Question 1

Cost allocation is necessary for accurate income measurement.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following can be used to determine markup percentage in the case of cost-plus pricing?

Accepted Answer

A)  Target annual operating income / Invested capital 
B)  Estimated annual dividend / Invested capital 
C)  Target sales revenue / Target annual operating income 
D)  Estimated annual dividend / Target annual operating income 
A)  Target annual operating income / Invested capital 
B)  Estimated annual dividend / Invested capital 
C)  Target sales revenue / Target annual operating income 
D)  Estimated annual dividend / Target annual operating income

Question 3

To minimize the chances of violating pricing laws,a company should ________.

Accepted Answer

A)  keep detailed records of variable costs for all value-chain business functions 
B)  use a variable cost-plus markup method of pricing 
C)  underprice products on a consistent basis, rather than sporadically 
D)  use dumping only when a product is at the end of its life cycle 
A)  keep detailed records of variable costs for all value-chain business functions 
B)  use a variable cost-plus markup method of pricing 
C)  underprice products on a consistent basis, rather than sporadically 
D)  use dumping only when a product is at the end of its life cycle

Question 4

Answer the following questions using the information below:
Gracius Manufacturing is approached by a European customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers. Gracius Manufacturing has a policy of adding a 10% markup to full costs and currently has excess capacity. The following per unit data apply for sales to regular customers:
 $\begin{array}{l}
\text { Variable costs: }\
\begin{array}{lr}
\text { Direct materials } & \$ 30 \
\text { Direct labor } & 10 \
\text { Manufacturing overhead } & 20 \
\text { Marketing costs } & 10
\end{array}\
\text { Fixed costs: }\
\begin{array}{lr}
\quad {\text { Manufacturing overhead }} & 100 \
\quad \text { Marketing costs } & 20 \
\text { Total costs } & 190 \
\text { Markup (10\% of total costs) } & 19 \
\text { Estimated æelling price } & \$ 209
\end{array}
\end{array}$
-What is the full cost of the product per unit for Gracius Manufacturing?

Accepted Answer

A)  $40 
B)  $70 
C)  $190 
D)  $209 
A)  $40 
B)  $70 
C)  $190 
D)  $209

Question 5

Direct material costs are usually locked in when they are ________.

Accepted Answer

A)  designed 
B)  assembled 
C)  sold 
D)  delivered 
A)  designed 
B)  assembled 
C)  sold 
D)  delivered

Question 6

As companies increase supply,the cost of producing an additional unit initially declines but eventually increases.

Accepted Answer

A) True 
 B)False

Question 7

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.
 $\begin{array}{lrr}&\text { Currently }&\text { Projected }\
\text { Demand } & 20,000 \text { units } & 18,000 \text { units } \
\text { Selling price } & \$ 150 & \$ 180 \
\text { Variable costs per unit } & \$ 100 & \$ 100
\end{array}$
-Would you recommend the $30 price increase?

Accepted Answer

A)  No, because demand decreased. 
B)  No, because the contribution margin decreases. 
C)  Yes, because inventory turnover increases. 
D)  Yes, because operating income increases. 
A)  No, because demand decreased. 
B)  No, because the contribution margin decreases. 
C)  Yes, because inventory turnover increases. 
D)  Yes, because operating income increases.

Question 8

Fluctuations in exchange rates between different countries' currencies affect costs and pricing decisions of a company.

