Westerly Cosmetics manuacctures and sells a variety of makeup and beauty products. The company has developed its own patented formula for a new anti- aging cream The company president wants to make sure the product is priced competitively because its purchase will also likely increase sales of other products. The company anticipates that it will sell 400,000 units of the productin the first year with the following estimated costs 1. The company believes that it can successfully sell the product for \(\$ 45\) a bottle. The company's target operating income is \(30 \%\) of revenue. Calculate the target full cost of producing the 400,000 units. Does the cost estimate meet the company's requirements? Is value engineering needed? 2\. A component of the direct materials cost requires the nectar of a specific plant in South America. If the company could eliminate this special ingredient, the materials cost would decrease by \(25 \%\). However, this would require design changes of \(\$ 300,000\) to engineer a chemical equivalent of the ingredient. Will this design change allow the product to meet its target cost? 3\. The company president does not believe that the formula should be altered for fear it will tarnish the company's brand. She prefers that the company become more efficient in manufacturing the product. If fixed manufacturing costs can be reduced by \(\$ 250,000\) and variable direct manufacturing labor costs are reduced by \(\$ 1\) per unit, will Westerly achieve its target cost? 4\. Would you recommend the company follow the proposed solution in requirement 2 or requirement 3?
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Describe two alternative approaches to long-run pricing decisions.
What are three benefits of using a product life-cycle reporting format?
Global Airlines is a major low-price airline carrier for both domestic and international travel. The company guarantees the "lowest price" ticket for travel within the United States. The "lowest price" ticket guarantee does not apply for travel on Monday mornings and Friday evenings, which are busy travel times for business travelers. 1\. Do these pricing practices of Global Airlines violate any anti-trust laws? Why or why not? 2\. Why is Global Airlines not offering a price guarantee for flights on Monday mornings and Friday evenings? Do you agree with this policy? Explain briefly. 3\. What other factors should Global Airlines consider before implementing these pricing policies?
Georgia Temps, a large labor contractor, supplies contract labor to building- construction companies. For \(2017,\) Georgia Temps has budgeted to supply 84,000 hours of contract labor. Its variable costs are 13 per hour, and its fixed costs are 168,000 dollar, Roger Mason, the general manager, has proposed a cost-plus approach for pricing labor at full cost plus \(20 \%\) 1\. Calculate the price per hour that Georgia Temps should charge based on Mason's proposal. 2\. The marketing manager supplies the following information on demand levels at different prices: Georgia Temps can meet any of these demand levels. Fixed costs will remain unchanged for all the demand levels. \(0 n\) the basis of this additional information, calculate the price per hour that Georgia Temps should charge to maximize operating income. 3\. Comment on your answers to requirements 1 and 2 . Why are they the same or different?
Describe value engineering and its role in target costing.
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