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Calendar for Product Pricing

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Staff members and the board of the Knotfer Prophet Agency have decided to express the dramatic side of well-known and respected community and agency supporters with a calendar that each month displays one of them in a costume that reflects the happenings of that month. The photographs are funny and tasteful. For instance, the mayor was selected for January wearing a red, white, and blue top hat and several strands of red tape that had the words Happy Fiscal New Year emblazoned on them in gold glitter. Everyone involved is thrilled with the galley proofs of the calendar. The painful process of setting a price for this fundraiser is underway. Printing, material costs, and labor costs have been determined. The size of the market for the calendar is questionable. Concerns have been raised about overpricing the calendar, but the agency determines that a 19% margin reasonably reflects demand. The following is known:

Material costs per calendar = $ 4.95
Labor costs per calendar = $ 6.47

My question is what factors should consider first before setting a price.
What could be some concerns if I set the price to high or too low and how do I figure out what to charge.

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Numerous factors should be considered before setting the price. First of all, the agency needs to have a reasonable idea of the expected sales volume or demand for this product. Based on the expected demand levels, the agency needs to figure out variable costs for the expected demand level. The agency would ...

Solution Summary

The solution discusses factors affecting pricing for a calendar, related to the case study in the question.

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Assessing Budgets

7-28
Ronoco Products, a wholesaler of fishing equipment, budgeted the following sales for the indicated months:

June 20X8 July 20X8 August 20X8
Sales on account $1,820,000 $1,960,000 $2,100,000
Cash sales 280,000 240,000 260,000
Total sales $2,100,000 $2,200,000 $2,360,000

All merchandise is marked up to sell at its invoice cost plus 25%. Target merchandise inventories at the beginning of each month are 30% of that month's projected cost of goods sold.
1. Compute the budgeted cost of goods sold for the month of June 20X8
2. Compute the budgeted merchandise purchases for July 20X8.

7-37
Prepare a statement of estimated cash receipts and disbursements for October 20X7 for the Botanica Company, which sells one product, herbal soap, by the case. On October 1, 20X7, part of the trial balance showed the following:
DR CR
Cash $4,800
Accounts receivable 15,600
Allowance for bad debts $1,900
Merchandise inventory 9,000
Accounts payable, merchandise 6,600

The company pays for its purchases within 10 days of purchase so assume that one-third of the purchases of any month are due and paid for in the following month. The cost of the merchandise purchased is $12 per case. At the end of each month, it is desired to have an inventory equal in units to 50% of the following month's sales in units. Sales terms include a 1% discount if payment is made by the end of the calendar month. Past experience indicates that 60% of sales will be collected during the month of the sale, 30% in the following calendar month, 6% in the next following calendar month, and the remaining 4% will be uncollectible. The company's fiscal year begins August 1.
Unit selling price $20
August actual sales $12,000
September actual sales 36,000
October estimated sales 30,000
November estimated sales 22,000
Total sales expected in the fiscal year $360,000
Exclusive of bad debts, total budgeted selling and general administrative expenses for the fiscal year are estimated at $61,500, of which $24,000 is fixed expense (which includes a $13,200 annual depreciation charge). The Botanica Company incurs these fixed expenses uniformly throughout the year. The balance of the selling and general administrative expenses varies with sales. Expenses are paid as incurred.

7-39
A recent directive from Sandy Jensen, CEO of Duluth Manufacturing, had instructed each department to cut its costs by 10%. The traditional functional budget for the shipping and receiving department was as follows:
Salaries, four employees at $42,000 $168,000
Benefits at 20% 33,600
Depreciation, straight-line basis 76,000
Supplies 43,400
Overhead at 35% of direct costs 112,350
Total $433,350
Therefore, the shipping and receiving department needed to find $43,335 to cut. June Steele, a recent MBA graduate, was asked to pare $43,335 from the shipping and receiving department's budget. As a first step, she recast the traditional budget into an activity-based budget.
Receiving 620,000 pounds $93,000
Shipping, 404,000 boxes 202,000
Handling, 11,200 moves 112,000
Record keeping, 65,000 transactions 26,350
Total $433,350

1. What actions might Steele suggest to attain a $43,335 budget cut? Why would these be the best actions to pursue?
2. Which budget helped you most in answering number 1? Explain.

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