Question 1

In cost-plus pricing,the markup component ________.

Accepted Answer

A)  is a rigid number 
B)  is ultimately determined by the market 
C)  provides a means to calculate the actual selling price 
D)  is the end rather than the start of pricing decisions 
A)  is a rigid number 
B)  is ultimately determined by the market 
C)  provides a means to calculate the actual selling price 
D)  is the end rather than the start of pricing decisions

Question 2

Answer the following questions using the information below:
Weather Inc., manufactures single room sized air conditioners. The cost accounting system estimates manufacturing costs to be $190 per air conditioner, consisting of 75% variable costs and 25% fixed costs. The company has surplus capacity available. It is Weather Inc.'s policy to add a 30% markup to full costs.
-Zolas' Heaters is approached by Ms.Leila,a new customer,to fulfill a large one-time-only special order for a product similar to one offered to regular customers.Zolas' Heaters has excess capacity.The following per unit data apply for sales to regular customers: $$\begin{array} { l r } 
\text { Direct materials } & \$ 400 \
\text { Direct manufacturing labor } & 120 \
\text { Variable manufacturing support } & 60 \
\text { Fixed manufacturing support } & 200 \
\quad \text { Total manufacturing costs } & 780 \
\text { Markup (20\% of total manufacturing costs) } & 156 \
\text { Estimated selling price } & \$ 936
\end{array}$$ For Zolas' Heaters,what is the minimum acceptable price of this one-time-only special order?

Accepted Answer

A)  $580 
B)  $780 
C)  $520 
D)  $1,014 
A)  $580 
B)  $780 
C)  $520 
D)  $1,014

Question 3

A price-bidding decision for a one-time-only special order includes an analysis of all ________.

Accepted Answer

A)  manufacturing costs 
B)  cost drivers related to the product 
C)  direct and indirect variable costs of each function in the value chain 
D)  fixed manufacturing costs 
A)  manufacturing costs 
B)  cost drivers related to the product 
C)  direct and indirect variable costs of each function in the value chain 
D)  fixed manufacturing costs

Question 4

A full-cost formula for pricing does not require the management accountant to perform a detailed analysis of cost-behavior patterns.

Accepted Answer

A) True 
 B)False

Question 5

Life-cycle costing is the name given to ________.

Accepted Answer

A)  a method of cost planning to reduce manufacturing costs to targeted levels 
B)  the process of examining each component of a product to determine whether its cost can be reduced 
C)  the process of managing all costs along the value chain 
D)  a system that focuses on reducing costs during the manufacturing cycle 
A)  a method of cost planning to reduce manufacturing costs to targeted levels 
B)  the process of examining each component of a product to determine whether its cost can be reduced 
C)  the process of managing all costs along the value chain 
D)  a system that focuses on reducing costs during the manufacturing cycle

Question 6

Market research can be an effective tool in understanding the features customers value.

Accepted Answer

A) True 
 B)False

Question 7

Answer the following questions using the information below:
After conducting a market research study, Ed Manufacturing decided to produce a new interior door to complement its exterior door line. It is estimated that the new interior door can be sold at a target price of $240. The annual target sales volume for interior doors is 20,000. Ed has target operating income of 20% of sales.
-What is the target operating income?

Accepted Answer

A)  $960,000 
B)  $3,840,000 
C)  $4,800,000 
D)  $5,760,000 
A)  $960,000 
B)  $3,840,000 
C)  $4,800,000 
D)  $5,760,000

Question 8

Answer the following questions using the information below:
Judith Vending Company has invested $800,000 in a plant to make vending machines. The target operating income desired from the plant is $120,000 annually. The company plans annual sales of 1,200 vending machines at a selling price of $1,000 each.
-What is the target rate of return on investment for Judith Vending Company?

Accepted Answer

A)  18.0% 
B)  15.0% 
C)  14.0% 
D)  66.7% 
A)  18.0% 
B)  15.0% 
C)  14.0% 
D)  66.7%

Question 9

An understanding of life-cycle costs can lead to ________.

Accepted Answer

A)  additional costs during the manufacturing cycle 
B)  less need for evaluation of the competition 
C)  cost effective product designs that are easier to service 
D)  mutually beneficial relationships between buyers and sellers 
A)  additional costs during the manufacturing cycle 
B)  less need for evaluation of the competition 
C)  cost effective product designs that are easier to service 
D)  mutually beneficial relationships between buyers and sellers

Question 10

Short-run prices should at least recover ________.

