1.Tory Company sells a single product. Troy estimates demand and costs at various activity levels as follows:
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Units Sold
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Price
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Total Variable Costs
|
Fixed Costs
|
|
120,000
|
$48
|
$3,000,000
|
$1,000,000
|
|
146,000
|
$45
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$3,520,000
|
$1,000,000
|
|
160,000
|
$40
|
$4,000,000
|
$1,000,000
|
|
180,000
|
$35
|
$4,500,000
|
$1,000,000
|
|
200,000
|
$30
|
$5,000,000
|
$1,000,000
|
How much profit will Troy have if a price of $45 is charged?
2.The Falling Snow Company is considering production of a lighted world globe that the company would price at a markup of 0.25 percent above full cost. Management estimates that the variable cost of the globe will be $64 per unit and fixed costs per year will be $240,000.
Assuming sales of 1,200 units, what is the full cost of a globe with a 0.25 markup?
The Falling Snow Company is considering production of a lighted world globe that the company would price at a markup of 0.25 percent above full cost. Management estimates that the variable cost of the globe will be $62 per unit and fixed costs per year will be $240,000.
Assume that the quantity demanded at the price calculated in part a is only 600 units. What is the full cost of the globe with a 0.25 markup?
4.
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Wizard Corporation has analyzed their customer and order handling data for the past year and has determined the following costs:
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|
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Order processing cost per order
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$7
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|
|
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Additional costs if order must be expedited (rushed)
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$10.00
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|
|
|
|
|
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Customer technical support calls (per call)
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$12
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|
|
|
Relationship management costs (per customer per year)
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$1200
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|
|
|
|
|
|
In addition to these costs, product costs amount to 75%
|
|
|
|
In the prior year, Wizrd had the following experience with one of its customers, Chester Company:
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|
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Sales
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$16,000
|
|
|
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Number of orders
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160
|
|
|
|
Percent of orders marked rush
|
.70
|
|
|
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Calls to technical support
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80
|
|
|
|
|
|
Required:
|
|
|
Calculate the profitability of the Chester Company account.
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|
5.When a firm adds a predetermined percentage to the cost of its product for pricing purposes, it is called:
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incremental pricing
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|
demand pricing
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|
cost-plus pricing
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|
cost plus demand pricing
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6.
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PowerDrive, Inc. produces a hard disk drive that sells for $175 per unit. The cost of producing 25,000 drives in the prior year was:
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|
|
|
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Direct material
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$625,000
|
|
Direct labor
|
375,000
|
|
Variable overhead
|
125,000
|
|
Fixed overhead
|
1,500,000
|
|
Total cost
|
$2,625,000
|
|
At the start of the current year, the company received an order for 3,200 drives from a computer company in China. Management of PowerDrive has mixed feelings about the order. On the one hand they welcome the order because they currently have excess capacity. Also, this is the company's first international order. On the other hand, the company in China is willing to pay only $130 per unit.
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|
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What will be the effect on profit of accepting the order?
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7.Another name for menu-based pricing is:
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Cost-plus pricing
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|
Customer profitability pricing
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Profit maximizing pricing
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|
Activity-based pricing
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8.A company has $45 per unit in variable costs and $1,200,000 per year in fixed costs. Demand is estimated to be 104,000 units annually. What is the price if a markup of 40% on total cost is used to determine the price?