Exam 15: Target Costing and Cost Analysis for Pricing Decisions

Heathrow employs cost-plus pricing formulas to derive selling prices for its various products.If the formulas are all used correctly,which of the following cost bases will result in the highest selling price?

Consider the following statements about pricing and the law: I.American antitrust laws restrict certain types of pricing behavior. II.The term "price discrimination" involves charging different prices to different customers for the same goods and services. III.Charging different prices to different customers for the same goods is permissible if price differences are based on cost differences of producing and/or selling the good. Which of the above statements is (are)true?

Under which of the following condition(s)are prices said to be elastic?

If a company uses a cost-plus approach to pricing,it will find that there are several different definitions of cost and the higher the cost,the higher the markup percentage.

Green Park Recreation is exploring a competitive bidding situation.The firm,which currently has no excess capacity,estimates the following costs for a project to be performed for the Morningside School District: Which of the following cost figures would be used in determining a minimum price if Green Park decides to bid on the Morningside project?

Assuming there is no profit markup on material cost,the amount to be added to each dollar of material cost to obtain the total material charge is:

Lyman currently sells an industrial mixer for $900 that market leaders sell for $820.The current costs to manufacture and distribute the mixer total $645,and the company has a profit goal of 30% of sales.Lyman uses target costing in its efforts to be a leader in the marketplace.On the basis of this information,(1)what should Lyman consider to be the initial driver of the target-costing process and (2)what amount of cost reduction is needed for the company to achieve its goals?

Quality Exteriors installs stucco on high-priced custom homes,using the time-and-materials method to price jobs for individual builders.Quality anticipates using $250,000 of materials during the year and will incur $15,000 for material handling and storage.Other overhead costs,which are driven by the company's 18,000 direct labor hours,will total $360,000.Quality pays construction crews $17 per labor hour and adds a markup of $19 per hour on its time charges.There is no profit markup on material cost. During the first quarter of the year,Quality performed 24 jobs for Don Henderson Builders,using 3,100 labor hours and $72,000 of materials. Required: Calculate the amount that Quality would bill Don Henderson Builders for work performed.

Superior Company is involved in a competitive bidding situation.The following costs are anticipated for a project to be bid with the City of Southlake: Which of the following cost figures should be used in setting a minimum bid price if Superior has excess capacity?

Overland Shipping Company is involved in a competitive bidding situation.Variable costs related to the project total $520,000,and allocated fixed cost is $95,000.Which of the following cost figures should be used in setting a minimum bid price if Overland has (1)excess capacity and (2)no excess capacity?

If Dexter uses cost-plus pricing based on absorption cost,the markup percentage the company must use would be:

Consider the following statements about time and material pricing: I.The time charge includes the direct cost of an employee's time. II.The time charge includes an amount to cover various overhead costs. III.The material charge includes a handling charge for material. Which of the above statements is (are)true?

On a graph where the horizontal axis represents quantity sold and the vertical axis represents selling price,the basic demand curve in a competitive market can be graphed:

Which of the following is (are)a key feature of target costing?

The following data pertain to Lomax Enterprises: What price will the company charge if the firm uses cost-plus pricing based on absorption manufacturing cost and a markup percentage of 110%?

Prices are said to be inelastic under which of the following conditions?

If a company uses a cost-plus approach to pricing,it will find:

Consider the following statements about competitive bidding: I.The higher the price that a company bids,the greater the profit if the firm gets the contract. II.Bidding a higher price increases the probability of obtaining a contract. III.A company that bids low to ensure acceptance of a contract may actually wind up bidding too low to make an acceptable profit. Which of the above statements is (are)true?

What price must Dexter charge if the company uses cost-plus pricing based on total cost?

Which of the following pricing practices is illegal?