Managerial Accounting
17th Edition
ISBN: 9781260247787
Author: Ray H. Garrison, Eric W. Noreen, Peter C. Brewer
Publisher: RENT MCG
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Chapter 13.A, Problem 6E
EXERCISE 12A-6 Value-Based Pricing; Absorption Costing Approach to Cost-Plus Pricing LO12-8, LO12-10
Valmont Company has developed a new industrial piece of equipment called the XP-200. The company is considering two methods of establishing a selling price for the XP-200-absorption cost-plus pricing and value-based pricing.
Valmont’s cost accounting system reports an absorption unit product cost for XP-200 of $8,400. Its markup percentage on absorption cost is 85%. The company's marketing managers have expressed concerns about the use of absorption cost-plus pricing because it seems to overlook the fact that the XP-200 offers superior performance relative to the comparable piece of equipment sold by Valmont's primary competitor. More specifically the XP-200 can be used for 20,000 hours before replacement. It only requires $1,000 of preventive maintenance during its useful life and it consumes $120 of electricity’ per 1,000 hours used.
These figures compare favorably to the competing piece of equipment that sells for $15,000: needs to be replaced after 10,000 hours of use, requires $2,000 of preventive maintenance during its useful life and comes $140 of electricity per 1,000 hours used.
Required:
- If Valmont uses absorption cost-plus pricing; what price will it establish for the XP-200?
- What is XP-200's economic value to the customer (EVC) over its 20:000-hour life?
- If Valmont uses value-based pricing, what range of possible prices should it consider when setting a price for the XP-200?
- What advice would you give Valmont's managers when choosing between absorption cost-plus pricing and value-based pricing?
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Question 12
Sondela Ltd is a manufacturing company that is planning to use the cost-plus pricing method to set the selling price. The company has provided the following data:
Variable cost per unit:
Direct material R30
Direct labour R45
Manufacturing overheads R75
Sales commission R15
Selling expenses R23
Total fixed costs
Depreciation - factory R27 000
Depreciation - administration R45 000
Rent - factory R31 500
Rent - head office R22 500
Selling and administration cost R60 000
Required:
(c) Calculate the selling price if the company adds mark-up of…
Exercise I-Set B
Palawan Company must determine a target selling price for one of its
products. Cost data relating to the product are as follows:
Per Unit
P 30
Direct materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead
Variable administrative and selling expenses
15
5
Fixed administrative and expenses
40
The costs above are based on an anticipated volume of 70,000 units
produced and sold each period. The company uses cost-plus pricing, and it has a
policy of obtaining target selling prices by adding a markup of 50% of unit
manufacturing cost or by adding a markup of 80% of variable costs.
Required: 1. Compute the target selling price per unit using absorption costing.
2. Compute the target selling price per unit using contribution costing.
Question Content Area
Carmen Co. can further process Product J to produce Product D. Product J is currently selling for $23.95 per pound and costs $16.00 per pound to produce. Product D would sell for $36.45 per pound and would require an additional cost of $9.00 per pound to produce.
The differential cost of producing Product D is?
Chapter 13 Solutions
Managerial Accounting
Ch. 13.A - EXERCISE 12A-1 Absorption Costing Approach to...Ch. 13.A - EXERCISE 12A-2 Customer Latitude and Pricing...Ch. 13.A - Prob. 3ECh. 13.A - Prob. 4ECh. 13.A - Prob. 5ECh. 13.A - EXERCISE 12A-6 Value-Based Pricing; Absorption...Ch. 13.A - Prob. 7ECh. 13.A - Prob. 8PCh. 13.A - Prob. 9PCh. 13.A - Prob. 10P
Ch. 13.A - Prob. 11PCh. 13.A -
PROBLEM 12A-12 Absorption Costing Approach to...Ch. 13.A - PROBLEM 12A-13 Value-Based Pricing LO12-10 The...Ch. 13 - Prob. 1QCh. 13 - Prob. 2QCh. 13 - Prob. 3QCh. 13 - Prob. 4QCh. 13 - “Variable costs and differential costs mean the...Ch. 13 - 12-6 "All future costs are relevant in decision...Ch. 13 - Prentice Company is considering dropping one of...Ch. 13 - Prob. 8QCh. 13 - 12-9 What is the danger in allocating common fixed...Ch. 13 - 12-10 How does opportunity cost enter into a make...Ch. 13 - 12-11 Give at least four examples of possible...Ch. 13 - 12-12 How will relating product contribution...Ch. 13 - Define the following terms: joint products, joint...Ch. 13 - 12-14 From a decision-making point of view, should...Ch. 13 - What guideline should be used in determining...Ch. 13 - Prob. 16QCh. 13 - Prob. 1AECh. 13 - Prob. 2AECh. 13 - Cane Company manufactures two products called...Ch. 13 - (
Alpha Beta
$30
$...Ch. 13 - Prob. 3F15Ch. 13 - Prob. 4F15Ch. 13 - Prob. 5F15Ch. 13 - (
Alpha Beta
$30
$...Ch. 13 - Prob. 7F15Ch. 13 -
Cane Company manufactures two products called...Ch. 13 - Prob. 9F15Ch. 13 - (
Alpha Beta
$30
$...Ch. 13 - Prob. 11F15Ch. 13 - Prob. 12F15Ch. 13 - (
Alpha ...Ch. 13 - (
Alpha Beta
$30
$...Ch. 13 - (
Alpha Beta
$30
$...Ch. 13 -
EXERCISE 12-1 Identifying Relevant Costs...Ch. 13 -
EXERCISE 12-2 Dropping or Retaining a Segment...Ch. 13 -
EXERCISE 12-3 Make or Buy Decision LO12-3
Troy...Ch. 13 -
EXERCISE 12-4 Special Order Decision...Ch. 13 -
EXERCISE 12-5 Volume Trade-Off Decisions...Ch. 13 - Prob. 6ECh. 13 - Prob. 7ECh. 13 - Prob. 8ECh. 13 - Prob. 9ECh. 13 - Prob. 10ECh. 13 - (
$3.60
10.00
2.40
9.00
$25.00
)
EXERCISE 12-11...Ch. 13 - Prob. 12ECh. 13 - EXERCISE 12-13 Sell or Process Further Decision...Ch. 13 - en
r
Ch. 13 - Prob. 15ECh. 13 - (
$150
31
20
29
3
24
15
$272
$34
)
EXERCISE...Ch. 13 - Prob. 17ECh. 13 - Prob. 18PCh. 13 - PROBLEM 12-19 Dropping or Retaining a Segment...Ch. 13 -
PROBLEM 12-20 Sell or Process Further Decision...Ch. 13 - Prob. 21PCh. 13 - PROBLEM 12-22 Special Order Decisions LO12-4...Ch. 13 -
PROBLEM 12-23 Make or Buy Decision LO12-3
Silven...Ch. 13 - Prob. 24PCh. 13 - Prob. 25PCh. 13 - Prob. 26PCh. 13 - Prob. 27PCh. 13 - Prob. 28PCh. 13 - CASE 12-29 Sell or Process Further Decision LO12-7...Ch. 13 -
CASE 12-30 Ethics and the Manager; Shut Dora or...Ch. 13 - CASE 12-31 Integrative Case: Relevant Costs;...Ch. 13 -
CASE 12-32 Make or Buy Decisions; Volume...Ch. 13 - Prob. 33C
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