Week 4 Assignment

Q1

A manufacturer is developing a new board game geared towards children. To be competitive with other board games, the company has set a target price of $20 for the game.

The company likes to maintain a target profit equal to 40 percent of the product's cost.

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1. Calculate the target cost of the product (to two decimal places).
2. What is the targeted contribution margin on this product (to two decimal places)?

Q2

Stonemaier Manufacturing Inc. has begun production on a new product. The primary cost of the product is direct materials with a cost of $1,050.

Direct labor is estimated to be $285 per unit, overhead is estimated to be $120 per unit, and selling and administrative expenses are estimated to be $75 per unit.

Stonemaier desires a profit of $480 per unit.

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1. What will be the sales price of the new product?
2. What is the required markup percentage on direct materials in order to achieve the desired profit? (provide your answer in decimal format to two decimal places --> i.e. 53.4% = 0.53)
3. What will be the contribution margin rate for this new product? (provide your answer in decimal format to two decimal places --> i.e. 53.4% = 0.53)

Q3

When increases or decreases in pricedo notafftect the demand for a product, the product is described as being:

	a.	inelastic
	b.	elastic
	c.	predatory
	d.	competitive

Q4

When a company's goal is to gain a competitive advantage by being the lowest-cost producer of a service, production process, or commodity, the company is most likely pursuing a:

	a.	product differentiation strategy
	b.	value-added strategy
	c.	cost leadership strategy
	d.	focusing strategy

Q5

Which type of pricing is a company using when a lower price is offered during a product's initial offering to make a wide number of customers aware of new product?

	a.	Cost-plus pricing
	b.	Value Pricing
	c.	Target pricing
	d.	Penetration pricing

Q6

Which of the following pricing strategies is used most often in service industries in which labor is the primary cost incurred?

	a.	Time and material pricing
	b.	Cost-plus pricing
	c.	Target pricing
	d.	Value pricing

Q7

Orange Nebula Equipment Company (ONEC) manufactures a variety of harpooning equipment.

The company would like to develop a unified approach to pricing its product line for next year using cost-plus pricing but does not know what cost base should be used.

Last year, ONEC earned $150,000 of profit from sales of its products and would like to earn $225,000 next year.

Last year, the company incurred the following costs:

Manufacturing Costs:
Variable	260,000.00
Fixed	160,000.00
Selling and Administraitve:
Variable	90,000.00
Fixed	180,000.00

1. Calculate the Markup Percentage based on a cost basis ofAll variable and fixed costs. (provide your answer in % form to two decimal places, i.e. 37.428% = 37.43)
2. Calculate the Markup Percentage based on a cost basis ofCost of Goods Sold. (provide your answer in % form to two decimal places, i.e. 37.428% = 37.43)
3. Calculate the Markup Percentage based on a cost basis ofTotal variable costs. (provide your answer in % form to two decimal places, i.e. 37.428% = 37.43)
4. Calculate the Markup Percentage based on a cost basis ofVariable Manufacturing Costs. (provide your answer in % form to two decimal places, i.e. 37.428% = 37.43)
5. ONEC's best harpoon costs $170 to manufacture and includes $95 of variable manufacturing costs and $75 of fixed overhead costs.Assuming the company uses a markup on variable manufacturing costs (previously calculated as one of the markup bases), what is the recommended sales price of the harpoon? (answer to two decimal places)