ADMS 1500 Lecture 9: Chapter 9 – pricing

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taupecod780

4 Dec 2017

School

York University

Department

Administrative Studies

Course

ADMS 1500

Professor

K Paul Evans

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Document Summary

Pricing for external sales: target costing: the company determines its target cost. Once target-selling price is set, it determines its target cost by setting a desired profit. Difference between target price and the desired profit is the target cost of the product. Formula: market price desired profit = target cost: total cost-plus pricing: company"s determines a cost base and adds a mark up to it to determine a target-selling price. Formula: selling price cost = mark-up (profit: absorption cost-plus pricing: uses the manufacturing cost as the cost base and covers the selling and administrative cost plus the target roi through the mark-up. Formula: manufacturing cost per unit = (mark-up percentage x manufacturing cost per unit): variable cost-plus pricing: uses all of the variable costs, including selling and administrative costs, as the cost base and covers the fixed costs and target.

Related Questions

1. The target cost of a product

a. includes product costs but not period costs.

b. is determined before the target price is established.

c. is the difference between the target price and the desired profit.

d. is determined by the target audience.

2. In the cost-plus pricing approach, the markup percentage is computed by dividing the

a. desired ROI/unit by variable cost/unit.

b. desired ROI/unit by total unit cost.

c. total unit cost by desired ROI/unit.

d. selling price/unit by desired ROI/unit.

3. All of the following are steps in the time-and-material pricing approach except calculating the

a. labor charge.
b. material loading charge.

c. manufacturing overhead charge.

d. charges for a particular job.

4. The total contribution margin to a company in the market-based transfer price approach is

a. greater than in the cost-based approach.

b. less than in the cost-based approach.

c. the same as in the cost-based approach.
d. either greater than or less than in the cost-based approach.

5. Absorption-cost pricing

a. includes all variable costs in the cost base.

b. excludes fixed manufacturing overhead from the cost base.

c. provides the data needed for pricing special orders.

d. uses a markup percentage that covers the desired ROI and the selling and administrative expenses.

whiteporpoise825

Lovell Computer Parts Inc. is in the process of setting a selling price on a new component it has just designed and developed. The following cost estimates for this new component have been provided by the accounting department for a budgeted volume of 47,000 units.

	Per Unit	Total
Direct Materials	$47
Direct Labor	$21
Variable manufacturing overhead	$18
Fixed manufacturing overhead		$611,000
Variable selling and administrative expenses	$15
Fixed selling and administrative expenses		$235,000

Lovell Computer Parts management requests that the total cost per unit be used in cost-plus pricing its products. On this particular product, management also directs that the target price be set to provide a 24% return on investment (ROI) on invested assets of $1,263,900.

Compute the markup percentage and target selling price that will allow Lovell Computer Parts to earn its desired ROI of 24% on this new component. (Round answers to 2 decimal places, e.g. 10.50.)

Assuming that the volume is 40,500 units, compute the markup percentage and target selling price that will allow Lovell Computer Parts to earn its desired ROI of 24% on this new component. (Round answers to 2 decimal places, e.g. 10.50.)

erincod521

GIVEN: Kann Corporation produces industrial robots forhigh-precision manufacturing. The following information isavailable:

Per Unit Total

Direct materials $25.00

Direct labor $10.00

Variable manufacturing overhead $6.00

Fixed manufacturing overhead $36,000

Variable selling and administrative costs $4.00

Fixed selling and administrative costs $15,000

The company has a desired ROI of 20%. It has invested assets of$420,000. It anticipates making and selling 3,000 units peryear.

REQUIRED:

Part 1: Using the total (full) cost concept, determine the (a)unit cost amount; (b) markup percentage; and (c) unit targetselling price.

Part 2: Using the product (absorption) cost concept, determinethe (a) unit cost amount; and (b) markup percentage.

Part 3: Using the variable cost concept, determine the (a) unitcost amount; and (b) markup percentage.

Part 4: What is the target unit selling price under the threecost assumptions?

Part 5: What else should be considered when setting theproduct's selling price?

Part 6: Which of the three costing concepts would be mostappropriate in each of the following situations? 1. Externalreporting for GAAP 2. Normal (long-run) pricing 3. Evaluatingspecial orders

Part 7: Kann Corporation received a special order for 500 robotsat $50 each from a foreign customer. Acceptance of the order wouldincrease variable selling costs by $1.70 per unit because ofshipping costs, but would not increase fixed costs or interferewith any current orders. Prepare a differential analysis todetermine whether the special order should be accepted or not.

My school has no tutors for this; I will post what little Ihave, and attempt more myself, but I really do not know what I'mdoing. I do not know how these figures that I have weredetermined:

	Full cost for 3000 units	Absorption cost for 3000units	Variable costs for 3000units
Direct materials	$75,000	$75,000	$75,000
Direct labor	30,000	30,000	30,000
Variable manufacturingoverhead	18,000	18,000	18,000
Fixed manufacturingoverhead	36,000	36,000
Variable selling overhead	12,000		12,000
Fixed selling overhead	15,000
Total cost	186,000	159,000	135,000
Cost per unit	62	53	45
Desired profit = 42,000 *20%	84,000	84,000	84,000
Sales value	270,000	243,000	219,000
Sales price per unit	90	81	73

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ADMS 1500 Lecture 9: Chapter 9 – pricing

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