Question 1

Which of the following statements is true about the factors that affect pricing decisions?

Accepted Answer

A)  Information about competitors' technologies is not useful for pricing decisions. 
B)  Information about a competitor in a perfect market affects pricing decisions. 
C)  Increase in price of a substitute product does not affect pricing decisions. 
D)  Fluctuations in exchange rates between different countries' currencies affect pricing decisions. 
A)  Information about competitors' technologies is not useful for pricing decisions. 
B)  Information about a competitor in a perfect market affects pricing decisions. 
C)  Increase in price of a substitute product does not affect pricing decisions. 
D)  Fluctuations in exchange rates between different countries' currencies affect pricing decisions.

Question 2

Answer the following questions using the information below:
Golden Generator Supply is approached by Mr. Stephen, a new customer, to fulfill a large one-time-only special order for a product similar to one offered to regular customers. Golden Generator Supply has excess capacity. The following per unit data apply for sales to regular customers:
 $$\begin{array} { l r } 
\text { Direct materials } & \$ 1,700.00 \
\text { Direct manufacturing labor } & 100.00 \
\text { Variable manufacturing support } & 200.00 \
\text { Fixed manufacturing support } & \underline { 150.00 } \
\quad \text { Total manufacturing costs } & 2,150.00 \
\text { Markup (30\% of total manufacturing costs) } & 645.00 \
\text { Estimated selling price } & \$ 2,795.00 \
\hline
\end{array}$$
-If Golden Generator Supply accepts the order at $2,350,what is the amount contributed towards fixed costs and profit on a sales order of 1,000 units?

Accepted Answer

A)  $200,000 
B)  $350,000 
C)  $795,000 
D)  $1,000,000 
A)  $200,000 
B)  $350,000 
C)  $795,000 
D)  $1,000,000

Question 3

Too high a price may ________.

Accepted Answer

A)  deter a customer from purchasing a product 
B)  increase demand for the product 
C)  indicate supply is too plentiful 
D)  decrease a competitor's market share 
A)  deter a customer from purchasing a product 
B)  increase demand for the product 
C)  indicate supply is too plentiful 
D)  decrease a competitor's market share

Question 4

Golden Generator Supply is approached by Mr.Stephen,a new customer,to fulfill a large one-time-only special order for a product similar to one offered to regular customers.Golden Generator Supply has excess capacity.The following per unit data apply for sales to regular customers: $$\begin{array} { l r } 
\text { Direct materials } & \$ 1,700.00 \
\text { Direct manufacturing labor } & 100.00 \
\text { Variable manufacturing support } & 200.00 \
\text { Fixed manufacturing support } & \underline { 150.00 } \
\quad \text { Total manufacturing costs } & 2,150.00 \
\text { Markup (30\% of total manufacturing costs) } & 645.00 \
\text { Estimated selling price } & \$ 2,795.00 \
\hline
\end{array}$$ If Mr.Stephen wanted a long-term commitment,and not a one-time-only special order,for supplying this product,calculate the most likely price to be quoted assuming the markup remains same?

Accepted Answer

A)  $2,000 
B)  $2,150 
C)  $2,795 
D)  $2,800 
A)  $2,000 
B)  $2,150 
C)  $2,795 
D)  $2,800

Question 5

Life-cycle budgeting ________.

Accepted Answer

A)  has little in common with target pricing. 
B)  is most useful to companies that manufacture small items such as household plastics. 
C)  helps companies estimate revenues over a multiyear horizon. 
D)  gives companies more insight into total costs when manufacturing costs consume the majority of the resources. 
A)  has little in common with target pricing. 
B)  is most useful to companies that manufacture small items such as household plastics. 
C)  helps companies estimate revenues over a multiyear horizon. 
D)  gives companies more insight into total costs when manufacturing costs consume the majority of the resources.

Question 6

Reverse engineering can be used to analyze competitors' products to determine product designs and materials and to understand the technologies competitors use.

Accepted Answer

A) True 
 B)False

Question 7

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 markup percentage as a percentage of cost for Judith Vending Company?