Accepted Answer

A)  full cost of producing a product 
B)  fixed manufacturing overhead 
C)  variable cost of producing a product 
D)  variable and fixed manufacturing overhead 
A)  full cost of producing a product 
B)  fixed manufacturing overhead 
C)  variable cost of producing a product 
D)  variable and fixed manufacturing overhead

Question 11

Answer the following questions using the information below:
Purple Purpose Inc., is in the process of evaluating a new product using the following information:
• A new transformer has two production runs each year, each with $10,000 in setup costs.
• The new transformer incurred $30,000 in development costs and is expected to be produced over the next three years.
• Direct costs of producing the transformers are $40,000 per run of 4,500 transformers each.
• Indirect manufacturing costs charged to each run are $45,000.
• Destination charges for each transformer average $1.00.
• Customer service expenses average $0.20 per transformer.
• The transformers are selling for $25 the first year and will increase by $3 each year thereafter.
• Sales units equal production units each year.
-What is the estimated life-cycle operating income for the first year?

Accepted Answer

A)  ($5,800) 
B)  (2,600) 
C)  2,600 
D)  5,800 
A)  ($5,800) 
B)  (2,600) 
C)  2,600 
D)  5,800

Question 12

Which of the following best describes reverse engineering?

Accepted Answer

A)  It refers to the process of disassembling and analyzing competitor's product. 
B)  It refers to the process of first setting the target cost and then designing the product. 
C)  It refers to the process of manufacturing and designing a product after analyzing the other products of the firm. 
D)  It refers to the process of studying customer feedback and then designing a product to match customer requirements. 
A)  It refers to the process of disassembling and analyzing competitor's product. 
B)  It refers to the process of first setting the target cost and then designing the product. 
C)  It refers to the process of manufacturing and designing a product after analyzing the other products of the firm. 
D)  It refers to the process of studying customer feedback and then designing a product to match customer requirements.

Question 13

Samuels Company is considering pricing its 10,000-gallon petroleum tanks using either variable manufacturing or full product costs as the base.The variable cost base provides a prospective price of $6,000 and the full cost base provides a prospective price of $6,100.The difference between the two prices is ________.

Accepted Answer

A)  the estimated amount of profit 
B)  that the variable cost base estimates fixed costs in the markup percentage while the full cost base includes an amount for fixed costs 
C)  known as price discrimination 
D)  caused by the inability of most companies to estimate fixed cost per unit with any degree of reliability 
A)  the estimated amount of profit 
B)  that the variable cost base estimates fixed costs in the markup percentage while the full cost base includes an amount for fixed costs 
C)  known as price discrimination 
D)  caused by the inability of most companies to estimate fixed cost per unit with any degree of reliability

Question 14

One market-based pricing method is called the time and materials method.

Accepted Answer

A) True 
 B)False

Question 15

When target costing and target pricing are used together ________.

Accepted Answer

A)  the target cost is established first, then the target price 
B)  the target cost is the estimated long-run cost that enables a product or service to achieve a desired profit 
C)  the focus of target pricing is to undercut the competition 
D)  target costs are generally higher than current costs 
A)  the target cost is established first, then the target price 
B)  the target cost is the estimated long-run cost that enables a product or service to achieve a desired profit 
C)  the focus of target pricing is to undercut the competition 
D)  target costs are generally higher than current costs

Question 16

In case of pricing for special orders,managers include all future costs,variable costs,and costs that are fixed in the short run.

Accepted Answer

A) True 
 B)False

Question 17

Price dumping occurs when a domestic company is trying to get rid of out-of-style products at a substantially reduced price.

Accepted Answer

A) True 
 B)False

Question 18

Sail Safe currently sells motor boats for $60,000.It has costs of $46,500.A competitor is bringing a new motor boat to the market that will sell for $55,000.Management believes it must lower the price to $55,000 to compete in the market for motor boats.The marketing department believes that the new price will cause sales to increase by 12.5%,even with a new competitor in the market.Sail Safe's sales are currently 2,000 motor boats per year.3
Required:
a.What is the target cost for the new target price if target operating income is 20% of sales?
b.What is the change in operating income if marketing department is correct and only the sales price is changed?
c.What is the target cost if the company wants to maintain its same income level,and marketing department is correct?

Accepted Answer

a.Target cost = $55,000 - ($55,000 × 0.2

Question 19

Which of the following can be used to arrive at the target rate of return on investment?

