Managerial Accounting: Tools for Business Decision Making
7th Edition
ISBN: 9781118334331
Author: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso
Publisher: WILEY
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Textbook Question
Chapter 8, Problem 8.3BYP
Real-World Focus
Merck & Co., Inc. is a global, research-driven pharmaceutical company that discovers, develops, manufactures, and markets a broad range of human and animal health products. The following are excerpts from the financial review section of the company’s annual report.
MERCK & CO., INC
Financial Review Section (partial)
In the United States, the Company has been working with private and governmental employers to slow the increase of health care costs.
Outside of the United States, in difficult environments encumbered by government cost containment actions, the Company has worked with payers to help them allocate scarce resources to optimize health care outcomes, limiting potentially detrimental effects of government actions on sales growth.
Several products face expiration of product patents in the near term.
The Company, along with other pharmaceutical manufacturers, received a notice from the Federal Trade Commission (FTC) that it was conducting an investigation into pricing practices.
Instructions
Answer each of the following questions.
(a) In light of the above excerpts from Merck's annual report, discuss some unique pricing issues faced by companies that operate in the pharmaceutical industry.
(b) What are some reasons why the same company often sells identical drugs for dramatically different prices in different countries? How can the same drug used for both humans and animals cost significantly different prices?
(c) Suppose that Merck has just developed a revolutionary new drug. Discuss the steps it would go through in setting a price. Include a discussion of the information it would need to gather, and the issues it would need to consider.
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Phambili Ltd is in the pharmaceutical industry sector and has been expanding in the recent past due to a change in its strategic direction from regulated medicines to supplements and homeopathic remedies. The company has recently identified a project it wants you to evaluate and give recommendations on whether to reject or accept, among other things. You are provided with the following tabulated financial and additional information:
Details
Year 1
Year 2
Year 3
Year 4
Year 5
R’000
R’000
R’000
R’000
R’000
Sales
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54,023
61,586
69,770
70,451
Materials
5,885
9,075
11,979
14,714
14,495
Labour
11,770
18,150
23,958
30,746
28,989
Other variable overheads
525
662
752
851
957
Fixed overheads
5,250
5,513
5,788
6,078
6,381
Other operating costs
3,120
3,353
3,600
3,978
4,015
Additional information:
The tax rate is 28% and is payablein the year profits are made;
The company is financedby 75% equity and 25% debt, with market values of R75-million and R25-million…
Phambili Ltd is in the pharmaceutical industry sector and has been expanding in the recent past due to a change in its strategic direction from regulated medicines to supplements and homeopathic remedies. The company has recently identified a project it wants you to evaluate and give recommendations on whether to reject or accept, among other things. You are provided with the following tabulated financial and additional information:
Details
Year 1
Year 2
Year 3
Year 4
Year 5
R’000
R’000
R’000
R’000
R’000
Sales
36,750
54,023
61,586
69,770
70,451
Materials
5,885
9,075
11,979
14,714
14,495
Labour
11,770
18,150
23,958
30,746
28,989
Other variable overheads
525
662
752
851
957
Fixed overheads
5,250
5,513
5,788
6,078
6,381
Other operating costs
3,120
3,353
3,600
3,978
4,015
Additional information:
The tax rate is 28% and is payablein the year profits are made;
The company is financedby 75% equity and 25% debt, with market values of R75-million and R25-million…
CASE STUDY
Surgimed Ghana Ltd. operates in the medical supply industry and specializes in sales and installation of medical equipment and devices such as hospital furniture, medical equipment, electronic equipment, local area networking with a station monitoring and general telecom networking. The company is noted for installation of Sterilization Units, X-Ray machines and Ultrasound scanners, Installation of Medical Gas Pipe Lines and Operation Theater Requirements around the country. At the end of the 2020 financial year, the directors of the company were not sure whether they have treated the following transactions in their financial statements ending 31st December, 2020 correctly.
