What is cost-plus pricing

Assignment Help Accounting Basics

Reference no: EM131967263

Question 1

Consider the following information, prepared based on a monthly capacity of 200,000 units:

Category	Cost per Unit
Variable manufacturing costs	$52
Fixed manufacturing costs	$8
Variable selling costs	$12
Fixed selling costs	$7

Capacity cannot be added in the month and the firm currently sells the product for $85 per unit.

Consider each of these scenarios independent of each other.

a) The company is currently producing 185,000 units per month. A potential customer has contacted the firm and offered to purchase 10,000 units this month only. The customer is willing to pay $66 per unit. Since the potential customer approached the firm, there will be no variable selling costs incurred. Should the company accept the special order? Why or why not? Be specific.

b) Assume the same facts as in part a, except that the company is producing 200,000 units per month. Should the company accept the special order? Why or why not? Be specific.

c) List and describe other factors (not those addressed in parts a and b) that should be taken into consideration when deciding whether to accept a special order? Be specific in your responses.

Question 2

a) What is target pricing? Under what specific circumstances can it be most useful? What are some potential problems with using this approach to pricing? Be specific in your responses.

b) What is cost-plus pricing? Under what specific circumstances can it be most useful? What are some potential problems with using this approach to pricing? Be specific in your responses.

c) What is life cycle pricing? Under what specific circumstances can it be most useful? What are some potential problems with using this approach to pricing? Be specific in your responses.

Reference no: EM131967263

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