133) Cabebe Corporation manufactures numerous products, one of which is called Omicron55.
The company has provided the following data about this product:
Unit sales (a)
140,000
Selling price per unit
$54.00
Variable cost per unit
36.00
Contribution margin per unit (b)
$18.00
Total contribution margin (a) x (b)
$2,520,000
Traceable fixed expense
2,230,000
Net operating income
$290,000
Required:
a. Management is considering decreasing the price of Omicron55 by 4%, from $54.00 to $51.84.
The company’s marketing managers estimate that this price reduction would increase unit sales
by 10%, from 140,000 units to 154,000 units. Assuming that the total traceable fixed expense
does not change, what net operating income will Omicron55 earn at a price of $51.84 if this sales
forecast is correct?
b. Assuming that the total traceable fixed expense does not change, if Cabebe decreases the price
of Omicron55 to $51.84, what percentage change in unit sales would provide the same net
operating income that it currently earns at a price of $54.00? (Round your answer to the nearest
one-tenth of a percent.)
134) Wyler Logistic Solutions Corporation has developed a new forklift–model IM-40–that has
been designed to outperform a competitor’s best-selling forklift. The competitor’s product has a
useful life of 40,000 hours of service, has operating costs that average $1.30 per hour, and sells
for $139,000. In contrast, model IM-40 has a useful life of 120,000 hours of service and its
operating cost is $0.80 per hour. Wyler has not yet established a selling price for model IM-40.
Required:
From a value-based pricing standpoint what is the differentiation value offered by model IM-40
relative to the competitor’s offering for each 120,000 hours of service?
135) Eytchison Industrial Products Inc. has developed a new industrial grinder, model OK-23,
that is designed to offer superior performance to a comparable grinder sold by Eytchison’s main
competitor. The competing grinder sells for $33,000 and needs to be replaced after 1,000 hours
of use. It also requires $6,000 of preventive maintenance during its useful life. Model OK-23’s
performance capabilities are similar to the competing grinder with two important exceptions—it
needs to be replaced only after 3,000 hours of use and it requires $12,000 of preventive
maintenance during its useful life.
Required:
From a value-based pricing standpoint what is model OK-23’s economic value to the customer
over its 3,000 hour life?
136) Aboud Industrial Products Inc. has developed a new industrial high pressure pump, model
ON-28, that is designed to offer superior performance to a comparable high pressure pump sold
by Aboud’s main competitor. The competing high pressure pump sells for $87,000 and needs to
be replaced after 1,000 hours of use. It also requires $15,000 of preventive maintenance during
its useful life. Model ON-28’s performance capabilities are similar to the competing high
pressure pump with two important exceptions–it needs to be replaced only after 3,000 hours of
use and it requires $31,000 of preventive maintenance during its useful life.
Required:
From a value-based pricing standpoint what range of possible prices should Aboud consider
when setting a price for model ON-28?
137) Kingsford Pure Water Solutions Corporation has developed a new water purification
system–model PC-97–that has been designed to outperform a competitor’s best-selling water
purification system. Model PC-97 has a useful life of 100,000 hours of service and its operating
cost is $0.70 per hour. In contrast, the competitor’s product has a useful life of 20,000 hours of
service and operating costs that average $1.00 per hour. The competitor’s water purification
system sells for $149,000. Kingsford has not yet established a selling price for model PC-97.
Required:
From a value-based pricing standpoint what range of possible prices should Kingsford consider
when setting a price for model PC-97?
138) Ralph Plastics Equipment Corporation has developed a new injection mold–model IX-94–
that has been designed to outperform a competitor’s best-selling injection mold. Model IX-94 has
a useful life of 50,000 hours of service and its operating cost is $2.00 per hour. In contrast, the
competitor’s product has a useful life of 10,000 hours of service and has operating costs that
average $3.50 per hour. The competitor’s injection mold sells for $129,000. Ralph has not yet
established a selling price for model IX-94.
Required:
From a value-based pricing standpoint what is model IX-94’s economic value to the customer
over its 50,000 hour useful life?
139) Bochenski Mechanical Corporation has developed a new industrial grinder—model UF-
48—that has been designed to outperform a competitor’s best-selling industrial grinder. Model
UF-48 has a useful life of 80,000 hours of service and its operating cost is $1.00 per hour. In
contrast, the competitor’s product has a useful life of 20,000 hours of service and has operating
costs that average $1.80 per hour. The competitor’s industrial grinder sells for $129,000.
Bochenski has not yet established a selling price for model UF-48.
Required:
From a value-based pricing standpoint what is the differentiation value offered by model UF-48
relative to the competitor’s offering for each 80,000 hours of service?
140) Bellini Robotics Corporation has developed a new robot–model EM-28–that has been
designed to outperform a competitor’s best-selling robot. The competitor’s product has a useful
life of 30,000 hours of service, has operating costs that average $1.40 per hour, and sells for
$129,000. In contrast, model EM-28 has a useful life of 90,000 hours of service and its operating
cost is $0.80 per hour. Bellini has not yet established a selling price for model EM-28.