Accepted Answer

A)  dividing target annual operating income by invested capital 
B)  multiplying target annual operating income by the rate of fixed preference dividend 
C)  dividing invested capital by estimated dividend rate 
D)  multiplying earnings available to equity stakeholders by price-equity ratio 
A)  dividing target annual operating income by invested capital 
B)  multiplying target annual operating income by the rate of fixed preference dividend 
C)  dividing invested capital by estimated dividend rate 
D)  multiplying earnings available to equity stakeholders by price-equity ratio

Question 20

Answer the following questions using the information below:
Bright Inc., manufactures table lamps and is considering raising the price by $30 a unit for the coming year. With a $30 price increase, demand is expected to fall by 2,000 units.
 $\begin{array}{lrr}&\text { Currently }&\text { Projected }\
\text { Demand } & 20,000 \text { units } & 18,000 \text { units } \
\text { Selling price } & \$ 150 & \$ 180 \
\text { Variable costs per unit } & \$ 100 & \$ 100
\end{array}$
-Bright Inc.,has a capacity to produce 25,000 units.Due to an increase in the electricity costs,there is a sudden spike in demand by 2,000 units.If the company adopts peak-load pricing policy and charges a premium of 30% over the current sales price,what is the total contribution on the sale of additional units?

Accepted Answer

A)  $190,000 
B)  $200,000 
C)  $390,000 
D)  $290,000 
A)  $190,000 
B)  $200,000 
C)  $390,000 
D)  $290,000

In cost-plus pricing,the markup component ________.

A price-bidding decision for a one-time-only special order includes an analysis of all ________.

A full-cost formula for pricing does not require the management accountant to perform a detailed analysis of cost-behavior patterns.

Life-cycle costing is the name given to ________.

Market research can be an effective tool in understanding the features customers value.

An understanding of life-cycle costs can lead to ________.

Short-run prices should at least recover ________.

Which of the following best describes reverse engineering?

One market-based pricing method is called the time and materials method.

When target costing and target pricing are used together ________.

In case of pricing for special orders,managers include all future costs,variable costs,and costs that are fixed in the short run.

Price dumping occurs when a domestic company is trying to get rid of out-of-style products at a substantially reduced price.

Which of the following can be used to arrive at the target rate of return on investment?

The Manager and Management Accounting

An Introduction to Cost Terms and Purposes

Cost-Volume-Profit Analysis

Job Costing

Activity-Based Costing and Activity-Based Management

Master Budget and Responsibility Accounting

Flexible Budgets, direct-Cost Variances, and Management Control

Flexible Budgets, overhead Cost Variances, and Management Control

Inventory Costing and Capacity Analysis

Determining How Costs Behave

Decision Making and Relevant Information

Strategy, balanced Scorecard, and Strategic Profitability Analysis

Cost Allocation, customer-Profitability Analysis, and Sales-Variance Analysis

Allocation of Support-Department Costs, common Costs, and Revenues

Cost Allocation: Joint Products and Byproducts

Process Costing

Spoilage, rework, and Scrap

Balanced Scorecard: Quality and Time

Inventory Management, just-In-Time, and Simplified Costing Methods

Capital Budgeting and Cost Analysis

Management Control Systems, transfer Pricing, and Multinational Considerations

Performance Measurement, compensation, and Multinational Considerations

Filters

Exam 13: Pricing Decisions and Cost Management

In cost-plus pricing,the markup component ________.

A price-bidding decision for a one-time-only special order includes an analysis of all ________.

A full-cost formula for pricing does not require the management accountant to perform a detailed analysis of cost-behavior patterns.

Life-cycle costing is the name given to ________.

Market research can be an effective tool in understanding the features customers value.

An understanding of life-cycle costs can lead to ________.

Short-run prices should at least recover ________.

Which of the following best describes reverse engineering?

One market-based pricing method is called the time and materials method.

When target costing and target pricing are used together ________.

In case of pricing for special orders,managers include all future costs,variable costs,and costs that are fixed in the short run.

Price dumping occurs when a domestic company is trying to get rid of out-of-style products at a substantially reduced price.

Which of the following can be used to arrive at the target rate of return on investment?

The Manager and Management Accounting

An Introduction to Cost Terms and Purposes

Cost-Volume-Profit Analysis

Job Costing

Activity-Based Costing and Activity-Based Management

Master Budget and Responsibility Accounting

Flexible Budgets, direct-Cost Variances, and Management Control

Flexible Budgets, overhead Cost Variances, and Management Control

Inventory Costing and Capacity Analysis

Determining How Costs Behave

Decision Making and Relevant Information

Strategy, balanced Scorecard, and Strategic Profitability Analysis

Cost Allocation, customer-Profitability Analysis, and Sales-Variance Analysis

Allocation of Support-Department Costs, common Costs, and Revenues

Cost Allocation: Joint Products and Byproducts

Process Costing

Spoilage, rework, and Scrap

Balanced Scorecard: Quality and Time

Inventory Management, just-In-Time, and Simplified Costing Methods

Capital Budgeting and Cost Analysis

Management Control Systems, transfer Pricing, and Multinational Considerations

Performance Measurement, compensation, and Multinational Considerations

Filters