Boden Company\'s management believes that every 2% increase in the selling price
ID: 2497751 • Letter: B
Question
Boden Company's management believes that every 2% increase in the selling price of one of the company's products would lead to a 5% decrease in the product's total unit sales. The product's variable cost is $19.30 per unit. The product's price elasticity of demand as defined in the text is closest to: A. -3.01 B. -2.07 C. -1.89 D. -2.59
Boden Company's management believes that every 2% increase in the selling price of one of the company's products would lead to a 5% decrease in the product's total unit sales. The product's variable cost is $19.30 per unit.
The product's profit-maximizing price according to the formula in the text is closest to:
$37.39
$31.44
$40.88
$28.91
Edelheit Company uses the absorption costing approach to cost-plus pricing as described in the text to set prices for its products. Based on budgeted sales of 26,000 units next year, the unit product cost of a particular product is $24.20. The company's selling and administrative expenses for this product are budgeted to be $629,000 in total for the year. The company has invested $340,000 in this product and expects a return on investment of 14%.
The selling price based on the absorption costing approach for this product would be closest to:
$27.59
$50.22
$48.40
$100.46
QUESTION 9
A new product, an automated crepe maker, is being introduced at Laguna Corporation. At a selling price of $52 per unit, management projects sales of 90,000 units. Launching the crepe maker as a new product would require an investment of $200,000. The desired return on investment is 15%. The target cost per crepe maker is closest to:
$59.80
$52.00
$59.42
$51.67
The management of Kozloff Corporation is considering introducing a new product--a compact barbecue. At a selling price of $74 per unit, management projects sales of 80,000 units. Launching the barbecue as a new product would require an investment of $800,000. The desired return on investment is 14%. The target cost per barbecue is closest to:
$84.36
$82.76
$72.60
$74.00
A.$37.39
B.$31.44
C.$40.88
D.$28.91
Explanation / Answer
1)The product's price elasticity of demand = Change in Demand/Change in Sales
= % Change in Quantity Demanded / % Change in Price
= -5/2
= -2.5 ...Option-D:- -2.59 is the Correct Answer
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2)The selling price based on the absorption costing approach for this product would be closest to:
..
Investment = $340,000
Target Profit =return on investment of 14%
= 14% of 340,000
= $47,600
Target Profit per unit = 47,600/26,000
= 1.83
Target Cost per unit = 24.20 + (629,000/26,000)
= 24.20 + 24.19
= $48.39 per unit
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Therefore, Taget Selling Price per unit = Target Cost per unit + Target profit per unit
= 48.39 + 1.83
= $50.22 per unit ...Option-B is the correct answer
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3)The target cost per crepe maker is closest to:
..
Investment = $2,00,000
Target Profit = The desired return on investment
Target Profit = 15% of $200,000
=$30,000
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Target Sales = 90,000*52
=$46,80,000
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Therefore ,Target COst = Target Sales - Target Profit
= 46,80,000 - 30,000
= 46,50,000
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Taget Cost per unit = 46,50,000/90,000
=$51.67 ...Option -D is the Correct answer.
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4)The target cost per barbecue is closest to:
..
Investment = $8,00,000
Target Profit = The desired return on investment
Target Profit = 14% of $800,000
=$112,000
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Target Sales = 80,000*74
=$59,20,000
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Therefore ,Target COst = Target Sales - Target Profit
= 59,20,000 - 112,000
= 58,08,000
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Taget Cost per unit = 58,08,000/80,000
=$72.60 ...Option -C is the Correct answer.