MGMT640 Homework 11 Latest 2021 January

MGMT640 Financial Decision Making for Managers

Homework 11

Question 1Tory Company sells a single product. Troy estimates demand and costs at various activity levels as follows:

Units Sold            Price      Total Variable Costs        Fixed Costs

120,000 $48         $3,000,000           $1,000,000

153,000 $45         $3,500,000           $1,000,000

160,000 $40         $4,000,000           $1,000,000

180,000 $35         $4,500,000           $1,000,000

200,000 $30         $5,000,000           $1,000,000

How much profit will Troy have if a price of $45 is charged?

Round to two decimal places.

Question 2The Falling Snow Company is considering production of a lighted world globe that the company would price at a markup of 0.30 above full cost. Management estimates that the variable cost of the globe will be $70 per unit and fixed costs per year will be $240,000.

Assuming sales of 1,200 units, what is the full selling price of a globe with a 0.30 markup?

Round to two decimal places.

Question 3A company believes it can sell 5,000,000 of its proposed new optical mouse at a price of $11.00 each. There will be $8,000,000 in fixed costs associated with the mouse. If the company desires to make a profit $2,000,000 on the mouse, what is the target variable cost per mouse?

Round to two decimal places.

Question 4

Wizard Corporation has analyzed their customer and order handling data for the past year and has determined the following costs:
Order processing cost per order	$7
Additional costs if order must be expedited (rushed)	$9.50
Customer technical support calls (per call)	$12
Relationship management costs (per customer per year)	$1200
In addition to these costs, product costs amount to  75% of Sales.
In the prior year, Wizard had the following experience with one of its customers, Chester Company:
Sales	$15,000
Number of orders	160
Percent of orders marked rush	70%
Calls to technical support	80
Required:
Calculate the profitability of the Chester Company account.

 

Question 5When a firm adds a predetermined percentage to the cost of its product for pricing purposes, it is called:

incremental pricing

demand pricing

cost-plus pricing

cost plus demand pricing

Question 6PowerDrive, Inc. produces a hard disk drive that sells for $175 per unit. The cost of producing 25,000 drives in the prior year was:

                                 

Direct material  $625,000

Direct labor         375,000

Variable overhead           125,000

Fixed overhead                1,500,000

Total cost             $2,625,000

At the start of the current year, the company received an order for 3,200 drives from a computer company in China. Management of PowerDrive has mixed feelings about the order. On the one hand they welcome the order because they currently have excess capacity. Also, this is the company’s first international order. On the other hand, the company in China is willing to pay only $140 per unit.

 What will be the effect on profit of accepting the order?

Round to two decimal places.

Question 7Another name for menu-based pricing is:

Cost-plus pricing

Customer profitability pricing

Profit maximizing pricing

Activity-based pricing

Question 8A company has $50 per unit in variable costs and $1,200,000 per year in fixed costs. Demand is estimated to be 104,000 units annually. What is the price if a markup of 40% on total cost is used to determine the price?

Round to two decimal places.