Required:
From a value-based pricing standpoint:
a. What is the reference value that Bellini should consider when pricing model EM-28?
b. What is the differentiation value offered by model EM-28 relative to the competitor’s offering
for each 90,000 hours of service?
c. What is model EM-28’s economic value to the customer over its 90,000 hour useful life?
d. What range of possible prices should Bellini consider when setting a price for model EM-28?
141) Thoen Heavy Machinery Corporation has developed a new drill press–model OU-84–that
has been designed to outperform a competitor’s best-selling drill press. The competitor’s product
has a useful life of 30,000 hours of service, has operating costs that average $1.60 per hour, and
sells for $189,000. In contrast, model OU-84 has a useful life of 120,000 hours of service and its
operating cost is $1.00 per hour. Thoen has not yet established a selling price for model OU-84.
Required:
From a value-based pricing standpoint what range of possible prices should Thoen consider
when setting a price for model OU-84?
142) Mounger Industrial Products Inc. has developed a new industrial forklift, model CZ-03, that
is designed to offer superior performance to a comparable forklift sold by Mounger’s main
competitor. The competing forklift sells for $27,000 and needs to be replaced after 1,000 hours
of use. It also requires $3,000 of preventive maintenance during its useful life. Model CZ-03’s
performance capabilities are similar to the competing forklift with two important exceptions–it
needs to be replaced only after 4,000 hours of use and it requires $6,000 of preventive
maintenance during its useful life.
Required:
From a value-based pricing standpoint what is the differentiation value offered by model CZ-03
relative to the competitor’s forklift for each 4,000 hours of usage?
143) Gama Avionics Corporation has developed a new high pressure pump—model SF-22—that
has been designed to outperform a competitor’s best-selling high pressure pump. The
competitor’s product has a useful life of 30,000 hours of service, has operating costs that average
$1.70 per hour, and sells for $109,000. In contrast, model SF-22 has a useful life of 60,000 hours
of service and its operating cost is $1.10 per hour. Gama has not yet established a selling price
for model SF-22.
Required:
From a value-based pricing standpoint what is model SF-22’s economic value to the customer
over its 60,000 hour useful life?
144) Trueba Electronics Corporation has developed a new testing instrument–model JJ-92–that
has been designed to outperform a competitor’s best-selling instrument. Model JJ-92 has a useful
life of 100,000 hours of service and its operating cost is $0.50 per hour. In contrast, the
competitor’s product has a useful life of 20,000 hours of service and has operating costs that
average $0.80 per hour. The competitor’s instrument sells for $109,000. Trueba has not yet
established a selling price for model JJ-92.
Required:
From a value-based pricing standpoint:
a. What is the reference value that Trueba should consider when pricing model JJ-92?
b. What is the differentiation value offered by model JJ-92 relative to the competitor’s offering
for each 100,000 hours of service?
c. What is model JJ-92’s economic value to the customer over its 100,000 hour useful life?
d. What range of possible prices should Trueba consider when setting a price for model JJ-92?
145) Weakly Industrial Products Inc. has developed a new industrial instrument, model CT-60,
that is designed to offer superior performance to a comparable instrument sold by Weakly’s main
competitor. The competing instrument sells for $22,000 and needs to be replaced after 1,000
hours of use. It also requires $4,000 of preventive maintenance during its useful life. Model CT-
60’s performance capabilities are similar to the competing instrument with two important
exceptions–it needs to be replaced only after 2,000 hours of use and it requires $6,000 of
preventive maintenance during its useful life.
Required:
From a value-based pricing standpoint:
a. What is the reference value that Weakly should consider when pricing model CT-60?
b. What is the differentiation value offered by model CT-60 relative to the competitor’s
instrument for each 2,000 hours of usage?
c. What is model CT-60’s economic value to the customer over its 2,000 hour life?
d. What range of possible prices should Weakly consider when setting a price for model CT-60?
146) Management of Niemczyk Corporation is considering a new product, an outdoor speaker
that would have a selling price of $31 per unit and projected sales of 10,000 units. Launching the
new product would require an investment of $700,000. The desired return on investment is 16%.
Required:
Determine the target cost per unit for the outdoor speaker.
147) Lodholz Corporation would like to use target costing for a new product that is under
consideration. At a selling price of $93 per unit, management projects sales of 10,000 units. The
new product would require an investment of $900,000. The desired return on investment is 17%.
Required:
Determine the target cost per unit for the new product.
148) Turnhilm, Inc. is considering adding a small electric mower to its product line.
Management believes that in order to be competitive, the mower cannot be priced above $139.
The company requires a minimum return of 25% on its investments. Launching the new product
would require an investment of $8,000,000. Sales are expected to be 40,000 units of the mower
per year.
Required:
Compute the target cost of a mower.
149) Management of Thebeau, Inc., is considering a new product that would have a selling price
of $72 per unit and projected sales of 40,000 units. The new product would require an investment
of $600,000. The desired return on investment is 19%.
Required:
Determine the target cost per unit for the new product.