Several surveys paint out that most managers use full product casts, including unit fixed casts and unit variable costs, in developing cast-based pricing. Which one of the following is least associated with cost-based pricing?
Answer(s): C
A target price is the expected market price of a product, given the company's knowledge of its customers and competitors. Hence, under target pricing, the sales price is known before the product is developed. Subtracting the unit target profit margin determines the long-term unit target cast. If cost-cutting measures do not permit the product to be made at or below the target cast, it will be abandoned.
Fulford Company applies the target pricing and costing approach. The following information about costs and revenues of Fulford's product are available for the year just ended:Fulford plans to increase unit sales to 80, 000 by reducing the product's unit price to US $320. If Fulford desires a unit target operating income of 12CYo, by what amount must it reduce the full cost per unit?
Unit target operating income is US $38.40 $320 unit target price 12°X0). Hence, the unit target full cost is US $281.60 $320 - $38.40). The current full cost per unit is US $352.00 [($13, 200, 000 CGS + $7, 920, 000 other value chain operating costs) - 60, 000 units sold], so the necessary reduction in the full cost per unit is US $70.40 $352.00 - $281.60).
A company's product has an expected 4-year life cycle from research, development, and design through its withdrawal from the market. Budgeted costs areThe company plans to produce 200, 000 units and price the product at 125°!a of the whole- life unit cost. Thus, the budgeted unit selling price is
Answer(s): D
Whole-life costs include after-purchase costs operating, support, repair, and disposal) incurred by customers as well as life-cycle costs R&D, design, manufacturing, marketing, distribution, and research). Hence, the budgeted unit whole-life cost is US $36 [($2, 000, 000 + $3, 000, 000 + $1, 200, 000 + $1, 000, 000) - 200, 000 units], and the budgeted unit selling price is US $45 $36 125CYo).
A manufacturing company produces plastic utensils for a particular segment at the lowest possible cost. The company is pursuing a cost
Answer(s): B
A cost focus strategy aims at cost leadership in a particular segment, such as a regional market or a specialty product line. The rationale for a focus strategy is that the narrower market can be better served.
The dominant firm in a market pursues a market-leader strategy. This strategy may involve
Constant innovation to improve products and services, control costs, and increase distribution effectiveness is the basis for a good offensive strategy. The leader must continuously improve the value offered to customers.
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