Fundamentals Of Cost Accounting (6th Edition)
6th Edition
ISBN: 9781259969478
Author: WILLIAM LANEN, Shannon Anderson, Michael Maher
Publisher: McGraw Hill Education
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Textbook Question
Chapter 4, Problem 43E
Target Costing and Pricing
Domingo Corporation makes a variety of headphones with logos. The company has discovered a new market for wireless headphones with logos.
Required
What is the highest acceptable
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Columbus Inc. sells a high end hair dryer in a super competitive marketplace. As a result,
market research and competitive pressures influence the determination of their selling price.
Their marketing department has done a comprehensive analysis and It looks like a price of $61
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The company has a goal of earning $30 on each unit.
What is the target unit cost of each hair dryer? Enter your answers without dollar signs or
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Value-Based Pricing
McDermott Company has developed a new industrial component called IC–75. The company is excited about IC–75 because it offers superior performance relative to the comparable component sold by McDermott’s primary competitor. The competing part sells for $1,200 and needs to be replaced after 2,000 hours of use. It also requires $200 of preventive maintenance during its useful life.
The IC–75’s performance capabilities are similar to its competing product with two important exceptions—it needs to be replaced after 4,000 hours of use and it requires $300 of preventive maintenance during its useful life.
Required:
From a value-based pricing standpoint:
1. What is the reference value that McDermott should consider when pricing IC–75?
2. What is the differentiation value offered by IC–75 relative the competitor’s offering for each 4,000 hours of usage?
3. What is IC–75’s economic value to the customer over its 4,000-hour life?
4. What range of possible prices should…
Chapter 4 Solutions
Fundamentals Of Cost Accounting (6th Edition)
Ch. 4 - Fixed costs are often defined as fixed over the...Ch. 4 - What is the difference between a sunk cost and a...Ch. 4 - Are sunk costs ever differential costs? Explain.Ch. 4 - What is the difference between short-run and...Ch. 4 - What costs are included in the full cost of a...Ch. 4 - What costs are included in the full cost of a...Ch. 4 - What costs should be considered for a special...Ch. 4 - What are life-cycle product costing and pricing?Ch. 4 - Prob. 9RQCh. 4 - What do the terms target cost and target price...
Ch. 4 - What is predatory pricing? Why is it illegal in...Ch. 4 - What is dumping? What role would a cost accountant...Ch. 4 - What is price discrimination? How could a cost...Ch. 4 - If we want to maximize profit, why do we use unit...Ch. 4 - A company has learned that a particular input...Ch. 4 - Why are production constraints important in...Ch. 4 - What are some nonfinancial factors in decisions to...Ch. 4 - Prob. 18RQCh. 4 - Prob. 19CADQCh. 4 - Prob. 20CADQCh. 4 - As a marketing manager for an airline, would you...Ch. 4 - Prob. 22CADQCh. 4 - You buy an airline ticket to New York City to see...Ch. 4 - Consider the Business Application item,...Ch. 4 - One of your acquaintances notes, This whole...Ch. 4 - A manager in your organization just received a...Ch. 4 - Many airline frequent-flier programs upgrade elite...Ch. 4 - Consider the opportunity costs you identified in...Ch. 4 - Prob. 29CADQCh. 4 - Prob. 30CADQCh. 4 - Prob. 31CADQCh. 4 - Prob. 32CADQCh. 4 - Prob. 33CADQCh. 4 - Prob. 34CADQCh. 4 - Prob. 35CADQCh. 