CHAPTER 8 Pricing ASSIGNMENT CLASSIFICATION TABLE Learning Objectives Questions Exercises Do It Exercises Problems Problems Brief A B 1 6 1 Compute a target cost when 1 2 the market determines a product price 2 Compute a target selling price using cost plus pricing 3 4 5 6 7 8 2 3 4 5 3 Use time and material pricing 9 10 to determine the cost of services provided 4 Determine a transfer price using the negotiated cost based and market based approaches 7 8 9 11 12 13 14 15 16 17 1 2 3 4 1 2 3 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 1A 2A 1B 2B 3A 3B 4A 5A 6A 4B 5B 6B 5 Explain issues involved in 18 transferring goods between divisions in different countries 6 Determine prices using absorption cost pricing and variable cost pricing 19 20 10 11 18 19 20 7A 8A 7B 8B Note All asterisked Questions Exercises and Problems relate to material contained in the appendix to the chapter 8 1 Copyright 2012 John Wiley Sons Inc Weygandt Managerial Accounting 6 e Solutions Manual For Instructor Use Only ASSIGNMENT CHARACTERISTICS TABLE Problem Number Description Difficulty Level Time Allotted min 7A 8A 1A 2A 3A 4A 5A 6A 1B 2B 3B 4B 5B 6B 7B 8B Use cost plus pricing to determine various amounts Use cost plus pricing to determine various amounts Use time and material pricing to determine bill Simple Simple Simple Determine minimum transfer price with no excess capacity and with excess capacity Moderate Determine minimum transfer price with no excess capacity Moderate Determine minimum transfer price under different situations Moderate Compute the target price using absorption cost pricing and variable cost pricing Moderate Compute various amounts using absorption cost pricing and variable cost pricing Complex 40 50 Use cost plus pricing to determine various amounts Use cost plus pricing to determine various amounts Use time and material pricing to determine bill Simple Simple Simple Determine minimum transfer price with no excess capacity and with excess capacity Moderate Determine minimum transfer price with no excess capacity Moderate Determine minimum transfer price under different situations Moderate Compute the target price using absorption cost pricing and variable cost pricing Moderate Compute various amounts using absorption cost pricing and variable cost pricing Complex 40 50 20 30 20 30 20 30 20 30 20 30 20 30 30 40 20 30 20 30 20 30 20 30 20 30 20 30 30 40 8 2 Copyright 2012 John Wiley Sons Inc Weygandt Managerial Accounting 6 e Solutions Manual For Instructor Use Only B L O O M S T A X O N O M Y T A B L E Correlation Chart between Bloom s Taxonomy Learning Objectives and End of Chapter Exercises and Problems Analysis Synthesis Evaluation Learning Objective 1 Compute a target cost when the market determines a product price 2 Compute a target selling price using cost plus pricing Q8 3 Q8 5 Q8 2 BE8 1 Q8 6 Knowledge Comprehension Q8 1 Application E8 3 DI8 1 E8 1 E8 2 Q8 4 Q8 7 Q8 8 BE8 2 BE8 3 BE8 4 BE8 5 DI8 2 E8 3 BE8 6 DI8 3 E8 8 E8 9 E8 4 E8 5 E8 6 E8 7 P8 1A P8 2A P8 1B P8 2B E8 10 P8 3A P8 3B Q8 20 BE8 10 BE8 11 E8 18 E8 19 E8 20 P8 7A P8 8A P8 7B P8 8B 3 Use time and material pricing Q8 10 Q8 9 to determine the cost of services provided 4 Determine a transfer price using the negotiated cost based and market based approaches Q8 13 Q8 15 Q8 16 5 Explain issues involved in transferring goods between divisions in different countries 6 Determine prices using absorption cost pricing and variable cost pricing Q8 19 Q8 11 Q8 12 Q8 14 Q8 17 Q8 18 BE8 7 BE8 8 BE8 9 DI8 4 E8 11 E8 12 E8 13 E8 14 E8 15 E8 16 E8 17 P8 4A P8 5A P8 6A P8 4B P8 5B P8 6B Broadening Your Perspective BYP8 5 BYP8 1 BYP8 6 BYP8 7 BYP8 3 BYP8 4 BYP8 8 BYP8 2 C o p y r i g h t 2 0 1 2 i l J o h n W e y S o n s I n c W e y g a n d t M a n a g e r i a l A c c o u n t i n g 6 e S o u l t i o n s M a n u a l F o r I n s t r u c t o r U s e O n y l 8 3 ANSWERS TO QUESTIONS 1 2 3 The first type of pricing environment is where the company is a price taker that is the company does not set the price but instead the price is set by a competitive market In the second type of situation the company sets the price This happens most often when the product is specially made for a customer or there are few or no other producers capable of manufacturing a similar item A company focuses on target cost when it cannot influence the market price The target cost is determined by subtracting the desired profit per unit from the market determined selling price The basic formula to determine the target selling price in cost plus pricing is Target selling price Cost Markup percentage X Cost 4 The basic formula to determine the target selling price in cost plus pricing is Target selling price Cost Markup percentage X Cost 23 40 18 30 X 18 5 The basic formula to compute the markup percentage is Markup percentage Desired ROI per unit Total unit cost Some of the factors that affect a company s desired ROI are competitive and market conditions political and legal issues and other relevant risk factors Total cost base per unit excluding selling and administrative expenses Selling and administrative expenses per unit Total unit cost The markup percentage is computed as follows 60 15 75 Variable cost per unit Fixed cost per unit Desired ROI per unit Target selling price The markup percentage is 16 9 6 31 6 8 75 6 24 25 Time and material pricing is most often used in service industries It involves two pricing rates one for the labor used on a job while the other involves the materials used Each typically has a profit rate factored into it The material loading charge is a fee added to each bill to cover the costs of purchasing receiving handling and storing materials plus any desired profit margin on the materials themselves The material loading charge is expressed as a percentage of the total estimated costs of parts and materials for the year 8 4 Copyright 2012 John Wiley Sons Inc Weygandt Managerial Accounting 6 e Solutions Manual For Instructor Use Only 6 7 8 9 10 11 12 13 17 18 Questions Chapter 8 Continued A …