Question 1

Johnson Company produces office equipment for 16 major buyers. Of the 16 customers, one accounts for 50 percent of the sales, with the remaining 15 accounting for the rest of the sales. The 15 smaller customers purchase equipment in roughly equal quantities. Orders placed by the smaller customers are about the same size. Data concerning Johnson's customer activity follow:
Order-filling costs for Johnson Company total £270,000, and sales-force costs are £300,000.
Required:
  
a.
Determine the amount of selling costs (order-filling and sales-force costs) allocated to (1) the large customer and (2) the 15 smaller customers if these costs are allocated based on sales volume.
b.
Determine the amount of selling costs (order-filling and sales-force costs) allocated to (1) the large customer and (2) the 15 smaller customers if these costs are assigned using activity-based costing.
c.
Comment on the differences in amounts attributed to the smaller customers in requirements a and b

Accepted Answer

The answer of Johnson Company produces office equipment for 16...

Question 2

Many products have a predictable profit or product life cycle. Describe the product life cycle from the marketing perspective. In addition, graph profit versus the different phases. Finally, discuss the impact of the product life cycle on products, learning effects, setups, purchasing, and marketing expenses.

Accepted Answer

The answer of Many products have a predictable profit or...

Question 3

Bay Company produces boats for 11 major buyers. Of the 11 customers, one accounts for 45 percent of the sales, with the remaining ten accounting for the rest of the sales. The ten smaller customers purchase boats in roughly equal quantities. Orders placed by the smaller customers are about the same size. Data concerning Bay's customer activity follow:
Order-filling costs for Bay Company total £401,500, and sales-force costs are £260,000.
Required:
  
a.
Determine the amount of selling costs (order-filling and sales-force costs) allocated to (1) the large customer and (2) the ten smaller customers if these costs are allocated based on sales volume.
b.
Determine the amount of selling costs (order-filling and sales-force costs) allocated to (1) the large customer and (2) the ten smaller customers if these costs are assigned using activity-based costing.
c.
Comment on the differences in amounts attributed to the smaller customers in requirements a and b

Accepted Answer

The answer of Bay Company produces boats for 11 major...

Question 4

Etro Company sells a product used in many manufacturing processes. The sales activity involves three activity areas:
The following customer information is given:
  Required:
What is the profitability of customer B?

Accepted Answer

The answer of Etro Company sells a product used in...

Question 5

Which of the following statements concerning target costing is NOT true?

Accepted Answer

Coordination among processes is crucial for implementing target costing successfully as it requires collaboration among design, production, and cost management teams. Failure to coordinate these activities can lead to cost overruns and quality issues.

Question 6

Nordholm Construction Company builds houses. Each job requires a bid. Nordholm's bidding policy is to estimate the costs of materials, direct labour, and subcontractor's costs. These are totaled and a markup is applied to cover overhead and profit. In the coming year, Nordholm believes it will be the successful bidder on ten jobs with the following total revenues and costs:
The residual will cover overhead and profits.
Required:
  
a.
What is the markup percentage on total direct costs?
b.
Suppose Nordholm is asked to bid on a job with estimated direct costs of £55,000. What is the bid? If the customer complains that the profit seems pretty high, how might Nordholm counter that?

Accepted Answer

The answer of Nordholm Construction Company builds houses. Each job...

Question 7

Ellie Manufacturing Company produces three products: A, B, and C. The income statement for 2004 is as follows:
The sales, contribution margin ratios, and direct fixed expenses for the three types of products are as follows:
  Required:
Prepare income statements segmented by products. Include a column for the entire firm in the statement.

Accepted Answer

The answer of Ellie Manufacturing Company produces three products: A,...

Question 8

Discuss the limitation of profit measurement.

Accepted Answer

The answer of Discuss the limitation of profit measurement....

Question 9

The following information pertains to three different products being sold by Leone Company:
Required:
  
a.
Determine the price elasticity of demand for each of the products.
b.
Which products have an elastic demand? Inelastic demand?

Accepted Answer

The answer of The following information pertains to three different...

Question 10

. Multiple Products Co.
Multiple Products Co. has predicted the following costs for this year for 100,000 units:
-41 Refer to Multiple Products Co. What is the markup on variable costs needed to achieve a target profit of £100,000?

Accepted Answer

The answer of . Multiple Products Co.
Multiple Products Co. has...

Question 11

. Multiple Products Co.
Multiple Products Co. has predicted the following costs for this year for 100,000 units:
-Refer to Multiple Products Co. What is the markup on variable costs needed to break even?

Accepted Answer

The answer of . Multiple Products Co.
Multiple Products Co. has...

Question 12

. Multiple Products Co.
Multiple Products Co. has predicted the following costs for this year for 100,000 units:
-Refer to Multiple Products Co. What is the manufacturing cost markup needed to obtain a target profit of £100,000?

Accepted Answer

To find the manufacturing cost markup, calculate the total cost per unit and determine the markup needed to achieve the target profit. If the total cost for 100,000 units is not provided, assume a cost and calculate the markup percentage required to reach a £100,000 profit. A 50% markup is typically needed to achieve such a profit margin.

Question 13

Todd Ltd. sells a product for £400 per unit. Its market share is 22 percent of the units sold. The marketing manager feels that the market share can be increased to 28 percent of the units sold with a reduction in price to £340. The product is currently earning a profit of £64 per unit. The president of Todd Ltd. feels that his company needs to maintain the same profit level per unit. The market share consists of £4,000,000 (10,000 units).
Required:
a.
How many units does Todd Ltd. currently sell of the product?
b.
What is the target price per unit?
c.
What is the original cost per unit?
d.
What is the target cost per unit?

