Question #1. 25% High drugcosts often the news. Consumer groups co...

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Question #1. 25% High drugcosts often the news. Consumer groups contendt the pricing for some drugs "too high' considering that the costs manufacture each dose low. They talk of price gouging and excessive profits. companies defend the price charged nthe basis ofnonmanufacturing costs such research and development and others The following generic value chain for Rand D Design Production Marketing Distribution Questions Which cost consumer groups? The pharmaceutical companies? Which cost doyou the cost with price? 3. Ifyouwere how would you use the value chainto prepare: defense your 4. How could you use the thain improve the profitability of the firm when prices arese by Give real life example how approach this problem (for the pharma industry) from Question 2. CVP analysis with Changing Cost Structure. 25% Billot Telephone was formedinthe 19405 to bring telephone remote areas of the US Midwest early equipment was quite primitive by today standards All call were handled manually by perators, and customers partylines By the 1970's however, all private lines ad mechanical switching devices handled routine local long distance calls Operator: remained available for directory assistance, credit card calls and emergencies Inthe 1990: Billot Telephone added local internet connections noptional service oits regular customers Italso established optional cellular service, identifiedas Home Ranger. A. Using unit level analysis, develop graph with two lines representin Billot's cost structure Be sure to label the axes and lines In the 1940s In the late 1990s B. With sales revenues the independent variable, what isthelikely impact ofthe changed cost structure on Billot's: Contribution Margin Percent Break Even Point C. Discuss how the change the cost structure affected Billot's oper ating leverage and how this affects profitability under rising falling sales scenarios. D. Provide specific managerial decisions that can have impacto the degree operating leverageo firm. Question 25% The LawnCompany provides commercial landscaping services in Sar Diego. The firm's owner wantsto develop cost estimates that she canuse toprepare bids onjobs. After analyzing the firm's costs, she has developed the followine preliminary cost estimate for each 1000 square feet if landscaping: Direct Materials $390 Direct Labor hours $11 per hour) $55 Overhead ($18 per direct labor hour) $90 Total cost per 1000square feet $535 She quite certain about the estimates for direct materials and for labor However the not as comfortable with overhead estimate The estimate direct labor hour was determined by dividing the total overhead for the 12 month period($1 296,000) by the total direct labor hours (72,000). Byusing regression overhead on direct labor hours the following cost formula was obtained: Overhead $52,400 $9.25 DLH Questions: 1. The overhead developed from the least square regressioni different from her preliminary estimate of $18 direct labor hour. Explain the differencei the two overheadrates 2. Prepare abid fora 50.000 square feet project under both formulas Whichone would ou recommend tobeused the project? 4. management does not feel comfortable with the fixed/variable cost relationship that currently exists could she osomething about it? Come up with managerial recommen dation on how to deal with this situation? 5. How far can manager go into changing the microeco nomics of a firm (i.e Fixed to Variable costs ratio). there industry effect that determines that ratio? 6. Amazon's Inc. success can hardly be questioned How does Amazon's strategy relate to this question? Question #4. 25% The budgeted costs for Connor Company for direct materials, direct production labor and direct distributionlabor are $40, $8 and $12, respectively. The vice-president deeply satisfied withthe following performance report: Real Costs Master Static Budget Variation Direct Materials $364,000 $400,000 $36,000F DL Production 78,000 80,000 2,000 F LDistribution 110,000 120,000 10,000F The real number of units produced was 8.000. a. Prepare performance evaluation report that uses flexible and static budget. Please assume that all the costs are variable. (The variance analysis detail not require for this question). b. the vice- president': satisfaction justified answer after you complete part a.)?

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Question 1.
1. Generally the production costs of medicines are relatively low compared to the research and development costs that go into the innovation of such medicines. The consumer groups take into consideration only the production costs and hence see them as very higher. However the pharmaceutical companies include the costs that start from all stages of the value chain right from R & D, Design, production, marketing and distribution and this is done to cover all the costs incurred in the value chain.
2. The costs incurred in the value chain must be considered when comparing the cost of the drugs with their prices and this is mainly because when these costs are not covered it will result in huge losses for the firm which will not motivate the firm to innovate new drugs through R & D. Hence the costs incurred in the value chain should be considered when fixing the price....

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