells to its regular customers for $12 per unit. The cost to produce each unit is $9, of which $6 is variable per unit and $3 is fixed per unit. A local charity has asked Kringle Company to produce 1,000 ornaments for its annual charity fund raising event as a gift for each donation. The charity is asking for a special pricing offer at $8 per unit instead of the normal $12 per unit. The ornaments will not require any customization, and Kringle Company currently has sufficient excess operating capacity to manufacture the 1,000 special order ornaments. Should Kringle Company accept the special-order proposal from the local charity. (Show all computations to support your decision.)

Match the term with the appropriate definition. -Competitive markets