AN Daniel and Darnell are considering offering a doggy daycare service. After some research, Daniel and Darnell found several pet daycare facilities in their area; but they were expensive! Further, the facili- ties were sterile and didn't provide for a "homey" or fun environment for their pets. Daniel and Damell felt they could easily solve this problem. Daniel's home would be the location for their business since it already had a fenced-in yard a nd is located two blocks from a dog park. Estimated costs for building an outdoor shelter, plus other licensing and business start-up costs, are as follows. Shelter (depreciated over 7 years) $500 per year Licensing & other annual costs $750 per year $15 per hour $15 per day per dog Hourly wage for hired labor; planned for only 200 hours per year Variable costs for food Estimated volume of dogs per day (Assume business is open 5 days a week) Which pricing strategy, target costing or cost-plus, would be more appropriate for this company, and why? If the company employs a target costing approach, assume that the going rate for doggy dayca re is $10 per hour. The two friends require a 25% return on their invested assets, which total $600,000 (including Dan- iel's home). How would the target cost and estimated cost per dog hour change if a more accurate estimate of volume is just 9 dogs per day? If the company employs a cost-plus markup of 30%, assuming the original volume of 12 dogs per day, what will be the selling price per dog hour? After conducting these different analyses, which pricing strategy seems more appropriate for Daniel and Darnell's business? Why?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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AN Daniel and Darnell are considering offering a doggy daycare service. After some research, Daniel and Darnell found several pet daycare facilities in their area; but they were expensive! Further, the facili- ties were sterile and didn't provide for a "homey" or fun environment for their pets. Daniel and Damell felt they could easily solve this problem. Daniel's home would be the location for their business since it already had a fenced-in yard a nd is located two blocks from a dog park. Estimated costs for building an outdoor shelter, plus other licensing and business start-up costs, are as follows. Shelter (depreciated over 7 years) $500 per year Licensing & other annual costs $750 per year $15 per hour $15 per day per dog Hourly wage for hired labor; planned for only 200 hours per year Variable costs for food Estimated volume of dogs per day (Assume business is open 5 days a week)

Which pricing strategy, target costing or cost-plus, would be more appropriate for this company, and why?
If the company employs a target costing approach, assume that the going rate for doggy dayca re is $10 per hour. The two friends require a 25% return on their invested assets, which total $600,000 (including Dan- iel's home). How would the target cost and estimated cost per dog hour change if a more accurate estimate of volume is just 9 dogs per day?
If the company employs a cost-plus markup of 30%, assuming the original volume of 12 dogs per day, what will be the selling price per dog hour?
After conducting these different analyses, which pricing strategy seems more appropriate for Daniel and Darnell's business? Why?

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