Question

46.) Electronic Component Company (ECC) is a producer of high-end video and music equipment. ECC currently sells its top of the line "ECC" video player for a price of $410. It costs ECC $290 to make the player. ECC's main competitor is coming to market with a new video player that will sell for a price of $380. ECC feels that it must reduce its price to $380 in order to compete. The sales and marketing department of ECC believes the reduced price will cause sales to increase by 14%. ECC currently sells 216,000 video players per year.

Assuming sales and marketing are not correct in their estimation and the volume of sales is not changed and ECC meets the competitive price, what is the target cost if ECC wants to maintain its same income level?

Multiple Choice

• $290.

• $280.

• $270.

• $260.

48.) Johnson Marine has the following costs and expected sales for the coming year. Johnson is considering a number of different methods to determine the price of its product.

	Total Costs
Variable Manufacturing	$	2,355,500
Variable Selling and Administrative		755,500
Plant-level Fixed Overhead		1,211,000
Fixed Selling and Administrative		605,500
Batch-level Fixed Overhead		205,500
Total Investment in Product Line		10,016,500
Expected Sales (units)		21,100

If Johnson determines price using a 24% markup of life cycle cost, the price is:

Multiple Choice

• $258.15

• $301.65

• $370.65

• $359.94

• $325.65

49.) The Gargus Company, which manufactures projection equipment, is ready to introduce a new line of portable projectors. The following data are available for a proposed model:

Variable manufacturing costs	$	350
Applied fixed manufacturing overhead		175
Variable selling and administrative costs		130
Applied fixed selling and administrative costs		145

What price will the company charge if the firm uses cost-plus pricing based on total variable cost and a markup percentage of 190%?

Multiple Choice

• $897.00.

• $1,032.00.

• $1,167.00.

• $1,392.00.

• None of these answer choices is correct.

50.) The Gargus Company, which manufactures projection equipment, is ready to introduce a new line of portable projectors. The following data are available for a proposed model:

Variable manufacturing costs	$	470
Applied fixed manufacturing overhead		235
Variable selling and administrative costs		190
Applied fixed selling and administrative costs		205

What price will the company charge if the firm uses cost-plus pricing based on total cost and a markup percentage of 70%?

Multiple Choice

• $1,270.00.

• $1,211.50.

• $1,870.00.

• $1,616.50.

• None of these answer choices is correct.

Answer 1

46.The right option is 4th - " $260 ".

Current selling price = $410

Variable cost = $290

Contribution per unit = Current selling price - Variable cost = $410 - $290 = $120 per unit.

If Target selling price = $380

Target cost to maintain same income level = Target selling price - Target contribution per unit = $380 - $120 per unit = $260 per unit.

48. The right option is 2nd - " $301.65 ".

Price = ( Total price + 24% markup ) / Expected sale units

Total price = $2,355,500 + $755,500 + $1,211,000 + $605,500 + $205,500 = $5,133,000

Price = ( $5,133,000 + 24% ) / 21,100 units = $301.65

49. The right option is 4th - " $1,392 ".

price to be charged = Total variable price + 190%

Total variable price = Variable manufacturing costs + Variable selling and administrative costs = $350 + $130 = $480

Price to be charged = $480 + 190% = $1,392.

50. The right option is 3rd - " $1,870 ".

Price to be charged = Total cost + 70%

Total cost = $470 + $235 + $190 + $205 = $1,100.

Price to be charged = $1,100 + 70% = $1,870