Accepted Answer

A) True 
 B)False

Question 9

Quick Connect manufactures high-tech cell phones.Quick Connect has a policy of adding a 20% markup to full costs and currently has excess capacity.The following information pertains to the company's normal operations per month: $\begin{array}{lr}
\text { Output units } & 1,250 \text { phones } \
\text { Machine-hours } & 750 \text { hours } \
\text { Direct manufacturing labor-hours } & 700 \text { hours }\\
\text { Direct materials per unit } & \$ 20 \
\text { Direct manufacturing labor per hour } & \$ 8 \
\text { Variable manufacturing overhead costs } & \$ 175,000,00 \
\text { Fixed manufacturing overhead costs } & \$ 126,300 \
\text { Product and process design costs } & \$ 143,000 \
\text { Marketing and distribution costs } & \$ 153,645
\end{array}$ Quick Connect Products is approached by an overseas customer to fulfill a one-time-only special order for 120 units.All cost relationships remain the same except for a one-time setup charge of $1,500.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

A)  $24.48 
B)  $160.48 
C)  $176.98 
D)  $200.00 
A)  $24.48 
B)  $160.48 
C)  $176.98 
D)  $200.00

Question 10

Answer the following questions using the information below:
Velim Electronics manufactures electric shavers and is considering decreasing the price by $2 a unit for the coming year. With a $2 price decrease, the unit demand is expected to increase by 25%, and a high volume materials discount is expected to decrease the variable costs per unit by $1 per unit.
 $\begin{array}{lrr}&\text { Currently }&\text { Projected }\
\text { Demand } & 10,000 \text { units } & 12,500 \text { units } \
\text { Selling price } & \$ 51 & \$ 49 \
\text { Variable costs per unit } & \$ 45 & \$ 44
\end{array}$
-Einstein Motors,has a capacity to produce 25,000 electric cars.Due to a temporary subsidy announced,there is a sudden increase in demand.Einstein decides to adopt peak-load pricing and charge a premium of 25% over its normal selling price of $2,000.It has already accepted orders for 20,000 units at normal selling price.What is the total contribution to the company on sale of additional 5,000 units if the variable cost per unit is $900?

Accepted Answer

A)  $10,000,000 
B)  $8,000,000 
C)  $4,500,000 
D)  $4,000,000 
A)  $10,000,000 
B)  $8,000,000 
C)  $4,500,000 
D)  $4,000,000

Question 11

Prices between countries vary beyond the cost of delivering the product to each country only because of changes in exchange rates.

Accepted Answer

A) True 
 B)False

Question 12

Cost allocation is not required to cost inventories for reporting to external parties.

Accepted Answer

A) True 
 B)False

Question 13

Saul and Solomon are starting a new business venture and are in the process of evaluating their product lines.Information for one new product,hand-made lamps,is as follows:
• Every six months a new lamp pattern will be put into production.Each new pattern will require $11,200 in setup costs.
• The lamp product line incurred $40,000 in development costs and is expected to be produced over the next six years.
• Direct costs of producing the lamps average $144 each.Each lamp requires 12 labor-hours and 2 machine-hours.
• Indirect manufacturing costs are estimated at $168,000 per year.
• Customer service expenses average $16 per lamp.
• Current sales are expected to be 2,000 units of each lamp pattern.Each lamp sells for $250.
• Sales units equal production units each year.
Required:
a.What are the estimated life-cycle revenues?
b.What is the estimated life-cycle operating income for the first year?

Accepted Answer

The answer of Saul and Solomon are starting a new...

Question 14

Managing environmental costs is an example of life-cycle costing and value engineering.

Accepted Answer

A) True 
 B)False

Question 15

Answer the following questions using the information below:
Block Island TV currently sells large televisions for $360. It has costs of $280. A competitor is bringing a new large television to market that will sell for $300. Management believes it must lower the price to $300 to compete in the market for large televisions. Marketing believes that the new price will cause sales to increase by 10%, even with a new competitor in the market. Block Island TV sales are currently 100,000 televisions per year.
-What is the change in operating income if marketing is correct and only the sales price is changed?

Accepted Answer

A)  $2,200,000 
B)  $600,000 
C)  $(2,200,000) 
D)  $(5,800,000) 
A)  $2,200,000 
B)  $600,000 
C)  $(2,200,000) 
D)  $(5,800,000)

Question 16

Answer the following questions using the information below:
Block Island TV currently sells large televisions for $360. It has costs of $280. A competitor is bringing a new large television to market that will sell for $300. Management believes it must lower the price to $300 to compete in the market for large televisions. Marketing believes that the new price will cause sales to increase by 10%, even with a new competitor in the market. Block Island TV sales are currently 100,000 televisions per year.
-What is the target cost per unit if target operating income is 25% of sales?