4 - Prob. 36ECh. 4 - Prob. 37ECh. 4 - Pricing Decisions Assume that MTA Sandwiches sells...Ch. 4 - Pricing Decisions Rutkey Collectibles is a small...Ch. 4 - Prob. 40ECh. 4 - Special Order Fairmount Travel Gear produces...Ch. 4 - Target Costing and Pricing Sids Skins makes a...Ch. 4 - Target Costing and Pricing Domingo Corporation...Ch. 4 - Target Costing and Purchasing Decisions Mira Mesa...Ch. 4 - Target Costing Kearney, Inc., makes kitchen tools....Ch. 4 - Make-or-Buy Decisions Mobility Partners makes...Ch. 4 - Make-or-Buy Decisions Mels Meals 2 Go purchases...Ch. 4 - Prob. 49ECh. 4 - Dropping Product Lines Freeflight Airlines is...Ch. 4 - Pappy’s Toys makes two models of a metal...Ch. 4 - Christine’s Chronographs makes two models of a...Ch. 4 - Unter Components manufactures low-cost navigation...Ch. 4 - Special Orders Sherene Nili manages a company that...Ch. 4 - Prob. 55PCh. 4 - M. Anthony, LLP, produces music in a studio in...Ch. 4 - Davis Kitchen Supply produces stoves for...Ch. 4 - Make or Buy King City Specialty Bikes (KCSB)...Ch. 4 - Prob. 59PCh. 4 - Prob. 60PCh. 4 - Prob. 61PCh. 4 - Prob. 62PCh. 4 - Prob. 63PCh. 4 - Agnew Manufacturing produces and sells three...Ch. 4 - Prob. 65PCh. 4 - Power Music owns five music stores, where it sells...Ch. 4 - You have been asked to assist the management of...Ch. 4 - Prob. 68PCh. 4 - Prob. 69PCh. 4 - Prob. 70PCh. 4 - Prob. 71PCh. 4 - Prob. 72PCh. 4 - Slavin Corporation manufactures two products,...Ch. 4 - Prob. 74PCh. 4 - Prob. 75P
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- Target Costing Basic Motor Corporation uses target costing. Assume that Basic marketing personnel estimate that the competitive selling price for the QuikCar in the upcoming model year will need to be $23,400. Assume further that the QuikCar's total unit cost for the upcoming model year is estimated to be $19,900 and that Basic requires a 20% profit margin on selling price (which is equivalent to a 25% markup on total cost). a. What price will Basic establish for the QuikCar for the upcoming model year?$ b. Since the estimated manufacturing cost is less than the target cost, Basic must reduce its total costs to maintain competitive pricing within its profit objectives.arrow_forwardAlyssa Stuart is thinking of starting a store that specializes in handmade Viennese style bentwood chairs. Before opening her store, Alyssa is curious about how her profit, revenue, and variable costs will change depending on the amount she charges for the chairs. Alyssa would like you to perform the work required for this analysis and has given you the data. Here are a few things to consider while you perform your analysis: Current competitive prices for Viennese style bentwood chairs are between $225 and $275 a chair. Variable costs will be either $100 or $150 a chair depending on the types of material Alyssa chooses to use. Fixed costs are $10,000 a month. Create an Excel file containing the following information: Alyssa's chairs - Price One Alyssa's chairs - Price Two Chair Price $ 225 Chair Price $ 275 Variable Cost per chair $ 125 Variable Cost per chair $ 150 Fixed Cost $ 10,000 Fixed Cost $…arrow_forwardTotal Cost Method of Product Pricing Smart Stream Inc. uses the total cost method of applying the cost-plus approach to product pricing. The costs of producing and selling 10,000 units of cell phones are as follows: Variable costs per unit: Fixed costs: Direct materials $150 Factory overhead $350,000 Direct labor 25 Selling and administrative expenses 140,000 Factory overhead 40 Selling and administrative expenses 25 Total variable cost per unit $240 Smart Stream desires a profit equal to a 30% return on invested assets of $1,200,000. a. Determine the total costs and the total cost amount per unit for the production and sale of 10,000 cellular phones. Total cost $fill in the blank 1 Total cost amount per unit $fill in the blank 2 b. Determine the total cost markup percentage for cellular phones. Round your answer to two decimal places.fill in the blank 3 % c. Determine the selling price of cellular…arrow_forward
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