MGMT 640 Financial Decisions Making for Managers (2162)

MGMT 640 Financial Decisions Making for Managers (2162)
Please answer a minimum of 150 words per question!
Proper citations , APA format 6th edition, at least 2 References per question:

MGMT 640: Session XI
Jiambalvo: Chapter 8

PRICING DECISIONS, ANALYZING CUSTOMER PROFITABILITY, AND ACTIVITY-BASED PRICING

LEARNING OBJECTIVES

1. Compute the profit maximizing price for a product or service.
2. Perform incremental analysis related to pricing a special order.
3. Explain the cost-plus approach to pricing and why it is inherently circular for manufacturing firms.
4. Explain the target costing process for a new product.
5. Analyze customer profitability.
6. Explain the activity-based pricing approach.
Please respond to the following questions.
2004
Starbucks in 2004 announced that it will increase prices at its stores before the end of year. Analysts expect prices to rise by 4% to 5%. Prices are going up to adjust for increases in dairy products and rents. The firm is seen as the clear leader in the retail coffee market but opinion is split on whether consumers will continue to pay more for their caffeine. Some surveys indicate that people already think they already pay too much for their coffee while others suggest that Starbucks is actually less expensive than many of its competitors.

Now Read and Watch/Listen to the clips on the links below concerning the “Coffee War” today.

Looks like NPR has removed the clip listed below. The clip describes the closing of as many as 600 stores by Starbucks based on performance and proximity to other stores. If you can’t see the clip, read this New York Times article instead.

Fast Forward January 2008
http://www.npr.org/templates/player/mediaPlayer.html?action
http://www.nytimes.com/2008/07/02/business/02sbux.html

Questions:
(1) From the case in 2004, explain the logic for a price increase from Starbuck’s perspective.
(2) Can you discuss the effect of operating leverage to why Starbucks had to close about 600 stores in 2008 and why they are being outcompeted by Dunkin Donuts?

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