Problem 1

Spencer Electronics has just developed a low-end electronic calendar that it plans to sell via a cable channel marketing program. The cable programs fee for selling the item is 20 percent of revenue. For this fee, the program will sell the calendar over six 10-minute segments in September. Spencers fixed costs of producing the calendar are $159,000 per production run. The company plans to wait for all orders to come in, then it will produce exactly the number of units ordered. Production time will be less than three weeks. Variable production costs are $27 per unit. In addition, it will cost approximately $5 per unit to ship the calendars to customers. Marsha Andersen, a product manager at Spencer, is charged with recommending a price for the item. Based on her experience with similar items, focus group responses, and survey information, she has estimated the number of units that can be sold at various prices:

Price		Quantity
$85		12,900
$75		19,500
$65		32,700
$55		44,100
$45		63,900

(a) Calculate expected profit for each price. (Enter loss using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Price

Profit

$85

$__?___

$75

$__?___

$65

$___?__

$55

$__?___

$45

$___?__

(b) Which price maximizes company profit? Profit maximizing price $ __?___ WOULD LIKE ASSISTANCE WITH ANSWER

Problem 2

Delta Products has determined the following costs:

Order processing (per order)		$	7
Additional handling costs if order marked rush (per order)		$	12
Customer service calls (per call)		$	13
Relationship management costs (per customer per year)		$	3,700

In addition to these costs, product costs amount to 85 percent of sales. In the prior year, Delta had the following experience with one of its customers, Johnson Brands:

Sales		$54,900
Number of orders		270
Percent of orders marked rush		70%
Calls to customer service		161

Calculate the profitability of the Johnson Brands account. (Enter loss using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Profit / (Loss) of the Johnson Brands account $ __?___ WOULD LIKE ASSISTANCE WITH ANSWER

Problem 3

Symphony Sound is designing a portable recording studio to be sold to consumers. The team developing the product includes representatives from marketing, engineering, and cost accounting. The recording studio will include sound-canceling monitor headphones, audio recording and enhancement software, several instrumental and vocal microphones, and portable folding acoustic panels. With this set of features, the team believes that a price of $4,420 will be attractive in the market place. Symphony Sound seeks to earn a per unit profit of 25 percent of selling price.

(a) Calculate the target cost per unit. Target cost$ per unit MY ANSWER $3315

(b) The team has estimated that the fixed production costs associated with the product will be $1,658,500, and variable costs to produce and sell the item will be $2,695 per unit. In light of this, how many units must be produced and sold to meet the target cost per unit? Units produced and sold MY ANSWER 2675

(c)

Suppose the company decides that only 1,825 units can be sold at a price of $4,420 and, therefore, the target cost cannot be reached. The company is considering dropping the folding acoustic panels, which add $670 of variable cost per unit. With this feature dropped, the company believes it can sell 2,700 units at $4,200 per unit. Will Symphony Sound be able to produce the item at the new target cost or less? (Round answers to 0 decimal places, e.g. 125.)

New target cost per unit		$
New cost per unit		$

MY ANSWWER FOR New target cost per unit $3150

New cost per unit $ ___?___ WOULD LIKE ASSISTANCE WITH ANSWER

Symphony Sound will be able to produce the item at less than the new target costthe new target cost.

(Less than the new target cost OR the new target cost)

Problem 4

Delta Products has determined the following costs:

Order processing (per order)		$	7
Additional handling costs if order marked rush (per order)		$	12
Customer service calls (per call)		$	12
Relationship management costs (per customer per year)		$	3,550

In addition to these costs, product costs amount to 85 percent of sales. In the prior year, Delta had the following experience with one of its customers, Johnson Brands:

Sales		$54,000
Number of orders		270
Percent of orders marked rush		70%
Calls to customer service		160

For the coming year, Delta Products has told Johnson Brands that it will be switched to an activity-based pricing system or it will be dropped as a customer. In addition to regular prices, Johnson will be required to pay:

Order processing (per order)		$	7
Additional handling costs if order marked rush (per order)		$	14
Customer service calls (per call)		$	17

Calculate the profitability of the Johnson Brands account if activity is the same as in the prior year. (Enter loss using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Profit / (Loss) $ ___?___ WOULD LIKE ASSISTANCE WITH ANSWER