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Exam 25: Short-Term Business Decisions

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Question 71

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The cost-plus pricing approach is emphasized by price-setters.

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Question 72

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A company should process its product further if the additional processing generates higher sales revenues.

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Question 73

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Price-setters emphasize a target-pricing approach while price-takers emphasize a cost-plus pricing approach.

Kerr Productions is a price-taker.The company produces large spools of electrical wire in a highly competitive market;thus,it uses target pricing.The current market price is $800 per unit.The company has $3,000,000 in average assets,and the desired profit is a return of 8% on assets.Assume all products produced are sold.The company provides the following information: Currently the cost structure is such that the company cannot achieve its profit objective and must cut costs.If fixed costs cannot be reduced,how much reduction in variable cost per unit will be needed to achieve the desired target? (Round your answer to the nearest cent. )

Ortiz Company is a price-taker and uses target pricing.Refer to the following information: With the current cost structure,Ortiz cannot achieve its profit goals.It will have to reduce either the fixed costs or the variable costs.Assuming that fixed costs cannot be reduced,what are the target variable costs per year? Assume all units produced are sold.

A company produces 1000 packages of chicken feed per month.The sales price is $5 per pack.Variable cost is $1.60 per unit,and fixed costs are $1800 per month.Management is considering adding a vitamin supplement to improve the value of the product.The variable cost will increase from $1.60 to $1.90 per unit,and fixed costs will increase by 10%.The CEO wants to price the new product at a level that will bring operating income up to $2000 per month.What sales price should be charged? (Round your answer to the nearest cent. )

Managers should only consider financial information when making a decision.

Well-Bread Grain Company is a price-taker and uses target pricing.The company has just done an analysis of its revenues,costs,and desired profits and has calculated its target full product cost.Assume all products produced are sold.Refer to the following information: Actual costs are currently higher than target full product cost.Assuming that fixed costs cannot be reduced,what is the target variable cost per unit? (Round your answer to the nearest cent. )

Mickey Tire Company makes a special kind of racing tire.Variable costs are $230 per unit,and fixed costs are $20,000 per month.Mickey sells 300 units per month at a sales price of $350.If the quality of the tire is upgraded,the company believes it can increase the sales price to $380.If so,the variable cost will increase to $250 per unit,and the fixed costs will rise by 15%.If Mickey decides to upgrade,how will operating income be affected?

Fuller Industries is considering replacing a machine that is presently used in its production process.Which of the following amounts represents a sunk cost?

In making product mix decisions under constraining factors,which of the following is the key to choosing the product type to be maximized?

When considering whether to replace the building roof,the total amount paid for previous roof repairs is relevant to the business decision.

A company sells two products with information as follows: The products are machine made.Four units of product A can be made with one machine hour,and two units of product B can be made with one machine hour.The company has a maximum of 3000 machine hours available per month.The company can sell up to 17,000 units of product A per month and up to 3000 units of product B for the month.What is the maximum amount of contribution margin that the company could earn in a month given the stated constraints?

Marisol's Sunglass Company's western territory's forecasted income statement for the upcoming year is as follows: The company's management is considering dropping the western territory and has determined that $310,000 of the fixed expenses is avoidable.What is the change in Marisol's Sunglass Company's forecasted operating for the upcoming year if the western territory is dropped? Assume the company predicts an operating loss across the entire company.

In deciding whether to accept a special pricing order,management should only consider the quantitative data and disregard qualitative factors.

Sutton Products is a price-setter that uses the cost-plus pricing approach.The products are specialty vacuum tubes used in sound equipment.The CEO is certain that the company can produce and sell 310,000 units per year,due to the high demand for the product.Variable costs are $2.30 per unit.Total fixed costs are $960,000 per year.The CEO will receive stock options if $400,000 of operating income for the year is reported.What sales price would allow the CEO to achieve the target if the cost-plus pricing method is used? (Round your answer to the nearest cent. )

Maritime Sail Makers manufactures sails for sailboats.The company has the capacity to produce 36,000 sails per year and is currently producing and selling 25,000 sails per year.The following information relates to current production: If a special pricing order is accepted for 5500 sails at a sales price of $170 per unit,fixed costs remain unchanged,and there are no variable selling and administrative costs for this order,what is the change in operating income?

When replacing an old asset with a new one,the original purchase price of the old asset represents a(n) ________ cost.

Seven Seas Boat Company manufactures 100 luxury yachts per month.A security system is included in each yacht.Seven Seas Boat Company manufactures the security system in-house.The company is considering the possibility of outsourcing the production of the security system in order to close down some of its facilities and reduce administrative costs.At present,the variable cost per unit is $300,and fixed costs are $38,000 per month.Assuming the company outsources the production of the security system and the fixed costs could be eliminated entirely,at what contract cost would outsourcing pay off for Seven Seas? (Round to the nearest whole dollar. )

Managers must consider both financial (quantitative)and nonfinancial (qualitative)factors when making decisions.Identify some possible relevant nonfinancial factors that managers might consider.