Accepted Answer

A)  $75 
B)  $90 
C)  $225 
D)  $270 
A)  $75 
B)  $90 
C)  $225 
D)  $270

Question 17

Environmental costs that are incurred over several years of the product's life cycle are often locked in at the product- and process-design stage.

Accepted Answer

A) True 
 B)False

Question 18

Action Toys has a new video game cassette for the upcoming holiday season.It is trying to determine the target cost for the game if the selling price per unit will be set at $60,the going price for video games,and the firm wants to earn a target operating income of 15% of sales.What will be the target cost per unit for the new game?

Accepted Answer

A)  $60 
B)  $51 
C)  $27 
D)  $9 
A)  $60 
B)  $51 
C)  $27 
D)  $9

Question 19

Grounded Coffee Products manufactures coffee tables.Grounded Coffee Products has a policy of adding a 20% markup to full costs and currently has excess capacity.The following information pertains to the company's normal operations per month: $\begin{array}{ll}
\text { Output urits } & 20,000 \text { tables } \
\text { Machine-hours } & 8,000 \text { hours } \
\text { Direct manufacturing labor-hours } & 10,000 \text { hours } \
\text { Direct materials per unit } & \$ 105 \
\text { Direct manufacturing labor per hour } & \$ 10\\text { Variable manufacturing overhead costs } & \$ 322,500 \
\text { Fixed manufacturing overhead costs } & \$ 1,200,000 \
\text { Product and process design costs } & \$ 1,100,000 \
\text { Marketing and distribution costs } & \$ 1,125,000
\end{array}$ For long-run pricing of the coffee tables,what price will most likely be used by Grounded Coffee?

Accepted Answer

A)  $134.76 
B)  $161.70 
C)  $222.25 
D)  $266.70 
A)  $134.76 
B)  $161.70 
C)  $222.25 
D)  $266.70

Question 20

In long-run pricing,costs include all manufacturing and non-manufacturing costs but exclude all future direct and indirect costs.

Accepted Answer

A) True 
 B)False

Cost allocation is necessary for accurate income measurement.

Which of the following can be used to determine markup percentage in the case of cost-plus pricing?

To minimize the chances of violating pricing laws,a company should ________.

Direct material costs are usually locked in when they are ________.

As companies increase supply,the cost of producing an additional unit initially declines but eventually increases.

Fluctuations in exchange rates between different countries' currencies affect costs and pricing decisions of a company.

Prices between countries vary beyond the cost of delivering the product to each country only because of changes in exchange rates.

Cost allocation is not required to cost inventories for reporting to external parties.

Managing environmental costs is an example of life-cycle costing and value engineering.

Environmental costs that are incurred over several years of the product's life cycle are often locked in at the product- and process-design stage.

In long-run pricing,costs include all manufacturing and non-manufacturing costs but exclude all future direct and indirect costs.

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

Cost allocation is necessary for accurate income measurement.

Which of the following can be used to determine markup percentage in the case of cost-plus pricing?

To minimize the chances of violating pricing laws,a company should ________.

Direct material costs are usually locked in when they are ________.

As companies increase supply,the cost of producing an additional unit initially declines but eventually increases.

Fluctuations in exchange rates between different countries' currencies affect costs and pricing decisions of a company.

Prices between countries vary beyond the cost of delivering the product to each country only because of changes in exchange rates.

Cost allocation is not required to cost inventories for reporting to external parties.

Managing environmental costs is an example of life-cycle costing and value engineering.

Environmental costs that are incurred over several years of the product's life cycle are often locked in at the product- and process-design stage.

In long-run pricing,costs include all manufacturing and non-manufacturing costs but exclude all future direct and indirect costs.

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