Accepted Answer

A)  10.00% 
B)  11.11% 
C)  12.68% 
D)  13.62% 
A)  10.00% 
B)  11.11% 
C)  12.68% 
D)  13.62%

Question 8

Marcon Tech Corp.,currently sells radios for $7,000.It has costs of $5,400.A competitor is bringing a new radio to market that will sell for $5,850.Management believes it must lower the price to $5,850 to compete in the market for radios.The marketing department believes that the new price will cause sales to increase by 10%,even with a new competitor in the market.Marcon's sales are currently 1,000 radios per year.
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 in its estimation?

Accepted Answer

a.
Target cost = $5,850 - ($5,850 × 0.20

Question 9

Spending more on the design phase of a new product usually reduces subsequent product-related costs.

Accepted Answer

A) True 
 B)False

Question 10

Longball Company manufactures basketball backboards.The following information pertains to the company's normal operations per month:
 $$\begin{array} { l r } 
\text { Output units } & 15,000 \text { boards } \
\text { Machine-hours } & 4,000 \text { hours } \
\text { Direct manufacturing labor-hours } & 5,000 \text { hours } \
& \
\text { Direct manufacturing labor per hour } & \$ 12 \
\text { Direct materials per unit } & \$ 100 \
\text { Variable manufacturing overhead costs } & \$ 150,000 \
\text { Fixed manufacturing overhead costs } & \$ 300,000 \
\text { Product and process design costs } & \$ 200,000 \
\text { Marketing and distribution costs } & \$ 250,000
\end{array}$$ Required:
a.For long-run pricing,what is the full-cost base per unit?
b.Longball Company is approached by an overseas city to fulfill a one-time-only special order for 1,000 units.All cost relationships remain the same except for an additional one-time setup charge of $40,000.No additional design,marketing,or distribution costs will be incurred.What is the minimum acceptable bid per unit on this one-time-only special order?

Accepted Answer

The answer of Longball Company manufactures basketball backboards.The following information...

Question 11

Answer the following questions using the information below:
Crimpson Company has invested $2,000,000 in a plant to make commercial juicer machines. The target operating income desired from the plant is $299,000 annually. The company plans annual sales of 7,000 juicer machines at a selling price of $400 each.
-What is the target rate of return on investment for Crimpson Company?

Accepted Answer

A)  22.0% 
B)  18.0% 
C)  14.9% 
D)  12.9% 
A)  22.0% 
B)  18.0% 
C)  14.9% 
D)  12.9%

Question 12

The amount of markup percentage is usually higher if ________.

Accepted Answer

A)  there is idle capacity 
B)  demand is strong 
C)  competition is intense 
D)  demand is elastic 
A)  there is idle capacity 
B)  demand is strong 
C)  competition is intense 
D)  demand is elastic

Question 13

What are the five steps that are followed while implementing target pricing and target costing?

Accepted Answer

The following five steps are generally f

Question 14

The product strategy in which companies first determine the price at which they can sell a new product and then design a product that can be produced at a low enough cost to provide adequate operating income is referred to as ________.

Accepted Answer

A)  cost-plus pricing 
B)  target costing 
C)  kaizen costing 
D)  full costing 
A)  cost-plus pricing 
B)  target costing 
C)  kaizen costing 
D)  full costing

Question 15

Answer the following questions using the information below:
Golden Generator Supply is approached by Mr. Stephen, a new customer, to fulfill a large one-time-only special order for a product similar to one offered to regular customers. Golden Generator Supply has excess capacity. The following per unit data apply for sales to regular customers:
 $$\begin{array} { l r } 
\text { Direct materials } & \$ 1,700.00 \
\text { Direct manufacturing labor } & 100.00 \
\text { Variable manufacturing support } & 200.00 \
\text { Fixed manufacturing support } & \underline { 150.00 } \
\quad \text { Total manufacturing costs } & 2,150.00 \
\text { Markup (30\% of total manufacturing costs) } & 645.00 \
\text { Estimated selling price } & \$ 2,795.00 \
\hline
\end{array}$$
-For Golden Generator Supply,what is the minimum acceptable price of this one-time-only special order?

