Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
16th Edition
ISBN: 9780134475585
Author: Srikant M. Datar, Madhav V. Rajan
Publisher: PEARSON
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Chapter 13, Problem 13.28P
Target service costs, value engineering, activity-based costing. Lagoon is an amusement park that offers family-friendly entertainment and attractions. The park boasts more than 25 acres of fun. The admission price to enter the park, which includes access to all attractions, is $35. To earn the required rate of
The following information describes the existing operations:
- a. The average number of patrons per week is 55,000.
- b. The total number of runs across all attractions is 11,340 runs each week.
- c. It requires 1,750 hours off litter patrol hours to keep the park clean.
In response to competitive pressures and to continue to attract 55,000 patrons per week, Lagoon has decided to lower ticket prices to $33 per patron. To maintain the same level of profits as before, Lagoon is looking to make the following changes to reduce operating costs:
- a. Reduce the cost of selling and verifying tickets by $0.35 per ticket sold.
- b. Reduce the total number of runs across all attractions by 1,000 runs by reducing the operating hours of some of the attractions that are not very popular.
- c. Increase the number of refuse containers in the park at an additional cost of $250 per week. This will decrease the litter patrol hours by 20%.
The cost per unit of cost driver for all other activities will remain the same.
- 1. Will Lagoon achieve its target operating income of 35% of revenues at ticket prices of $35 per ticket before any operating changes?
- 2. After Lagoon reduces ticket prices and makes the changes and improvements described above, will Lagoon achieve its target operating income in dollars calculated in requirement 1? Show your calculations.
- 3. What challenges might managers at Lagoon encounter in achieving the target cost? How might they overcome these challenges?
- 4. A new carbon tax of $3 per run is proposed to be levied on the energy consumed to operate the attractions. Will Lagoon achieve its target operating income calculated in requirement 1? If not, by how much will Lagoon have to reduce its costs through value engineering to achieve the target operating income calculated in requirement 1?
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Return on Investment and Residual Income Skyview Company has two divisions, Residential Skylights and Automotive Sunroofs. The manager of the Residential Skylights Division is evalu-
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Chapter 13 Solutions
Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
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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