Chapter 12 answers - CHAPTER 12 PRICING DECISIONS AND COST...

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CHAPTER 12 PRICING DECISIONS AND COST MANAGEMENT 12-16 (20–30 min.) Relevant-cost approach to pricing decisions, special order. 1. Relevant revenues, $4.00 × 1,000 $4,000 Relevant costs Direct materials, $1.60 × 1,000 $1,600 Direct manufacturing labor, $0.90 × 1,000 900 Variable manufacturing overhead, $0.70 × 1,000 700 Variable selling costs, 0.05 × $4,000 200 Total relevant costs 3,400 Increase in operating income $ 600 This calculation assumes that: a. The monthly fixed manufacturing overhead of $150,000 and $65,000 of monthly fixed marketing costs will be unchanged by acceptance of the 1,000 unit order. b. The price charged and the volumes sold to other customers are not affected by the special order. Chapter 12 uses the phrase “one-time-only special order” to describe this special case. 2. The president’s reasoning is defective on at least two counts: Tom Doucet 9/1/09 2:08 PM Deleted: 12-1 The three major influences on pricing decisions are ... [1]
3. Key issues are: b. Is the 1,000-tape order a one-time-only order, or is there the possibility of sales in
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12-17 (20–30 min.) Relevant-cost approach to short-run pricing decisions.
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