Exam 15: Target Costing and Cost Analysis for Pricing Decisions

Algeria Transport Company has average invested capital of $800,000 and a target return on investment of 15%.The total cost per unit is $20 based on a volume level of 25,000 units.Albany's markup percentage on total cost is:

The curve that shows the change in total cost that accompanies a change in quantity produced and sold is called the:

Lassie Company uses cost-plus pricing and has calculated total variable manufacturing cost,total absorption manufacturing cost,and total cost for one of its products.Which of these costs would be the smallest?

Morrow Corporation manufactures part no.67,which is used in the production of mountain bikes.Per-unit information about part no.67 follows. A.Compute the current selling price of part no.67. A.The current selling price is $36: ($14 + $6 + $7 + $3 = $30;$30 * 120% = $36). B.If management desired to meet the prevailing market price and maintain the current rate of profit on sales,what must happen to the company's total manufacturing costs? By how much? B.The company's markup is $6 ($36 - $30),which is 16.67% of the current $36 selling price ($6 / $36).To achieve a 16.67% markup on a $33 selling price,Morrow must reduce its costs by $2.50.

Goldman Corporation uses time and material pricing.The repair department expects 20,000 direct labor hours of activity and has the following selected data: The company's time charge per hour is:

Wardlaw Company,which experiences considerable seasonal variation in its activity and has a high level of fixed costs,is preparing a bid for a project.This particular project will be done during a slack period of the year. Required: A.Fixed costs should not receive the same emphasis that would be given if the project were to be done during a peak time.Any contribution that this project can make in excess of the direct incremental costs will boost the profit of the company. A.How should the fixed costs be handled in the bidding approach to this project? B.Assume that the company wins the bid and performs the job on a profitable basis,consistent with the results as projected in the bid.Several months later,the customer contacts Wardlaw and requests a bid to do another job.This project,however,must be done during a peak season.How should Wardlaw's management respond? How do you think the customer will respond? B.The bid for the second project cannot be prepared on the same basis as the bid for the first project because of timing.The requirement to perform the job during a peak season means that the job must provide a sufficient return to make it more attractive than other jobs.In other words,fixed costs should be considered,and the bid price would be higher. The customer is likely to be unhappy about the considerable change in bid from the first project.However,if the customer understands the seasonal nature of Wardlaw's business,then perhaps the customer will change its schedule and better "time" its purchases to occur in Wardlaw's slow season.

Which of the following features is typically absent in target costing?

Consider the following statements about why prices are often based on product costs: I.Companies sell many products and services,and cost-based approaches provide a simple and direct pricing method. II.The cost of a product or service provides a lower limit or floor,below which price should not be set in the long run. III.Determining a company's demand and marginal revenue curves is difficult,costly,and time consuming. Which of the above statements is (are)true?