(Appendix 12A)Trevor Company Is Contemplating the Introduction of a New

question 60

Essay

(Appendix 12A)Trevor Company is contemplating the introduction of a new product.The company has gathered the following information concerning the product:

$\begin{array}{ll}\text { Number of Units to Be Produced and Sold Each Year } & 12,000 \\\text { Investment Required by the Company } & \$ 200,000 \\\text { Projected Unit Product Cost } & \$ 25 \\\text { Projected Annual Selling, General, and } & \\\quad \text { Administrative Expenses } & \$ 90,000 \\\text { Desired Rate of Return on Investment } & 15 \%\end{array}$

The company uses the absorption costing approach to cost-plus pricing.

Required:

a) Compute the markup on absorption cost.
b) Compute the target selling price.
c) If the price computed in part b) above is charged, and costs turn out as projected, can the company be assured that no loss will be sustained on the new product? Explain.

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Definitions:

Nationally Branded

Products or services that are marketed under a manufacturer's brand name and widely recognized across a country.

Price Premium

An additional amount that consumers are willing to pay for a product or service perceived to have a higher value compared to its competitors.

Customary Price

The price that consumers expect to pay for a particular product or service, based on their past buying experiences or the norm in a market.

Prestige Price

A pricing strategy where prices are set higher than average to create a perception of the product being exclusive or of superior quality.