COST ACCOUNTING
16th Edition
ISBN: 9781323169261
Author: Horngren
Publisher: PEARSON C
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Chapter 13, Problem 13.24E
Life-cycle budgeting and costing. Arnold Manufacturing, Inc., plans to develop a new industrial-powered vacuum cleaner for household use that runs exclusively on rechargeable batteries. The product will take 6 months to design and test. The company expects the vacuum sweeper to sell 12,000 units during the first 6 months of sales; 24,000 units per year over the following 2 years; and 10,000 units over the final 6 months of the product’s life cycle. The company expects the following costs:
Ignore the time value of money.
- 1. If Arnold prices the sweepers at $400 each, how much operating income will the company make over the product’s life cycle? What is the operating income per unit? Required
- 2. Excluding the initial product design costs, what is the operating income in each of the three sales phases of the product’s life cycle, assuming the price stays at $400?
- 3. How would you explain the change in budgeted operating income over the product’s life cycle? What other factors does the company need to consider before developing the new vacuum sweeper?
- 4. Arnold is concerned about the operating income it will report in the first sales phase. It is considering pricing the vacuum sweeper at $450 for the first 6 months and decreasing the price to $400 thereafter. With this pricing strategy, Arnold expects to sell 10,000 units instead of 12,000 units in the first 6 months, and the same number of units for the remaining life cycle. Assuming the same cost structure given in the problem, which pricing strategy would you recommend? Explain.
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Life-cycle budgeting and costing. Arnold Manufacturing, Inc., plans to develop a new industrialpowered vacuum cleaner for household use that runs exclusively on rechargeable batteries. The product will take 6 months to design and test. The company expects the vacuum sweeper to sell 12,000 units during the first 6 months of sales; 24,000 units per year over the following 2 years; and 10,000 units over the final 6 months of the product’s life cycle. The company expects the following costs:
Life-cycle budgeting and costing. Arnold Manufacturing, Inc., plans to develop a new industrialpowered vacuum cleaner for household use that runs exclusively on rechargeable batteries. The product will take 6 months to design and test. The company expects the vacuum sweeper to sell 12,000 units during the rst 6 months of sales; 24,000 units per year over the following 2 years; and 10,000 units over the nal 6 months of the product’s life cycle. The company expects the following costs:
Create a budget for the following project: Blazer Company plans on purchasing new equipment to retool its manufacturing process. The project will involve the acquisition of equipment, installation of the new equipment, selling off the old equipment and training the workforce on the new equipment and processes. Blazer expects this project to take two years from beginning to end. Costs and expected income for the project are as shown below.
Your task is to create a two-year cash budget for the project and compute a return on investment (ROI) for the project. You may ignore the time value of money in your calculation. You may make reasonable assumptions to complete this problem so long as you document them.
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Chapter 13 Solutions
COST ACCOUNTING
Ch. 13 - What are the three major influences on pricing...Ch. 13 - Relevant costs for pricing decisions are full...Ch. 13 - Describe four purposes of cost allocation.Ch. 13 - How is activity-based costing useful for pricing...Ch. 13 - Describe two alternative approaches to long-run...Ch. 13 - What is a target cost per unit?Ch. 13 - Describe value engineering and its role in target...Ch. 13 - Give two examples of a value-added cost and two...Ch. 13 - It is not important for a company to distinguish...Ch. 13 - Prob. 13.10Q
Ch. 13 - Describe three alternative cost-plus pricing...Ch. 13 - Give two examples in which the difference in the...Ch. 13 - What is life-cycle budgeting?Ch. 13 - What are three benefits of using a product...Ch. 13 - Prob. 13.15QCh. 13 - Which of the following statements regarding price...Ch. 13 - Value-added, non-value-added costs. The Magill...Ch. 13 - Target operating income, value-added costs,...Ch. 13 - Target prices, target costs, activity-based...Ch. 13 - Target costs, effect of product-design changes on...Ch. 13 - Target costs, effect of process-design changes on...Ch. 13 - Cost-plus target return on investment pricing....Ch. 13 - Cost-plus, target pricing, working backward....Ch. 13 - Life-cycle budgeting and costing. Arnold...Ch. 13 - Considerations other than cost in pricing...Ch. 13 - Cost-plus, target pricing, working backward. The...Ch. 13 - Value engineering, target pricing, and target...Ch. 13 - Target service costs, value engineering,...Ch. 13 - Cost-plus, target return on investment pricing....Ch. 13 - Cost-plus, time and materials, ethics. C S...Ch. 13 - Cost-plus and market-based pricing. Georgia Temps,...Ch. 13 - Cost-plus and market-based pricing. (CMA, adapted)...Ch. 13 - Life-cycle costing. Maximum Metal Recycling and...Ch. 13 - Airline pricing, considerations other than cost in...Ch. 13 - Prob. 13.35PCh. 13 - Ethics and pricing. Instyle Interior Designs has...Ch. 13 - Value engineering, target pricing, and locked-in...
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