Exam 13: Target Costing and Cost Analysis for Pricing Decisions

Overland 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? 1 \ 0 \ 0 2 \ 520,000 \ 520,000 3 \ 520,000 \ 615.000 4 \ 615,000 \ 520,000 5 \ 615,000 \ 615,000

The controller for Halifax Photographic Supply has established the following cost pools and cost drivers: Activity Cost Pool Budgeted Overhead Cost Cost Driver Budgeted Level for Driver Pool Rate Machine setups \ 200,000 Number of setups 100 \ 2,000 per setup Material handling 100,000 Pounds of raw material 50,000 \ 2 per pound I lazardous waste control 50,000 Pounds of hazardous chemicals 10,000 \ 5 per pound Quality control 75,000 Number of inspections 1,000 \ 75 per inspection Other overhead costs Machine hours 20,000 \ 10 per machine hr. Total An order for 1,200 boxes of film-development chemicals has the following production requirements. Machine setups 8 Pounds of raw materials 16.000 Pounds of hazardous chemicals None Inspeetions 4 Machine hours 400 Direct materials and labour cost \ 24.000 Halifax established a target price by adding a 40% markup to total manufacturing cost. Required: A. Determine the order's target price by using the activity-cost pools. B. Assume that Halifax used a single, combined overhead rate based on weight of raw materials. 1. Determine the predetermined overhead rate. 2. Determine the expected cost of the order. 3. Determine the target price. 4. Which approach above ("A" or "B") seems to be a more reasonable method to establish target prices? Explain.

Which of the following management tools is a key component of target costing?

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

Which of the following is not a major influence on pricing decisions?

The difference between absorption manufacturing cost and total cost with respect to product pricing is caused by:

Which of the following would least likely influence a company's pricing decisions

What is price skimming?

Company A uses a pricing approach where the initial price for a product is set high and then lowered, and Company B uses an approach where initial prices are set low in an effort to gain market share. What terms best describe these practices? Company A Company B 1 Predatory Skimming 2 Penetration Predatory 3 Skimming Penetration 4 Skimming Predatory 5 Predatory Penetration

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

The four tasks that follow take place with the concept known as target costing: 1-Value engineering. 2-Establish a target selling price. 3-Establish a target cost. 4-Establish a target profit. Which of the following choices depicts the correct sequence of these tasks?

Scot Decor manufactures easy-to-assemble furniture for home and office. The firm is considering modification of a bookcase, and the company's marketing department surveyed potential buyers regarding five proposed changes (A-E). The buyers' responses, in order of preference, along with Scot's related unit costs for the modifications, follow. Order of Change Cost Preference 1 \ 6.25 2 4.00 3 3.00 4 2.50 5 6.50 The bookcase currently costs $62 to produce and distribute, and Scot's selling price for this unit averages $115. An analysis of competitive products in the marketplace revealed a variety of features, with some models having all of the changes that Scot is considering and other models having only a few. The current manufacturers' selling prices on these bookcases average $125. Required: A. Why is there a need in target costing to (a) focus on the customer and (b) have a marketing team become involved with product design? B. Management desires to earn approximately the same rate of profit on sales that is being earned with the current design. 1. If Scot uses target costing and desires to meet the current competitive selling price, what is the maximum cost of the modified bookcase? 2. Which of the modifications should Scot consider? 3. Assume that Scot wanted to add a modification or two that you excluded in your answer to requirement "B2." What process might management adopt to allow the company to make its target profit for the bookcase? Briefly explain.

With the time and material pricing method, the hourly time charge is typically set to:

Under the time and material pricing method, a customer would be charged for:

The following data pertain to Wolter Incorporated: Variable manufacturing cost \ 70 Variable selling and administrative cost 20 Applied fixed manufacturing cost 20 Allocated fixed selling and administrative cost 4 What price will the company charge if the firm uses cost-plus pricing based on total cost and a markup percentage of 50%?

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

Cost distortion fails to capture the cost implications of product diversity and therefore it:

Montana produces bicycles in a highly competitive market. During the past year, the company has added a 30% markup on the $250 manufacturing cost for one of its most popular models. A new competitor manufactures a similar model, has established a $300 selling price, and is seriously eroding Montana's market share. Management now desires to use a target-costing approach to remain competitive and is willing to accept a 20% return on sales. If target costing is used, which of the following choices correctly denotes (1) the price that Montana will charge and (2) company's target cost respectively?

Fourteenth Street Ltd. desires to enter the market with a new product. If the Company uses target costing, which task would the company perform first?

Oasis Inc. 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. Oasis' markup percentage on total cost is: