108) Morr Logistic Solutions Corporation has developed a new forklift—model QY-49—that
has been designed to out perform 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 $3.70 per hour, and
sells for $109,000. In contrast, model QY-49 has a useful life of 40,000 hours of service and its
operating cost is $2.10 per hour. Morr has not yet established a selling price for model QY-49.
From a value-based pricing standpoint, what is QY-49’s economic value to the customer over its
40,000 hour useful life?
A) $500,000
B) $193,000
C) $146,000
D) $391,000
109) Morr Logistic Solutions Corporation has developed a new forklift—model QY-49—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 $3.70 per hour, and sells
for $109,000. In contrast, model QY-49 has a useful life of 40,000 hours of service and its
operating cost is $2.10 per hour. Morr has not yet established a selling price for model QY-49.
From a value-based pricing standpoint, what range of possible prices should Morr consider when
setting a price for QY-49?
A) $193,000 ≤ Value–based price ≤ $391,000
B) $109,000 ≤ Value–based price ≤ $500,000
C) $391,000 ≤ Value–based price ≤ $500,000
D) $109,000 ≤ Value–based price ≤ $193,000
110) 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?
A) $423,000
B) $552,000
C) $156,000
D) $201,000
111) 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 range of possible prices should Shoun consider
when setting a price for QJ-47?
A) $423,000 ≤ Value–based price ≤ $552,000
B) $129,000 ≤ Value-based price ≤ $201,000
C) $129,000 ≤ Value–based price ≤ $552,000
D) $201,000 ≤ Value–based price ≤ $423,000
112) Morice Industries Inc. has developed a new injection mold, model IA-05, that is designed to
offer superior performance to a comparable injection mold sold by Morice’s main competitor.
The competing injection mold sells for $54,000 and needs to be replaced after 1,000 hours of
use. It also requires $7,000 of preventive maintenance during its useful life. Model IA-05’s
performance capabilities are similar to the competing product with two important exceptions—it
needs to be replaced only after 2,000 hours of use and it requires $8,000 of preventive
maintenance during its useful life.
From a value-based pricing standpoint, what is the reference value that Morice should consider
when pricing model IA-05?
A) $54,000
B) $68,000
C) $108,000
D) $61,000
113) Morice Industries Inc. has developed a new injection mold, model IA-05, that is designed to
offer superior performance to a comparable injection mold sold by Morice’s main competitor.
The competing injection mold sells for $54,000 and needs to be replaced after 1,000 hours of
use. It also requires $7,000 of preventive maintenance during its useful life. Model IA-05’s
performance capabilities are similar to the competing product with two important exceptions—it
needs to be replaced only after 2,000 hours of use and it requires $8,000 of preventive
maintenance during its useful life.
From a value-based pricing standpoint, what is the differentiation value offered by model IA-05
relative to the competitor’s offering for each 2,000 hours of usage?
A) $68,000
B) $60,000
C) $6,000
D) $108,000
114) Morice Industries Inc. has developed a new injection mold, model IA-05, that is designed to
offer superior performance to a comparable injection mold sold by Morice’s main competitor.
The competing injection mold sells for $54,000 and needs to be replaced after 1,000 hours of
use. It also requires $7,000 of preventive maintenance during its useful life. Model IA-05’s
performance capabilities are similar to the competing product with two important exceptions—it
needs to be replaced only after 2,000 hours of use and it requires $8,000 of preventive
maintenance during its useful life.
From a value-based pricing standpoint, what is model IA-05’s economic value to the customer
over its 2,000 hour life?
A) $114,000
B) $68,000
C) $108,000
D) $60,000
115) Morice Industries Inc. has developed a new injection mold, model IA-05, that is designed to
offer superior performance to a comparable injection mold sold by Morice’s main competitor.
The competing injection mold sells for $54,000 and needs to be replaced after 1,000 hours of
use. It also requires $7,000 of preventive maintenance during its useful life. Model IA-05’s
performance capabilities are similar to the competing product with two important exceptions—it
needs to be replaced only after 2,000 hours of use and it requires $8,000 of preventive
maintenance during its useful life.
From a value-based pricing standpoint, what range of possible prices should Morice consider
when setting a price for model IA-05?
A) $54,000 ≤ Value–based price ≤ $114,000
B) $54,000 ≤ Value–based price ≤ $108,000
C) $60,000 ≤ Value–based price ≤ $114,000
D) $60,000 ≤ Value–based price ≤ $108,000
116) Wenner Corporation would like to use target costing for a new product it is considering
introducing. At a selling price of $44 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 10%.
The desired profit according to the target costing calculations is:
A) $90,000
B) $350,000
C) $44,000
D) $440,000
117) Wenner Corporation would like to use target costing for a new product it is considering
introducing. At a selling price of $44 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 10%.
The target cost per unit is closest to:
A) $44.00
B) $38.50
C) $48.40
D) $35.00
118) The management of Rademacher Corporation is considering introducing a new product—a
compact lawn blower. At a selling price of $24 per unit, management projects sales of 30,000
units. The lawn blower would require an investment of $200,000. The desired return on
investment is 12%.
The desired profit according to the target costing calculations is:
A) $696,000
B) $24,000
C) $86,400
D) $720,000
119) The management of Rademacher Corporation is considering introducing a new product—a
compact lawn blower. At a selling price of $24 per unit, management projects sales of 30,000
units. The lawn blower would require an investment of $200,000. The desired return on
investment is 12%.
The target cost per lawn blower is closest to:
A) $24.00
B) $23.20
C) $26.88
D) $25.98
114
120) Quamma Corporation makes a product that has the following costs:
Per Unit
Per Year
Direct materials
$
18.40
Direct labor
$
17.30
Variable manufacturing overhead
$
2.10
Fixed manufacturing overhead
$
285,200
Variable selling and administrative expenses
$
3.40
Fixed selling and administrative expenses
$
473,800
–
The company uses the absorption costing approach to cost-plus pricing as described
in the text. The pricing calculations are based on budgeted production and sales of
23,000 units per year.
The company has invested $280,000 in this product and expects a return on
investment of 8%.
Required:
a. Compute the markup on absorption cost.
b. Compute the selling price of the product using the absorption costing approach.
116
121) Ritner Corporation manufactures a product that has the following costs:
Per Unit
Per Year
Direct materials
$
22.20
Direct labor
$
13.70
Variable manufacturing overhead
$
2.10
Fixed manufacturing overhead
$
449,500
Variable selling and administrative expenses
$
1.50
Fixed selling and administrative expenses
$
591,600
–
The company uses the absorption costing approach to cost-plus pricing as described in the text.
The pricing calculations are based on budgeted production and sales of 29,000 units per year.
The company has invested $360,000 in this product and expects a return on investment of 9%.
Required:
a. Compute the markup on absorption cost.
b. Compute the selling price of the product using the absorption costing approach.
118
122) Hill Corporation is contemplating the introduction of a new product. The company has
gathered the following information concerning the product:
Number of units to be produced and sold each year
10,000
Investment required by the company
$
200,000
Projected unit manufacturing cost
$
30
Projected annual selling and administrative expenses
$
40,000
Desired rate of return on investment
10
%
–
The company uses the absorption costing approach to cost-plus pricing as described
in the text.
Required:
a. Compute the markup on absorption cost.
b. Compute the selling price.
c. If the price computed in “b” above is charged, and costs turn out as projected, can the company
be assured that no loss will be sustained on the new product? Explain.
123) Gildersleeve Corporation manufactures a product that has the following costs:
Per Unit
Per Year
Direct materials
$6.00
Direct labor
$5.00
Variable manufacturing overhead
$4.00
Fixed manufacturing overhead
$360,000
Variable selling and administrative expenses
$5.00
Fixed selling and administrative expenses
$120,000
The company uses the absorption costing approach to cost-plus pricing as described in the text.
The pricing calculations are based on budgeted production and sales of 30,000 units per year.
The company has invested $600,000 in this product and expects a return on investment of 15%.
Required:
a. Compute the markup on absorption cost.
b. Compute the selling price of the product using the absorption costing approach.
Direct materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead
Unit product cost