# market-based prices (elasticity formula), market-based price (elasticity formula), other pricing factors, absorption and variable income

## Project Description:

market-based prices (elasticity formula)
harold’s flowers is a small neighborhood florist shop.
harold sells flowers for bouquets, and he also prepares and delivers flower arrangements.
a. harold is trying to decide how much to charge for a new type of rose that wholesales for \$0.40 per bud. he ran a special on a similar rose last month and discovered that a 20%
discount on the usual price increased sales by about 35%. what would you suggest as a
starting price for the rose? explain.
b. harold has been wondering whether he has been charging the right prices on some of his
specialty bouquets. he has been using a markup for all specialty items of 200% (i.e., he
charges three times wholesale cost). harold estimates that a 10% increase in price on such
items would decrease his unit sales by about 12%. perform calculations to estimate a profitmaximizing
markup. based on your calculation, do you think he should increase or
decrease his markup? explain.
13.21
market-based price (elasticity formula), other pricing factors
sea breeze taffy is a shop located
in atlantic city along the boardwalk. it makes and sells taffy in a variety of flavors. revenue and cost data for a recent week appear here:
revenue (1,500 lbs @ \$6.00 per lb) \$9,000
cost of ingredients \$2,400
rent 800
wages

all employees work standard shifts, regardless of how much fudge is produced or sold. jasmine, the shop’s manager, estimates that if she were to decrease the price of taffy by \$0.60 per lb. to a new price of \$5.40 per lb., weekly volume would increase by 20%.
a. calculate the price elasticity of demand.
b. calculate the profit-maximizing price
c. based on the profit-maximizing price, does it appear that jasmine should drop the price of
the taffy? why or why not?
d. list possible relevant factors that could influence jasmine’s price decision. list as many
factors as you can.
e14.16
absorption and variable income
famous desk company manufactures desks for office use. the variable cost of 100 units in beginning inventory is \$80 each. the absorption cost is \$146.67 each.
selling price \$300 per desk
variable production cost \$80 per desk
fixed production costs \$10,000 per month
variable selling and administrative \$30 per desk
fixed selling and administrative \$6,000 per month
a. estimate operating income for a month in which 200 desks are manufactured and 220 are
sold if the company uses variable costing.
b. estimate operating income for a month in which 200 desks are manufactured and 220 are
sold if the company uses absorption costing and allocates fixed production costs to inventory
using a rate based on normal capacity of 150 desks per month. assume that production
volume for the entire year is expected to return to normal levels.
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Price Type: Negotiable

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