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Exam 28: Pricing Decisions

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Question 81

True/False

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Most of the opportunities to reduce the cost of a product come from outsourcing production to where labor is relatively inexpensive.

A) True
B) False

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Question 82

Multiple Choice

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Montecalvo Logistic Solutions Corporation has developed a new forklift-model PI-28-that has been designed to outperform a competitor's best-selling forklift.The competitor's product has a useful life of 10,000 hours of service,has operating costs that average $9.70 per hour,and sells for $139,000.In contrast,model PI-28 has a useful life of 20,000 hours of service and its operating cost is $5.50 per hour.Montecalvo has not yet established a selling price for model PI-28. From a value-based pricing standpoint what is the differentiation value offered byPI-28 relative to the competitor's offering for each 20,000 hours of service?

A) $223,000
B) $236,000
C) $84,000
D) $249,000

E) C) and D)
F) B) and D)

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Question 83

Multiple Choice

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Acri Corporation manufactures numerous products,one of which is called Omicron09.The company has provided the following data about this product: Assume that the total traceable fixed expense does not change.If Acri decreases the price of Omicron09 to $71.76,what percentage change in unit sales would provide the same net operating income as is currently being earned at a price of $78.00? (Your answer should be rounded to the nearest 0.1%.)

Schimpf Industries Inc.has developed a new grinder,model WC-13,that is designed to offer superior performance to a comparable grinder sold by Schimpf's main competitor.The competing grinder sells for $24,000 and needs to be replaced after 1,000 hours of use.It also requires $2,000 of preventive maintenance during its useful life.Model WC-13's performance capabilities are similar to the competing product with two important exceptions-it needs to be replaced only after 4,000 hours of use and it requires $5,000 of preventive maintenance during its useful life. From a value-based pricing standpoint what range of possible prices should Schimpf consider when setting a price for model WC-13?

Marvel Corporation estimates that the following costs and activity would be associated with the manufacture and sale of product Y: If the company uses the absorption costing approach to cost-plus pricing described in the text and desires a 15% rate of return on investment (ROI) ,the required markup on absorption cost for product Y would be:

Shoun Mechanical Corporation has developed a new industrial grinder-model QJ-47-that has been designed to outperform a competitor's best-selling industrial grinder. Model QJ-47 has a useful life of 120,000 hours of service and its operating cost is $0.60 per hour. In contrast, the competitor's product has a useful life of 30,000 hours of service and has operating costs that average $0.90 per hour. The competitor's industrial grinder sells for $129,000. Shoun has not yet established a selling price for model QJ-47. -From a value-based pricing standpoint what is QJ-47's economic value to the customer over its 120,000 hour useful life?

Minden Corporation estimates that the following costs and activity would be associated with the manufacture and sale of product A: If the company uses the absorption costing approach to cost-plus pricing described in the text and desires a 15% rate of return on investment (ROI) ,the required markup on absorption cost for Product A would be closest to:

Cogdill Corporation manufactures numerous products,one of which is called Epsilon78.The company has provided the following data about this product: Assume that the total traceable fixed expense does not change.If Cogdill increases the price of Epsilon78 to $19.76,what percentage change in unit sales would provide the same net operating income as is currently being earned at a price of $19.00? (Your answer should be rounded to the nearest 0.1%.)

Hoder Corporation manufactures numerous products,one of which is called Gamma45.The company has provided the following data about this product: Assume that the total traceable fixed expense does not change.How many units of product Gamma45 would Hoder need to sell at a price of $38.95 to earn the same net operating income that it currently earns at a price of $41.00? (Round your answer up to the nearest whole number.)