Transaction D
Surgimed Ghana Ltd. acquired a property for GH¢4 million with annual depreciation of GH¢300,000 on the straight line basis. At the end of the previous financial year at 31st December, 2019, when accumulated depreciation was GH¢1 million, a further amount relating to an impairment loss of…
Chapter 8 Solutions
Managerial Accounting: Tools for Business Decision Making
Ch. 8 - What are the two types of pricing environments for...Ch. 8 - Prob. 2QCh. 8 - Prob. 3QCh. 8 - Benz Corporation produces a filter that has a per...Ch. 8 - What is the basic formula for the markup...Ch. 8 - Prob. 6QCh. 8 - Stanley Corporation manufactures an electronic...Ch. 8 - Sheen Co. manufactures a standard cabinet for a...Ch. 8 - Prob. 9QCh. 8 - Prob. 10Q
Ch. 8 - What is a transfer price? Why is determining a...Ch. 8 - When setting a transfer price, what objective(s)...Ch. 8 - What are the three approaches for determining...Ch. 8 - Prob. 14QCh. 8 - What is the general formula for determining the...Ch. 8 - When determining the minimum transfer price, what...Ch. 8 - In what circumstances will a negotiated transfer...Ch. 8 - What costs are excluded from the cost base when...Ch. 8 - Prob. 19QCh. 8 - Prob. 20QCh. 8 - Onega Company manufactures computer hard drives....Ch. 8 - Mussatto Corporation produces snowboards. The...Ch. 8 - Jaymes Corporation produces high-performance...Ch. 8 - Momies Corporation produces microwave ovens. The...Ch. 8 - During the current year, Chudrick Corporation...Ch. 8 - Rooney Small Engine Repair charges 42 per hour of...Ch. 8 - Prob. 8.7BECh. 8 - Use the data from BE8-7 but assume that the...Ch. 8 - Use the data from BE8-7 but assume that the units...Ch. 8 - Using the data in BE8-4, compute the markup...Ch. 8 - Using the data in BH8-4, compute the markup...Ch. 8 - Maize Water is considering introducing a water...Ch. 8 - Gundy Corporation produces area rugs. The...Ch. 8 - Presented below are data relating to labor for...Ch. 8 - The fastener division of Southern Fasteners...Ch. 8 - Mesa Cheese Company has developed a new cheese...Ch. 8 - Eckert Company is involved in producing and...Ch. 8 - Leno Company makes swimsuits and sells these suits...Ch. 8 - Kaspar Corporation makes a commercial-grade...Ch. 8 - Schopp Corporation makes a mechanical stuffed...Ch. 8 - Almas Recording Studio rents studio time to...Ch. 8 - Gibbs Corporation produces industrial robots for...Ch. 8 - Second Chance Welding rebuilds spot welders for...Ch. 8 - Rey Custom Electronics (RCE) sells and installs...Ch. 8 - Wassons Classic Cars restores classic automobiles...Ch. 8 - Chen Companys Small Motor Division manufactures a...Ch. 8 - The Cycle Division of Ayala Company has the...Ch. 8 - Prob. 8.13ECh. 8 - The Bathtub Division of Kirk Plumbing Corporation...Ch. 8 - The Appraisal Department of Jean Bank performs...Ch. 8 - Crede Inc. has two divisions. Division A makes and...Ch. 8 - Prob. 8.17ECh. 8 - Prob. 8.18ECh. 8 - Rap Corporation produces outdoor portable...Ch. 8 - Information for Gibbs Corporation is given in...Ch. 8 - National Corporation needs to set a target price...Ch. 8 - Prob. 8.2APCh. 8 - Suttons Electronic Repair Shop has budgeted the...Ch. 8 - Word Wizard is a publishing company with a number...Ch. 8 - Prob. 8.5APCh. 8 - Comm Devices (CD) is a division of Worldwide...Ch. 8 - Prob. 8.7APCh. 8 - Anderson Windows Inc. is in the process of setting...Ch. 8 - CURRENT DESIGNS As a service to its customers,...Ch. 8 - Prob. 8.1BYPCh. 8 - Construction on the Bonita Full-Service Car Wash...Ch. 8 - Real-World Focus Merck Co., Inc. is a global,...Ch. 8 - Prob. 8.5BYPCh. 8 - Prob. 8.6BYPCh. 8 - The January 2011 issue of Strategic Finance...
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