Accepted Answer

A)  $1,800 
B)  $2,000 
C)  $2,150 
D)  $2,580 
A)  $1,800 
B)  $2,000 
C)  $2,150 
D)  $2,580

Question 16

Explain the difference between locked in costs and costs incurred.Which of these types of costs does a traditional accounting system emphasize? At which stage of the value chain are most costs locked-in? At which stage of the value chain are most costs incurred? What implication does this have for good cost management?

Accepted Answer

Locked-in costs are costs that have not

Question 17

Answer the following questions using the information below:
Wilde Corporation budgeted the following costs for the production of its one and only product for the next fiscal year:
 $\begin{array}{lr}
\text { Direct materials } & \$ 1,125,000 \
\text { Direct labor } & 775,000 \
\text { Manufacturing overhead } & \
\quad \text { Variable } & 840,000 \
\quad \text { Fixed } & 645,000\
\text { Selling and administrative }\
\text { Variable } & 360,000 \
\text { Fixed } & 480,000 \
\text { Total costs } & \$ 4,225,000
\end{array}$ Wilde has an annual target operating income of $900,000.
-The markup percentage for setting prices as a percentage of total manufacturing costs is ________.

Accepted Answer

A)  51.4% 
B)  125.3% 
C)  185.6% 
D)  245.8% 
A)  51.4% 
B)  125.3% 
C)  185.6% 
D)  245.8%

Question 18

Carbon Composite Poles manufactures fishing poles that have a price of $125.00.It has costs of $90.A competitor is introducing a new fishing pole that will sell for $110.00.Management believes it must lower the price to $110.00 to compete in the highly cost-conscious fishing pole market.Marketing department believes that the new price will allow Carbon to maintain the current sales level of 200,000 poles per year.
Required:
a.What is the target cost for the new price if target operating income is 25% of sales?
b.What is the change in operating income for the year if only the selling price is changed and costs remain the same?
c.What is the target cost per unit if the selling price is reduced to $110.00 and the company wants to maintain its same income level?

Accepted Answer

a.Target cost = $110 - ($110 × 25%)= $82

Question 19

Long-run pricing is an operational decision and not a strategic decision as perceived by many.

Accepted Answer

A) True 
 B)False

Question 20

When demand for a product is very elastic and prices are increased,demand will ________.

Accepted Answer

A)  remain the same, and operating profits will increase 
B)  remain the same, and operating profits may either increase or decrease 
C)  decrease, and operating profits will decrease 
D)  decrease, and operating profits may either increase or decrease 
A)  remain the same, and operating profits will increase 
B)  remain the same, and operating profits may either increase or decrease 
C)  decrease, and operating profits will decrease 
D)  decrease, and operating profits may either increase or decrease

Which of the following statements is true about the factors that affect pricing decisions?

Too high a price may ________.

Life-cycle budgeting ________.

Reverse engineering can be used to analyze competitors' products to determine product designs and materials and to understand the technologies competitors use.

Spending more on the design phase of a new product usually reduces subsequent product-related costs.

The amount of markup percentage is usually higher if ________.

What are the five steps that are followed while implementing target pricing and target costing?

The product strategy in which companies first determine the price at which they can sell a new product and then design a product that can be produced at a low enough cost to provide adequate operating income is referred to as ________.

Long-run pricing is an operational decision and not a strategic decision as perceived by many.

When demand for a product is very elastic and prices are increased,demand will ________.

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

Which of the following statements is true about the factors that affect pricing decisions?

Too high a price may ________.

Life-cycle budgeting ________.

Reverse engineering can be used to analyze competitors' products to determine product designs and materials and to understand the technologies competitors use.

Spending more on the design phase of a new product usually reduces subsequent product-related costs.

The amount of markup percentage is usually higher if ________.

What are the five steps that are followed while implementing target pricing and target costing?

The product strategy in which companies first determine the price at which they can sell a new product and then design a product that can be produced at a low enough cost to provide adequate operating income is referred to as ________.

Long-run pricing is an operational decision and not a strategic decision as perceived by many.

When demand for a product is very elastic and prices are increased,demand will ________.

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