Learning Materials
Features
Discover
Chapter 25: Q25-12RQ (page 1406)
What is cost-plus pricing? Who uses it?
Answer
Cost-plus pricing is an approach of setting the target selling prices of products and services, and price-setter business concerns use the same.
Over 30 million students worldwide already upgrade their learning with 91影视!
All the tools & learning materials you need for study success - in one app.
Get started for free
Snow Ride manufactures snowboards. Its cost of making 1,900 bindings is as follows:
Direct materials \(17,590
Direct labor 3,200
Variable overhead 2,080
Fixed overhead 6,300
Total manufacturing costs for 1,900 bindings \)29,170
Suppose Livingston will sell bindings to Snow Ride for \(13 each. Snow Ride would pay \)3 per unit to transport the bindings to its manufacturing plant, where it would add its own logo at a cost of \(0.50 per binding.
Requirements
1. Snow Ride鈥檚 accountants predict that purchasing the bindings from Livingston will enable the company to avoid \)2,100 of fixed overhead. Prepare an analysis to show whether Snow Ride should make or buy the bindings.
2. The facilities freed by purchasing bindings from Livingston can be used to manufacture another product that will contribute $3,100 to profit. Total fixed costs will be the same as if Snow Ride had produced the bindings. Show which alternative makes the best use of Snow Ride鈥檚 facilities: (a) make bindings, (b) buy bindings and leave facilities idle, or (c) buy bindings and make another product.
Mary Tan is the controller for Duck Associates, a property management company in Portland, Oregon. Each year, Tan and payroll clerk Toby Stock meet with the external auditors about payroll accounting. This year, the auditors suggest that Tan consider outsourcing Duck Associates鈥檚 payroll accounting to a company specializing in payroll processing services. This would allow Tan and her staff to focus on their primary responsibility: accounting for the properties under management. At present, payroll requires 1.5 employee positions鈥攑ayroll clerk Toby Stock and a bookkeeper who spends half her time entering payroll data in the system.
Tan considers this suggestion, and she lists the following items relating to outsourcing payroll accounting:
The current payroll software that was purchased for \(4,000 three years ago would not be needed if payroll processing were outsourced.
Duck Associates鈥� bookkeeper would spend half her time preparing the weekly payroll input form that is given to the payroll processing service. She is paid \)450 per week.
Duck Associates would no longer need payroll clerk Toby Stock, whose annual salary is \(42,000.
The payroll processing service would charge \)2,000 per month.
Requirements
1. Would outsourcing the payroll function increase or decrease Duck Associates鈥� operating income?
2. Tan believes that outsourcing payroll would simplify her job, but she does not like the prospect of having to lay off Stock, who has become a close personal friend. She does not believe there is another position available for Stock at his current salary. Can you think of other factors that might support keeping Stock, rather than outsourcing payroll processing? How should each of the factors affect Tan鈥檚 decision if she wants to do what is best for Duck Associates and act ethically?
Each morning, Max Smith stocks the drink case at Max鈥檚 Beach Hut in Myrtle Beach, South Carolina. The drink case has 120 linear feet of refrigerated drink space. Each linear foot can hold either six 12-ounce cans or three 20-ounce bottles.
Max鈥檚 Beach Hut sells three types of cold drinks:
1. Licious-Ade in 12-oz. cans for \(1.40 per can
2. Licious-Ade in 20-oz. bottles for \)1.90 per bottle
3. Pep-Cola in 20-oz. bottles for \(2.20 per bottle
Max鈥檚 Beach Hut pays its suppliers:
1. \)0.20 per 12-oz. can of Licious-Ade
2. \(0.35 per 20-oz. bottle of Licious-Ade
3. \)0.55 per 20-oz. bottle of Pep-Cola
Max鈥檚 Beach Hut鈥檚 monthly fixed costs include:
Hut rental \(355
Refrigerator rental 65
Max鈥檚 salary 1,700
Total fixed costs \)2,120
Max鈥檚 Beach Hut can sell all the drinks stocked in the display case each morning.
Requirements
1. What is Max鈥檚 Beach Hut鈥檚 constraining factor? What should Max stock to maximize profits?
2. Suppose Max鈥檚 Beach Hut refuses to devote more than 80 linear feet to any individual product. Under this condition, how many linear feet of each drink should Max鈥檚 stock? How many units of each product will be available for sale each day?
What questions should managers answer when considering dropping a product or segment?
Cool Systems manufactures an optical switch that it uses in its final product. The switch has the following manufacturing costs per unit:
Direct materials \(5.00
Direct labor 3.00
Variable overhead 6.00
Fixed overhead 7.00
Manufacturing product cost \)21.00
Another company has offered to sell Cool Systems the switch for $15.00 per unit. If Cool Systems buys the switch from the outside supplier, the idle manufacturing facilities cannot be used for any other purpose, yet none of the fixed costs are avoidable.
Prepare an outsourcing analysis to determine whether Cool Systems should make or buy the switch.
What do you think about this solution?
We value your feedback to improve our textbook solutions.
Explanations 
Textbooks 
Flashcards 
91影视 AI 
Notes 
Study Plans 
Study Sets 
Find a degree 
Magazine