Question 1

The price elasticity of demand is NOT used to determine the markup over cost when computing the profit-maximizing price.

Accepted Answer

A) True 
 B)False

Question 2

Magner, Inc. , uses the absorption costing approach to cost-plus pricing described in the text to set prices for its products.Based on budgeted sales of 34, 000 units next year, the unit product cost of a particular product is $61.80.The company's selling and administrative expenses for this product are budgeted to be $809, 200 in total for the year.The company has invested $400, 000 in this product and expects a return on investment of 9%. The selling price for this product based on the absorption costing approach would be closest to:

Accepted Answer

A) $86.66 
B) $120.03 
C) $67.36 
D) $85.60 
A) $86.66 
B) $120.03 
C) $67.36 
D) $85.60

Question 3

Target costing is the process of determining the maximum allowable cost for a new product and then developing a prototype that can be profitably made for that maximum cost figure.

Accepted Answer

A) True 
 B)False

Question 4

Kircher, Inc. , manufactures a product with the following costs:   The company uses the absorption costing approach to cost-plus pricing described in the text.The pricing calculations are based on budgeted production and sales of 81, 000 units per year. The company has invested $220, 000 in this product and expects a return on investment of 15%.
The selling price based on the absorption costing approach would be closest to:

Accepted Answer

A) $71.90 
B) $72.31 
C) $53.29 
D) $93.67 
A) $71.90 
B) $72.31 
C) $53.29 
D) $93.67

Question 5

Pricing decisions are most difficult in those situations in which a company makes a product that is in competition with other, identical products for which a market already exists.

Accepted Answer

A) True 
 B)False

Question 6

The formula for target cost is:

Accepted Answer

A) Target cost = Anticipated selling price - Desired profit. 
B) Target cost = Unit cost + (Markup percentage × Unit cost) 
C) Target cost = Units sold × Unit cost traceable to product 
D) Target cost = (Desired return on assets employed + Selling and administrative expenses)÷ (Units sold × Unit product cost) 
A) Target cost = Anticipated selling price - Desired profit. 
B) Target cost = Unit cost + (Markup percentage × Unit cost) 
C) Target cost = Units sold × Unit cost traceable to product 
D) Target cost = (Desired return on assets employed + Selling and administrative expenses)÷ (Units sold × Unit product cost)

Question 7

Nguyen Corporation's marketing manager believes that every 8% increase in the selling price of one of the company's products would lead to a 15% decrease in the product's total unit sales.The product's absorption costing unit product cost is $19.40.The variable production cost is $5.40 per unit and the variable selling and administrative cost is $2.20.
Required:
a.Compute the product's price elasticity of demand as defined in the text to two decimal places.
b.Compute the product's profit-maximizing price according to the formula in the text.

Accepted Answer

a.ε_d = ln(1 + % change in quantity sold)/

Question 8

Warvel Corporation's management has found that every 5% increase in the selling price of one of the company's products leads to an 8% decrease in the product's total unit sales.The variable production cost of the product is $18.00 per unit and the variable selling and administrative cost is $12.00 per unit. According to the formula in the text, the product's profit-maximizing price is closest to:

Accepted Answer

A) $63.08 
B) $72.31 
C) $96.41 
D) $58.67 
A) $63.08 
B) $72.31 
C) $96.41 
D) $58.67

Question 9

Surent Corporation has the following information available on Product K:   The company uses the absorption costing approach to cost-plus pricing described in the text and a 50% markup.Based on these data, the company's total selling and administrative expenses associated with Product K each year are:

Accepted Answer

A) $80, 000 
B) $200, 000 
C) $920, 000 
D) $800, 000 
A) $80, 000 
B) $200, 000 
C) $920, 000 
D) $800, 000

Question 10

The following information is available on Browning Inc.'s Product A:   The company uses the absorption costing approach to cost-plus pricing described in the text.Based on these data, the total selling and administrative expenses each year are:

Accepted Answer

A) $720, 000 
B) $480, 000 
C) $640, 000 
D) $400, 000 
A) $720, 000 
B) $480, 000 
C) $640, 000 
D) $400, 000

Question 11

The Sloan Corporation must invest $120, 000 to produce and market 16, 000 units of Product X each year.The company uses the absorption costing approach to cost-plus pricing described in the text to set prices for its products.Other cost information regarding Product X is as follows:   If Sloan Corporation requires a 15% return on investment, then the markup percentage on absorption cost for Product X (rounded to the nearest percent)would be:

Accepted Answer

A) 41% 
B) 16% 
C) 29% 
D) 22% 
A) 41% 
B) 16% 
C) 29% 
D) 22%

Question 12

The price elasticity of demand is NOT used in the absorption costing approach to cost-plus pricing to determine the markup over cost.

Accepted Answer

A) True 
 B)False

Question 13

Sawit Corporation, a manufacturer of woodworking tools, wants to introduce a new power screwdriver.To compete effectively, the screwdriver cannot be priced at more than $14.The company requires a 15% rate of return on investment on all new products.In order to produce and sell 80, 000 screwdrivers each year, the company will need to make an investment of $800, 000.The target cost per screwdriver would be:

Accepted Answer

A) $15.50 
B) $1.50 
C) $14.00 
D) $12.50 
A) $15.50 
B) $1.50 
C) $14.00 
D) $12.50

Question 14

The management of Kizer Corporation would like to set the selling price on a new product using the absorption costing approach to cost-plus pricing.The company's accounting department has supplied the following estimates for the new product:   Management plans to produce and sell 8, 000 units of the new product annually.The new product would require an investment of $1, 580, 000 and has a required return on investment of 10%. The markup percentage on absorption cost is closest to:

Accepted Answer

A) 25% 
B) 10% 
C) 15% 
D) 41% 
A) 25% 
B) 10% 
C) 15% 
D) 41%

Question 15

Simmons Corporation estimated that the following costs and activity would be associated with Product T:   If the company uses the absorption costing approach to cost-plus pricing described in the text and desires a 20% ROI, the selling price for Product T would be:

Accepted Answer

A) $37.25 
B) $38.75 
C) $42.00 
D) $44.75 
A) $37.25 
B) $38.75 
C) $42.00 
D) $44.75

Question 16

Management of Daubert Corporation is considering a new product, an outdoor speaker that would have a selling price of $43 per unit and projected sales of 60, 000 units.Launching the new product would require an investment of $300, 000.The desired return on investment is 13%.
Required:
Determine the target cost per unit for the outdoor speaker.

Accepted Answer

@#IMG-DLM& Target cost per uni

Question 17

Merced Corporation estimates that an investment of $600, 000 would be necessary to produce and sell 50, 000 units of a new product each year.Other costs associated with the new product would be:   The company requires a 15% return on the investment in all products.The company uses the absorption costing approach costing to pricing as described in the text. The markup percentage on the new product would be closest to:

Accepted Answer

A) 15.0% 
B) 46.6% 
C) 31.6% 
D) 50.0% 
A) 15.0% 
B) 46.6% 
C) 31.6% 
D) 50.0%

Question 18

Samples Corporation would like to use target costing for a new product it is considering introducing.At a selling price of $21 per unit, management projects sales of 20, 000 units.The new product would require an investment of $400, 000.The desired return on investment is 12%. The target cost per unit is closest to:

Accepted Answer

A) $21.00 
B) $18.60 
C) $23.52 
D) $20.83 
A) $21.00 
B) $18.60 
C) $23.52 
D) $20.83

Question 19

Loyola International, Inc.is considering adding a portable CD player to its product line.Management believes that in order to be competitive, the CD player cannot be priced above $79.The company requires a minimum return of 20% on its investments.Launching the new product would require an investment of $20, 000, 000.Sales are expected to be 250, 000 units of the CD player per year.
Required:
Compute the target cost of a CD player.