Accepted Answer

The answer of Todd Ltd. sells a product for £400...

Question 14

Which of the following accurately describes the effect target costing has on the manufacturing design function?

Accepted Answer

Target costing forces design engineers to explicitly consider the costs of manufacturing and other aspects of business that traditionally fall outside the engineering department. This means that design engineers are not only responsible for meeting functional requirements but also for designing the product in a way that can be manufactured cost-effectively. They cannot simply design a product without considering its cost implications.

Question 15

Vicki Johns operates a catering company. Vicki provides food and servers for parties. She also rents tables, chairs, dinnerware, glassware, and linens. Alan and Debbie Holms contacted Vicki about catering for their daughter's wedding. They have requested an open bar, hors d'oeuvres (enough for 300 people), a large wedding cake, and forty tables with linens, dinnerware, and glassware. Vicki put together the following bid:
Required:
Suppose that the Holmses blanch when they see the bid. Mr. Holmes suggests that they had hoped to spend no more than £3,750 or so on the party. How could Vicki work with the Holmses to achieve a target cost of that amount?

Accepted Answer

The answer of Vicki Johns operates a catering company. Vicki...

Question 16

Spencer Manufacturing Company sells a product for £200 per unit. Its market share is 18 percent of the units sold. The marketing manager feels that the market share can be increased to 25 percent of the units sold with a reduction in price to £170. The product is currently earning a profit of £32 per unit. The president of Spencer Manufacturing Company feels that his company needs to maintain the same profit level per unit. The market share consists of £2,000,000 (10,000 units).
Required:
a.
How many pounds does Spencer Manufacturing Company currently sell of the product?
b.
What is the target price per unit?
c.
What is the original cost per unit?
d.
What is the target cost per unit?

Accepted Answer

The answer of Spencer Manufacturing Company sells a product for...

Question 17

. Multiple Products Co.
Multiple Products Co. has predicted the following costs for this year for 100,000 units:
-Refer to Multiple Products Co. What is the markup on manufacturing costs needed to break even?

Accepted Answer

To break even, the total cost per unit would be $13.20 ($7.50 + $2.40 + $1.80 + $1.50). To find the markup on manufacturing costs, we need to divide the manufacturing costs by the total manufacturing cost per unit ($8.70/$13.20) and multiply by 100. This gives us a markup of approximately 65.9 percent. Since the closest option is B (40 percent), that is the best choice.

Question 18

Foley Ltd. has predicted the following costs for this year for 100,000 units:
Required:
  
a.
What is the markup on variable costs needed to achieve a target profit of £200,000?
b.
What is the initial unit selling price needed to obtain a target profit of £200,000 using the variable cost markup method?
c.
What is the manufacturing cost markup needed to obtain a target profit of £200,000?

Accepted Answer

The answer of Foley Ltd. has predicted the following costs...

Question 19

Wurster Company sells a product for £400 per unit. Its market share is 20 percent of the units sold. The marketing manager believes that the market share can be increased to 28 percent of the units sold with a reduction in price to £360. The product is currently earning a profit of £62 per unit. The president of Wurster Company believes that his company needs to maintain the same profit level per unit. The total market for the product has annual sales of 5,000 units.
Required:
a.
How many units does Wurster Company currently sell of the product?
b.
What is the target price per unit?
c.
What is the target cost per unit?

Accepted Answer

The answer of Wurster Company sells a product for £400...

Question 20

Answer the following:
a. Discuss each of the following economic market structures (i.e., number of firms in industry, barriers to entry, uniqueness of product):
 
 1. Perfectly competitive market
 2. Monopolistic competition
 3. Oligopoly
 4. Monopoly
b. Match the following industries with the appropriate economic market:
 
 Local cable television company
 Restaurants
 United States Post Office
 Cereal
 Wheat farmer
 Automotive

Accepted Answer

The answer of Answer the following:
a. Discuss each of the...

Quiz 5: Pricing Decisions and Profitability Analysis

Etro Company sells a product used in many manufacturing processes. The sales activity involves three activity areas: The following customer information is given: Required: What is the profitability of customer B?

Which of the following statements concerning target costing is NOT true?

Discuss the limitation of profit measurement.

The following information pertains to three different products being sold by Leone Company: Required: a. Determine the price elasticity of demand for each of the products. b. Which products have an elastic demand? Inelastic demand?

. Multiple Products Co. Multiple Products Co. has predicted the following costs for this year for 100,000 units: -41 Refer to Multiple Products Co. What is the markup on variable costs needed to achieve a target profit of £100,000?

. Multiple Products Co. Multiple Products Co. has predicted the following costs for this year for 100,000 units: -Refer to Multiple Products Co. What is the markup on variable costs needed to break even?

. Multiple Products Co. Multiple Products Co. has predicted the following costs for this year for 100,000 units: -Refer to Multiple Products Co. What is the manufacturing cost markup needed to obtain a target profit of £100,000?

Which of the following accurately describes the effect target costing has on the manufacturing design function?

. Multiple Products Co. Multiple Products Co. has predicted the following costs for this year for 100,000 units: -Refer to Multiple Products Co. What is the markup on manufacturing costs needed to break even?