Managerial Accounting: Creating Value in a Dynamic Business Environment

11th Edition

ISBN: 9781259727757

Author: HILTON

Publisher: MCG COURSE

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Textbook Question

Chapter 15, Problem 39P

North American Pharmaceuticals, Inc. specializes in packaging bulk drugs in standard dosages for local hospitals. The company has been in business for seven years and has been profitable since its second year of operation. Don Greenway, Assistant Controller, installed a standard costing system after joining the company three years ago.

Wyant Memorial Hospital has asked North American Pharmaceuticals to bid on the packaging of one million doses of medication at total cost plus a return on total cost of no more than 15 percent. Wyant defines total cost as including all variable costs of performing the service, a reasonable amount of fixed overhead, and reasonable administrative costs. The hospital will supply all packaging materials and ingredients. Wyant has indicated that any bid over $.015 per dose will be rejected.

Greenway has accumulated the following information prior to the preparation of the bid.

Chapter 15, Problem 39P, North American Pharmaceuticals, Inc. specializes in packaging bulk drugs in standard dosages for

Required:

1. Calculate the minimum price per dose that North American Pharmaceuticals could bid for the Wyant Memorial Hospital job that would not reduce the pharmaceutical company’s income.
2. Calculate the bid price per dose using total cost and the maximum allowable return specified by Wyant Memorial Hospital.
3. Independent of your answer to requirement (2), suppose that the price per dose that North American Pharmaceuticals, Inc. calculated using the cost-plus criterion specified by Wyant Memorial Hospital is greater than the maximum bid of $.015 per dose allowed by Wyant. Discuss the factors that the pharmaceutical company’s management should consider before deciding whether or not to submit a bid at the maximum price of $.015 per dose that Wyant allows.

Definition Definition System of assigning an estimated cost to the product (instead of the actual cost) so that the product cost can be determined well in advance and the pricing of the product can be done on time. Since the actual cost cannot be predicted at the initial stage of the production process, the estimated cost is recorded in the books. Any deviation of the estimated cost of the actual cost is adjusted in the books at the end of the period.

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Chapter 15, Problem 38P

Chapter 15, Problem 40P

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Chapter 15 Solutions

Managerial Accounting: Creating Value in a Dynamic Business Environment

Ch. 15 - Prob. 1RQ Ch. 15 - Prob. 2RQ Ch. 15 - List and briefly describe four major influences on...Ch. 15 - Prob. 4RQ Ch. 15 - Prob. 5RQ Ch. 15 - Prob. 6RQ Ch. 15 - Define the following terms: total revenue,...Ch. 15 - Prob. 8RQ Ch. 15 - Prob. 9RQ Ch. 15 - Prob. 10RQ

Ch. 15 - Prob. 11RQ Ch. 15 - List the four common cost bases used in cost-plus...Ch. 15 - List four reasons often cited for the widespread...Ch. 15 - What is the primary disadvantage of basing the...Ch. 15 - Prob. 15RQ Ch. 15 - Prob. 16RQ Ch. 15 - Prob. 17RQ Ch. 15 - Explain the phrase price-led costing.Ch. 15 - Prob. 19RQ Ch. 15 - Prob. 20RQ Ch. 15 - Could tear-down methods be used effectively for...Ch. 15 - Briefly describe the time-and-material pricing...Ch. 15 - Explain the importance of the excess-capacity...Ch. 15 - Prob. 24RQ Ch. 15 - Describe the following approaches to pricing new...Ch. 15 - Prob. 26RQ Ch. 15 - Briefly explain the potential negative...Ch. 15 - Prob. 28E Ch. 15 - Prob. 29E Ch. 15 - Prob. 30E Ch. 15 - The marginal cost, marginal revenue, and demand...Ch. 15 - Prob. 32E Ch. 15 - Refer to the cost and production data for the Wave...Ch. 15 - Prob. 35E Ch. 15 - The following data pertain to Royal Lighting...Ch. 15 - Prob. 37E Ch. 15 - Badger Valve and Fitting Company, located in...Ch. 15 - North American Pharmaceuticals, Inc. specializes...Ch. 15 - MPE, Inc. will soon enter a very competitive...Ch. 15 - Prob. 41P Ch. 15 - Prob. 42P Ch. 15 - Prob. 43P Ch. 15 - Alexis Kunselman, president of Pharsalia...Ch. 15 - Southern Tier Heating, Inc. installs heating...Ch. 15 - Omaha Synthetic Fibers Inc. specializes in the...Ch. 15 - Prob. 47P Ch. 15 - Prob. 48C Ch. 15 - Zylar Industries is a manufacturer of standard and...

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Solution Summary: The author explains how NA Pharmaceuticals could bid at 0.008 minimum price per dose for the WM Hospital job, which would not reduce its income.

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Chapter 15 Solutions