Accepted Answer

@#IMG-DLM& Target cost per uni

Question 20

Dickson Corporation makes a product with the following costs:   The company uses the absorption costing approach to cost-plus pricing described in the text.The pricing calculations are based on budgeted production and sales of 60, 000 units per year. The company has invested $320, 000 in this product and expects a return on investment of 15%.
Direct labor is a variable cost in this company.
The markup on absorption cost is closest to:

Accepted Answer

A) 96.5% 
B) 15.0% 
C) 31.2% 
D) 30.0% 
A) 96.5% 
B) 15.0% 
C) 31.2% 
D) 30.0%

The price elasticity of demand is NOT used to determine the markup over cost when computing the profit-maximizing price.

Target costing is the process of determining the maximum allowable cost for a new product and then developing a prototype that can be profitably made for that maximum cost figure.

Pricing decisions are most difficult in those situations in which a company makes a product that is in competition with other, identical products for which a market already exists.

The formula for target cost is:

Surent Corporation has the following information available on Product K: The company uses the absorption costing approach to cost-plus pricing described in the text and a 50% markup.Based on these data, the company's total selling and administrative expenses associated with Product K each year are:

The following information is available on Browning Inc.'s Product A: The company uses the absorption costing approach to cost-plus pricing described in the text.Based on these data, the total selling and administrative expenses each year are:

The price elasticity of demand is NOT used in the absorption costing approach to cost-plus pricing to determine the markup over cost.

Simmons Corporation estimated that the following costs and activity would be associated with Product T: If the company uses the absorption costing approach to cost-plus pricing described in the text and desires a 20% ROI, the selling price for Product T would be:

Managerial Accounting and Cost Concepts

Cost-Volume-Profit Relationships

Job-Order Costing

Variable Costing and Segment Reporting: Tools for Management

Activity-Based-Costing: a Tool to Aid Decision Making

Differential Analysis: the Key to Decision Making

Capital Budgeting Decisions

Profit Planning

Flexible Budgets and Performance Analysis

Standard Costs and Variances

Performance Measurement in Decentralized Organizations

Profitability Analysis

Least Squares Regression Computations

Activity-Based Absorption Costing

the Predetermined Overhead Rate and Capacity

Super-Variable Costing

Abc Action Analysis

the Concept of Present Value

Income Taxes and the Net Present Value Method

Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

Transfer Pricing

Service Department Charges

Filters

Exam 12: Pricing Products and Services

The price elasticity of demand is NOT used to determine the markup over cost when computing the profit-maximizing price.

Target costing is the process of determining the maximum allowable cost for a new product and then developing a prototype that can be profitably made for that maximum cost figure.

Pricing decisions are most difficult in those situations in which a company makes a product that is in competition with other, identical products for which a market already exists.

The formula for target cost is:

Surent Corporation has the following information available on Product K: The company uses the absorption costing approach to cost-plus pricing described in the text and a 50% markup.Based on these data, the company's total selling and administrative expenses associated with Product K each year are:

The following information is available on Browning Inc.'s Product A: The company uses the absorption costing approach to cost-plus pricing described in the text.Based on these data, the total selling and administrative expenses each year are:

The price elasticity of demand is NOT used in the absorption costing approach to cost-plus pricing to determine the markup over cost.

Simmons Corporation estimated that the following costs and activity would be associated with Product T: If the company uses the absorption costing approach to cost-plus pricing described in the text and desires a 20% ROI, the selling price for Product T would be:

Managerial Accounting and Cost Concepts

Cost-Volume-Profit Relationships

Job-Order Costing

Variable Costing and Segment Reporting: Tools for Management

Activity-Based-Costing: a Tool to Aid Decision Making

Differential Analysis: the Key to Decision Making

Capital Budgeting Decisions

Profit Planning

Flexible Budgets and Performance Analysis

Standard Costs and Variances

Performance Measurement in Decentralized Organizations

Profitability Analysis

Least Squares Regression Computations

Activity-Based Absorption Costing

the Predetermined Overhead Rate and Capacity

Super-Variable Costing

Abc Action Analysis

the Concept of Present Value

Income Taxes and the Net Present Value Method

Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

Transfer Pricing

Service Department Charges

Filters