Finannce
Finance
Chapter 19
Short-Term Business Decisions
Short Exercises
(5 min.) S 19-1
a. The price of the new printer is relevant.
b. The price you paid for the old printer is irrelevant because it is a past (sunk) cost that cannot be changed, regardless of your decision.
c. The trade-in value of the old printer is relevant.
d. Paper costs are irrelevant because these costs will be the same with either the old printer or the new printer.
e. The difference between the ink cartridges’ cost for the old printer and ink cartridges’ cost for the new printer is relevant. (10 min.) S 19-2
Req. 1
SnowDelight should emphasize a cost-plus approach to pricing because it has been able to differentiate its ski resort from others in the area. Because of its favorable reputation, managers will have some control over pricing. Of course, they still need to consider whether the cost-plus price is within the range customers are willing to pay.
Req. 2
Using a cost-plus pricing approach, the cost-plus price would be calculated as follows:
|Fixed costs |$34,250,000 |
|Plus: total variable costs (650,000 × $11 per person) | 7,150,000 |
|Total Costs |$41,400,000 |
|Plus: Desired profit ($105 million × 13%) |13,650,000 |
|Target revenue |$55,050,000 |
|Divided by number of skiers / snowboarders |÷ 650,000 |
|Cost-plus price per lift ticket
Chapter 19
Short-Term Business Decisions
Short Exercises
(5 min.) S 19-1
a. The price of the new printer is relevant.
b. The price you paid for the old printer is irrelevant because it is a past (sunk) cost that cannot be changed, regardless of your decision.
c. The trade-in value of the old printer is relevant.
d. Paper costs are irrelevant because these costs will be the same with either the old printer or the new printer.
e. The difference between the ink cartridges’ cost for the old printer and ink cartridges’ cost for the new printer is relevant. (10 min.) S 19-2
Req. 1
SnowDelight should emphasize a cost-plus approach to pricing because it has been able to differentiate its ski resort from others in the area. Because of its favorable reputation, managers will have some control over pricing. Of course, they still need to consider whether the cost-plus price is within the range customers are willing to pay.
Req. 2
Using a cost-plus pricing approach, the cost-plus price would be calculated as follows:
|Fixed costs |$34,250,000 |
|Plus: total variable costs (650,000 × $11 per person) | 7,150,000 |
|Total Costs |$41,400,000 |
|Plus: Desired profit ($105 million × 13%) |13,650,000 |
|Target revenue |$55,050,000 |
|Divided by number of skiers / snowboarders |÷ 650,000 |
|Cost-plus price per lift ticket