12-23 (20 min.) Cost-plus target return on investment pricing.
1. Target operating income = target return on investment >< invested capital
Target operating income (25% of $900,000) $225,000
Total x
12-25 (20 min.) Life-cycle product costing.
1 Variable cost per unit = Production cost per unit + Mktg and distribn. cost per unit
' = $20 + $5 = $25
Contribution margin per unit = Selling price Varia
12-34 (2530 min.) Life-cycle costing.
1.
Total Project Life-Cycle Costs
Variable costs:
Metal extraction and processing ($100 per ton X 50,000 tons) $5,000,000
Fixed costs:
Metal extraction and proces
12-31 (20 min.) Cost-plus, time and materials, ethics.
1. As shown in the table below, Garrison will tell Briggs that she will have to pay $460 to get
the air conditioning system repaired and $440 to
12-17 (20430 min.) Relevant-cost approach to short-run pricing decisions.
1. Analysis of special order:
Sales, 3,000 units x $75 $225,000
Variable costs:
Direct materials, 3,000 units x $35 $105,000
D
Budgeted Operating Income
for the Year Ending December 31, 2033:
Revenues ($9.10 X 450,000 units) $4,095,000
Variable costs ($3.15 >< 450,000 units) 1,417,500
Contribution margin 2,677,500
Fixed costs
12-21 (2530 min.) Target prices, target costs, activity-based costing.
1. Snappys operating income in 2011 is as follows:
Total for
250,000 Tiles Per Unit
(I! 2 = 1 +250,000
Revenues ($4 >< 250,000) $
12-16 (20430 min.) Relevant-cost approach to pricing decisions, special order.
1. Relevant revenues, $4.00 X 1,000 $4,000
Relevant costs
Direct materials, $1.60 X 1,000 $1,600
Direct manufacturing lab
CHAPTER 12
PRICING DECISIONS AND COST MANAGEMENT
12-1 The three major inuences on pricing decisions are
1. Customers
2. Competitors
3. Costs
12-2 Not necessarily. For a one-time-only special order, th
List of Boxes
Box 1 Methods of Administering an Export Embargo and an Import Quota. 24
Box 2 Smart Sanctions. . 27
Box 3 Method of Calculation required getting Trades Reductions in Percentages.
. 71
12-24 (2025 min.) Cost-plus, target pricing, working backwards.
1. Investment $8,400,000
Return on investment 18%
Operating income (18% x $8,400,000) $1,512,000
Operating income per unit of XR500 ($1,
3 Currently 85% X 7, 500 hours 6 375 hours are billed to clients generating revenues of
$701, 250 The remaining 15% of professional labor-hours (15% >< 7 500 1,125 hours) IS lost 1n
making corrections
5. It highlights suboptimal tradeoffs that managers may make when they fail to consider
Operational and nancial measures together.
13-9 Pitfalls to avoid when implementing a balanced scorecard are:
1.
12-22 (20 min.) Target costs, effect of product-design changes on product costs.
1. and 2. Manufacturing costs of HJ6 in 2010 and 2011 are as follows:
2010 2011
Per Unit Per Unit
Total (2) = Total (4)
2.
Total costs in the gray area are $100,000. 01' this, we assume 65%, or $65,000, are value-
added and 35%, or $35,000, are nonvalue-added.
Total value-added costs: $800,000 + $65,000 $ 865,000
Total
12-10 Cost-plus pricing is a pricing approach in which managers add a markup to cost in order to
determine price.
12-11 Cost-plus pricing methods vary depending on the bases used to calculate prices.
12-36 (25 min.) Ethics and pricing.
1. The $500 spent on the basketball tickets is a sunk (past) cost, and is therefore irrelevant to
the bid decision. Apex will incur the $500 cost whether it bids, l
12-28 (25 min.) Cost-plus, target pricing, working backward.
1. In the following table, work backwards from operating income to calculate the selling price
Selling price $ 10.14 (plug)
Less: Variable
12-35 (30 min.) Airline pricing, considerations other than cost in pricing.
1. If the fare is $500,
a. Air Eagle would expect to have 200 business and 100 pleasure travelers.
b. Variable costs per pas
12-32 (25 min.) Cost-plus and market-based pricing.
1. California Temps full cost per hour of supplying contract labor is
Variable costs
Fixed costs ($168,000 + 84,000 hours)
Full cost per hour
1" 9
P
Yes, this pricing arrangement would increase Operating income by $15,120 from an
operating loss of $3,120 to an operating income of $12,000 ($12,000 + $3,120 = $15,120).
3. The weeknight guests are bu
12-20 (2530 min.) Target operating income, value-added costs, service company.
1. The classication of total costs in 2012 into value-added, nonvalue-added, or in the gray
area in between follows:
Valu
CHAPTER 13
STRATEGY, BALANCED SCORECARD, AND
STRATEGIC PROFITABILITY ANALYSIS
13-1 Strategy species how an organization matches its own capabilities with the
opportunities in the marketplace to accomp
12-27 (2530 min.) Considerations other than cost in pricing decisions.
1.
Guest nights on weeknights:
18 weeknights >< 100 rooms X 90% = 1,620
Guest nights on weekend nights:
12 weekend nights X 100 r