Chapter 9: Pricing Homework

Target Cost: Cheesin’ Company has developed a new ultra-thin cheese slicer using
nanotechnology. Given market research, the company believes it can charge $200 for the
-

product. However, recent prototypes of the slicer are costing the company $220. The company
thinks that by using cheaper materials it can reduce the product’s cost substantially. Cheesin’
Company wishes to earn a return on 30% of the selling price.

1.) Compute the target cost of the new cheese slicer.

x 200 $60 00
profit %
= .

Desired = 30

Market price - desired profit

$200 -
160- 0

2.) When is the target costing method helpful in deciding whether to produce a specific product?

Total in this case helps the company

costing of $140 per unit for
set
to a cust
target
ultra thin cheese slicer
.
the new

Cost-Plus: Cassie Company makes electronic greeting cards. The following information is
available for their anticipated annual volume of 30,000 units.

Per Unit Total

Direct materials $17
Direct labor $8
Variable manufacturing overhead $11
Fixed manufacturing overhead $300,000 = 30 , 000 = $10
Variable selling & administrative expenses $4
[
Fixed selling & administrative expenses $150,000 - 30 , 000 = $5

The company uses a 40% markup percentage on total cost.

1.) Compute the total cost per unit.

(17+ 8 + 11 +10 + 4+ 5) = $55
 2.) Using the cost-plus method, compute the selling price for the
product.

1) Cost + Markup = Sales

price

477
$55 140 % + 55) =

~
$ 22