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##### " Software Solutions, Inc. Absorption Costing Ap...

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" Software Solutions, Inc. Absorption Costing Approach to Cost-Plus Pricing January 31, 2011 Selling Price Estimated Unit Sales Sales Variable Cost Fixed Expenses Net operating Income \$25.00 50,000 \$1,250,000 \$300,000 \$960,000 -\$10,000 \$23.75 54,000 \$1,282,500 \$324,000 \$960,000 -\$1,500 \$22.56 58320 \$1,315,699 \$349,920 \$960,000 \$5,779 \$21.43 62,986 \$1,349,790 \$377,916 \$960,000 \$11,874 \$20.36 68024 \$1,384,969 \$408,144 \$960,000 \$16,825 \$19.34 73466 \$1,420,832 \$440,796 \$960,000 \$20,036 \$18.38 79343 \$1,458,324 \$476,058 \$960,000 \$22,266 \$17.45 85690 \$1,495,291 \$514,140 \$960,000 \$21,151 \$16.58 92545 \$1,534,396 \$555,270 \$960,000 \$19,126 \$15.75 99949 \$1,574,197 \$599,694 \$960,000 \$14,503 2. Using the data from the table, construct a chart that shows the net operating income as a function of the selling price. Put the selling price on the X-axis and the net operating income on the Y-axis. Using the chart, determine the approximate selling price at which net operating income is maximized. 3. Compute the price elasticity of demand for the SpamBlocker software. Based on this calculation, what is the profi t-maximizing price? 4. The owners have invested \$2,000,000 in the company and feel that they should be earning at least 2% per month on these funds. If the absorption costing approach to pricing were used, what would be the target selling price based on the current sales of 50,000 units? What do you think would happen to the net operating income of the company if this price were charged? 5. If the owners of the company are dissatisfi ed with the net operating income and return on investment at the selling price you computed in (3) above, should they increase the selling " - Sent to Accounting Expert Tutor on 1/29/2011 at 2:56pm

Paper#7661 | Written in 18-Jul-2015

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