accounting-.Tory Company sells a single product

QUESTION

1.Tory Company sells a single product. Troy
estimates demand and costs at various activity levels as follows:
Units Sold Price
Total Variable
Costs Fixed Costs

120,000 $48
$3,000,000
$1,000,000
154,000 $45
$3,540,000
$1,000,000
160,000 $40
$4,000,000
$1,000,000
180,000 $35
$4,500,000
$1,000,000
200,000 $30
$5,000,000
$1,000,000

2.How much profit will Troy have if a price
of $45 is charged?
The Falling Snow Company is considering
production of a lighted world globe that the company would price at a markup of
0.30 above full cost. Management estimates that the variable cost of the globe
will be $62 per unit and fixed costs per year will be $240,000.

Assuming sales of 1,200 units, what is the
full selling price of a globe with a 0.30 markup?

3. A company believes it can sell 5,700,000 of
its proposed new optical mouse at a price of $10.50 each. There will be
$8,000,000 in fixed costs associated with the mouse. If the company desires to
make a profit $2,000,000 on the mouse, what is the target variable cost per
mouse?

4. Wizard Corporation has analyzed their
customer and order handling data for the past year and has determined the
following costs:

Order processing cost per order
$7

Additional costs if order must be expedited
(rushed)
$8.50

Customer technical support calls (per call)
$12

Relationship management costs (per customer
per year)
$1200

In addition to these costs, product costs
amount to 75% of Sales.

In the prior year, Wizard had the following
experience with one of its customers, Chester Company:

Sales
$15,500
Number of orders 160

Percent of orders marked rush 70%

Calls to technical support 80

Calculate the profitability of the Chester
Company account.

5. When a firm adds a predetermined percentage
to the cost of its product for pricing purposes, it is called:
a. incremental pricing
b. demand pricing
c. cost-plus pricing
d. cost plus demand pricing

6. PowerDrive, Inc. produces a hard disk drive
that sells for $175 per unit. The cost of producing 25,000 drives in the prior
year was:

Direct material $625,000
Direct labor 375,000

Variable overhead 125,000
Fixed overhead 1,500,000

Total cost $2,625,000
At the start of the current year, the company
received an order for 3,800 drives from a computer company in China. Management
of PowerDrive has mixed feelings about the order. On the one hand they welcome
the order because they currently have excess capacity. Also, this is the
company’s first international order. On the other hand, the company in China is
willing to pay only $135 per unit.
What will be the effect on profit of
accepting the order?

7. Another name for menu-based pricing is:
a. Cost-plus pricing
b. Customer profitability pricing
c. Profit maximizing pricing
d. Activity-based pricing

8. A company has $40 per unit in variable costs
and $1,200,000 per year in fixed costs. Demand is estimated to be 102,000 units
annually. What is the price if a markup of 40% on total cost is used to
determine the price?

ANSWER:

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