Intermediate Managerial Accounting

This article discusses the various factors that need to be considered while setting the pricing of a new product in managerial accounting. It also provides answers to questions related to Global Telecom, Blockbuster Video Rental, Hook-Line-Sinker Corporation and Hot ‘N Cold Laboratories. The article is relevant for students studying intermediate managerial accounting in college or university.

Running head: INTERMEDIATE MANAGERIAL ACCOUNTING
Intermediate Managerial Accounting
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Name of the University:
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1INTERMEDIATE MANAGERIAL ACCOUNTING
Table of Contents
Answer to Question 4.1:.............................................................................................................2
Answer to Question 4.2:.............................................................................................................4
Global Telecom:.....................................................................................................................4
Requirement 1:...................................................................................................................4
Requirement 2:...................................................................................................................5
Blockbuster Video Rental:.....................................................................................................5
Requirement 1:...................................................................................................................5
Answer to Question 4.4:.............................................................................................................6
Hook-Line-Sinker Corporation:.............................................................................................6
Requirement 1:...................................................................................................................6
Requirement 2:...................................................................................................................6
Requirement 3:...................................................................................................................6
Hot ‘N Cold Laboratories:.....................................................................................................7
Requirement 1:...................................................................................................................7
Requirement 2:...................................................................................................................7
Requirement 3:...................................................................................................................8
Requirement 4:...................................................................................................................9
References:...............................................................................................................................10

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Answer to Question 4.1:
Both the controller and the sales manager of an organisation are required to consider
certain influences in order to set the pricing of a new product. These influences are
demonstrated briefly as follows:
Cost and margin:
The price needs to be adequate for recouping costs and earning additional profit. It
needs to cover direct costs or labour and materials needed into manufacturing the product
along with indirect expenses like utilities and rent necessary for carrying out business
operations (Butler & Ghosh, 2015). The direct costs constitute of a fairly consistent
percentage of the price charged.
Competition:
Both the sales manager and the controller are required to take into consideration the
products offered from the end of the competitors against the products offered by their
organisation. Based on the value obtained from the products, it is possible to ascertain price.
If the products of the organisation are identical to those of its competitors, a lower price
would attract the customers to purchase its products rather than buying the alternatives.
Moreover, if the quality of the products is greater than other rivals, an increased price would
reinforce the fact and the offerings could be made even more desirable.
Demand elasticity:
By increasing or decreasing prices, it is possible to estimate the effect on demand.
This would assist the organisation in pricing the product in an effective manner.
Sales and profit targets:

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In order to meet profit margin and revenue of the organisation, the products need to be
priced accordingly by both the sales manager and the controller (Eldenburg et al., 2016).
Discretion:
An organisation could charge prices for its products to a certain extent, as long as the
customers are willing to incur and additional amount is desired for covering costs coupled
with little extra amounts. If money is the bottom line for the sales manager and the controller,
it is essential to push the limits to find out the capability of market (Weygandt, Kimmel &
Kieso, 2015). This would help in raising the odds of successfully charging an increased price,
if a way could be found to add intangible value to the offerings like by creation of buzz, as
that created by Apple Inc. On the other hand, if the objective of the organisation is to offer
products at a reasonable price, it might choose lower prices than the market for providing the
maximum possible value to the customers.

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Answer to Question 4.2:
Global Telecom:
Requirement 1:
The minimum acceptable bid is the amount, which is needed for a bidder to put a bid
on any item (Horngren et al., 2015). In order to arrive at the minimum acceptable bid per
unit, the following items are considered for Global Telecom and then they are summed
together:
 Direct materials per unit
 Direct manufacturing labour per unit
 Variable manufacturing overhead cost per unit
 Set-up charge per units

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Requirement 2:
In order to arrive at the full product unit cost, the fixed cost, product and process
design along with distribution and marketing costs, which are added together to arrive at the
total costs. The amount obtained is divided by the output units to arrive at the cost per unit,
which is then again with the minimum acceptable bid per unit to calculate the full product
unit cost.
Blockbuster Video Rental:
Requirement 1:

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Answer to Question 4.4:
Hook-Line-Sinker Corporation:
Requirement 1:
Requirement 2:
Requirement 3:

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Hot ‘N Cold Laboratories:
Requirement 1:
In order to find the single rate for operating costs depending on test hours and hourly
billing rate for DHTT and AACT, the following formulas are used:
Single rate per hour = Total budgeted expense for the period/ Total test hours
Hourly billing rate = Single rate per hour + Mark-up
Requirement 2:

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Requirement 3:
Working notes:

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The billing rates depending on activity-based cost structure make greater sense. These
rates depict the ways through which the testing processes consume the resources of the
organisation (Noreen, Brewer & Garrison, 2014).
Requirement 4:
For staying competitive, Hot ‘N Cold Laboratories is required to enhance its
efficiency in arctic testing. Nearly 44% of the overall cost of arctic testing takes place in
facility and set-up costs. In fact, it is possible to redesign the set-up activity so that cost
savings could be accomplished (Weygandt, Kimmel & Kieso, 2015). The organisation is
suggested to practice savings in the below-stated aspects:
 Labour and supervision cost test per hour
 Overall number of test hours utilised in arctic testing
 Utility cost per machine hour
 Overall number of machine hours utilised in arctic testing
This might require complete redesign of the test, procedures along with
accomplishing productivity and efficiency developments (301,965/682,701 = 44%). Hence,
the organisation needs to consider all these aspects for maintaining its competitive position in
the marketplace.

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References:
Butler, S. A., & Ghosh, D. (2015). Individual differences in managerial accounting
judgments and decision making. The British Accounting Review, 47(1), 33-45.
Eldenburg, L. G., Wolcott, S. K., Chen, L. H., & Cook, G. (2016). Cost management:
Measuring, monitoring, and motivating performance. Wiley Global Education.
Horngren, C. T., Datar, S. M., Rajan, M. V., Beaubien, L., & Graham, C. (2015). Cost
Accounting: A Managerial Emphasis, Seventh Canadian Edition (7th Edition).
Pearson Canada Inc.
Noreen, E. W., Brewer, P. C., & Garrison, R. H. (2014). Managerial accounting for
managers. New York: McGraw-Hill/Irwin.
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2015). Financial & managerial accounting.
John Wiley & Sons.
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2015). Managerial accounting. Wiley.