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Product Code:- Accounting-PH139

Page 1

1. External Factors That Influence Prices

Question: Your client is about to introduce a very high-quality product that will remove an invasive form of pepper plant in the southern United States. The Marketing Department has established  a price of $37 per gallon, and the company controller has projected total production, selling, and distribution costs of $26 per gallon. What other factors should your client consider before introducing the product into the market?

2. Cost Based Versus Market Based Transfer Prices

Question: Refer to the information in question 7. Should Premium Castings use cost based , market based, or negotiated transfer prices? Why?

(I have listed Question 7 to help with problem 2. Question 7 is not one of the 12 questions)

The production process at Premium Castings includes eight processes, each of which is currently treated as a cost center with a specific set of operations to perform on each casting produced. Following the fourth process's operations, the rough castings have an external market. The fourth process must also supply the fifth process with its direct materials. Premium's management wants to develop a new approach to measuring process performance. Is Premium a candidate for using transfer prices?

3. Rules for Establishing Prices

Question: Jay Patel is planning to open a pizza restaurant next month in Flora, Alabama. He plans to sell his large pizzas for a base price of $18 plus $2 for each topping selected. When asked how he arrived at the base price, he said that his cousin developed that price for his pizza restaurant in New York City. What pricing rules has Patel not followed?

4. Costs of Quality in Service Business

Question: ABC Insurance Agency incurred the following activity costs related to service quality. Identify those that are costs of conformance (CC) and those that are costs of non conformance (NC). 

Public processing improvements    $76,400

Customer complaints response   $34,100

Policy writer training   $12,300

Policy error losses   $82,700

Policy proofing  $39,500

5. Measures of Quality

Question: Internal reports on quality at Lakelawn Press Company generated the following information for the School Division for the first three months of the year:

Total sales    $50,000,000

Costs of quality:

Prevention  $23,000

Appraisal   $77,000

Internal failure    $860,000

External failure   $640,000

Compute the following. (round to two decimal places)

a. Total costs of quality as a percentage of sales

b. Ratio of costs of conformance to total costs of quality

c. Ratio of costs of nonconformance to total costs of quality

d. Costs of nonconfirmance as a percentage of total sales

6. Nonfinancial Measures of Quality

Question: For a fast food restaurant that specializes in deluxe hamburgers, identify two nonfinancial measures of good product quality and two nonfinancial measures of poor product quality.

Page 2

1. External and Internal Pricing Factors

Question: Ready Tires features more than a dozen brands of tires in many sizes. Two of the brands are RoadPlus and RoadPower. Information about the two brands follows.


Selling Price

Tire, installed $180
Cost per tire $120


Selling Price

Tire, installed  $170

Cost per tire $80

As shown, selling prices include installation costs. Each tire costs $20 to install.

a. Compute each brand's net unit selling price after installation.

b. Was cost the main consideration in setting those prices?

c. What other factors could have influenced those prices?

2. Nonfinancial Measures of Quality and TOM

Question: "A satisfied customer is the most important goal of this company"! Was the opening remark of the corporate president, Alicia Les, at Wonder Tube Company's monthly executive committee meeting. The company manufactures tube products for customers in 16 western states. It has four divisions, each producing a different type of material. Les, a proponent of total quality management, was reacting to the latest measures of quality from the four divisions. The data for the four divisions follows.

                                                                    Brass Division       Plastics Division        Aluminum Division     Copper Division          Company Averages  


Vendor on-time delivery                                        96.30%                     90.50%                         97.20%                   87.10%                            92.61%

Production quality rates
(detective parts per million)                                        1,300                    2,600                            1,200                       4,300                                2,400

On-time shipments                                                87.10%                    76.30%                        89.70%                     73.50%                              81.65%

Returned orders                                                    1.00%                        4.00%                            0.75%                     6.00%                               3.00%

Number of customer complaints                                20                            52                                    6                            58                                        34

Number of warranty claims                                           6                            11                                   3                            13                                          9 

Why was Les upset?  Which division or divisions do not appear to have satisfied customers? What criteria did you use to make your decision?

Page 3

1. Classification of costs, merchandising sector

Question: Home Entertainment Center (HEC) operates a large store in San Francisco. The store has both a video section and music (compact discs and tapes) section. HEC reports revenues for the video section separately from the music section. Classify each cost. 

Direct or Indirect (D or I) costs with respect to the total number of videos sold.

Variable of Fixed (V or F) costs with respect to how the total costs of the videos change as the total number of videos sold changes. (if in doubt select on the basis of whether the costs will change substantially is there is a large change in the total number of videos sold)

You will have two answers (D or I; V or F) for each of the following.

a. Annual retainer paid to the video distributor 

b. Electricity costs of the HEC store (single bill covers entire store)

c. Cost of videos purchased for sale to customer

d. Subscription to Video Trend magaizine

e. Leasing of computer software used for financial budgeting at the HEC store

f. Cost of popcorn provided free to all customers of the HEC store

g. Earthquake insurance policy for HEC store

h. Freight-in costs of videos purchased by HEC

2. CVP analysis , margin, and safety

Question: Suppose Doral Corp's breakeven point is revenues of $1, 100, 000. Fixed cost of $660,000. 

a. Compute the contribution margin percentage

b. Compute the selling price if variable costs are $16 per unit

c. Suppose 95,000 units are sold. Compute the margin of safety in units and dollars.

3. Estimating a cost of function, high-low method

Question: Laurie Daley is examining customer -service costs in the southern region  of Capitol Products. Capitol Products has more than 200 separate electrical products that are sold with a six-month guarantee of full repair or replacement with a new product. When a product is returned y a customer, a service report is prepared. The service report includes details of the problem and the time and cost of resolving the problem. Weekly data for the most recent 8 week period are as follows:

Week                                                  Customer-Service Department Cost                                                                                  Number of Service Reports 

1                                                            $13,700                                                                                                                                190

2                                                            $20,900                                                                                                                                 275

3                                                             $13,000                                                                                                                                115

4                                                             $18,800                                                                                                                                395

5                                                            $14,000                                                                                                                                 265

6                                                            $21,500                                                                                                                                 455          

7                                                            $16,900                                                                                                                                  340

8                                                        $21,000                                                                                                                                       305

Use the high-low method to compute the cost function, relating customer service costs to the number of service reports.

4. Special Order

Questions: Louisville Corporation produces baseball bats for kids that it sells for $32 each. At capacity, the company can produce 50,000 bats a year. The cost of producing and selling 50,000 bats are as follow:


                                                                        Cost per bat                        Total Cost

Direct material                                                    $12                                    $600,000

Direct manufacturing labor                                    $3                                    $150,000

Variable manufacturing overhead                            $1                                $50,000

Fixed manufacturing overhead                                $5                                    $250,000

Variable selling expense                                        $2                                    $100,000

Fixed selling expense                                            $4                                    $200,000

Total cost                                                                $27                                    $1,350,000

Suppose Louisville is currently producing and selling 40,000 bats. At this level of production and sells, its fixed cost and sells are the same as given in the preceding table.  Ripkin Corporation wants to place a one-time special order for 10,000 bats at $25 each. Louisville will incur no variable selling cost for this special order. Should Louisville accept this on-time special order? Show your calculations. 


Download Questions

1. Demand: The market demand for a product or service obviously has a big impact on pricing. Since demand is affected by factors like, number and size of competitors, the prospective buyers, their capacity and willingness to pay, their preference etc. are taken into account while fixing the price.

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