Solution Manual For Cost Accounting: Managerial Emphasis with MyAccountingLab, Fifth Canadian Edition

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Canadian Product Corporation Limited (CPCL) is a manufacturer of small house-hold appliances. The company has only one manufacturing facility which servicesall of Canada. CPCL is well established and sells its products directly to departmentstores.CPCL wishes to begin manufacturing and marketing its newly developedcordless steam iron. In order to properly evaluate the performance of this newproduct, management has decided to create a new division for its production anddistribution.Two of CPCL’s competitors have recently introduced their own brands ofcordless steam irons at a price of $28 each. CPCL’s usual pricing strategy for newproducts is full absorption cost plus a 100% markup. For the new iron, at a pro-duction and sales volume of 350,000 units per year, this strategy would imply aprice of $31.50. CPCL’s president, Mr. T. C. Leopard, is not sure whether thispricing strategy would be appropriate for the new iron and is considering otherproposals as follows:1.Variable product cost plus a 200% markup2.A price of $27 to undercut the competitionMr. Leopard hired a market research firm to study the likely demand forCPCL’s cordless steam iron at the three proposed prices. The research firm con-ducted an extensive market test resulting in projected annual sales volumes over thenext five years at these prices. These sales projections are summarized in Exhibit1-1. The research firm, however, made it clear that there were no guarantees thatthe market would respond according to the projections.Mr. Leopard was not happy with the probabilities that the market researchfirm assigned to the various price/volume levels. He therefore used his own knowl-edge and past experience to assign different probabilities (see Exhibit 1-2). Mr.Leopard then called Joan Helm, the chief financial officer, to analyze the situationand recommend a five-year pricing strategy for the new cordless steam iron. As afirst step, Joan assembled some relevant data which is presented in Exhibit 1-3.REQUIREDAs Joan Helm, comply with Mr. Leopard’s request. Include in your analysis considera-tion of both quantitative and qualitative factors in determining a five-year pricing strat-egy for the new iron.Case 1: Pricing (SMAC)

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