Question 1

Holding all other things constant, an increase in fixed selling costs will affect:

Accepted Answer

A)  the markup under the absorption costing approach to cost-plus pricing. 
B)  the markup used to compute the profit-maximizing price. 
C)  both the markup under the absorption costing approach to cost-plus pricing and the markup used to compute profit-maximizing price. 
D)  neither the markup under the absorption costing approach to cost-plus pricing nor the markup used to compute profit-maximizing price. 
A)  the markup under the absorption costing approach to cost-plus pricing. 
B)  the markup used to compute the profit-maximizing price. 
C)  both the markup under the absorption costing approach to cost-plus pricing and the markup used to compute profit-maximizing price. 
D)  neither the markup under the absorption costing approach to cost-plus pricing nor the markup used to compute profit-maximizing price.

Question 2

Eckhart Company uses the absorption costing approach to cost-plus pricing as described in the text to set prices for its products. Based on budgeted sales of 64,000 units next year, the unit product cost of a particular product is $13.60. The company's selling and administrative expenses for this product are budgeted to be $729,600 in total for the year. The company has invested $460,000 in this product and expects a return on investment of 11%.
-The markup on absorption cost for this product would be closest to:

Accepted Answer

A)  83.8% 
B)  11.0% 
C)  94.8% 
D)  89.6% 
A)  83.8% 
B)  11.0% 
C)  94.8% 
D)  89.6%

Question 3

Jabal 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 28,000 units per year.
The company has invested $560,000 in this product and expects a return on investment of 10%.
The markup on absorption cost would be closest to:

Accepted Answer

A)  46.0% 
B)  10.0% 
C)  141.1% 
D)  49.7% 
A)  46.0% 
B)  10.0% 
C)  141.1% 
D)  49.7%

Question 4

Price elasticity measures the degree to which unit sales are affected by a change in price.

Accepted Answer

A) True 
 B)False

Question 5

Boatsman Company's management believes that every 4% decrease in the selling price of one of the company's products would lead to a 7% increase in the product's total unit sales. The product's variable cost is $14.20 per unit.
-The product's price elasticity of demand as defined in the text is closest to:

Accepted Answer

A)  -2.29 
B)  -2.24 
C)  -1.31 
D)  -1.66 
A)  -2.29 
B)  -2.24 
C)  -1.31 
D)  -1.66

Question 6

The management of Fanton Corporation is considering introducing a new product-a compact lawn blower. At a selling price of $38 per unit, management projects sales of 60,000 units. The lawn blower would require an investment of $500,000. The desired return on investment is 18%.
-The target cost per lawn blower is closest to:

Accepted Answer

A)  $38.00 
B)  $43.07 
C)  $44.84 
D)  $36.50 
A)  $38.00 
B)  $43.07 
C)  $44.84 
D)  $36.50

Question 7

Hauber Corporation would like to use target costing for a new product it is considering introducing. At a selling price of $26 per unit, management projects sales of 60,000 units. The new product would require an investment of $300,000. The desired return on investment is 20%.
-The desired profit according to the target costing calculations is:

Accepted Answer

A)  $312,000 
B)  $60,000 
C)  $1,560,000 
D)  $1,500,000 
A)  $312,000 
B)  $60,000 
C)  $1,560,000 
D)  $1,500,000

Question 8

Diehl Company 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 52,000 units per year.
The company has invested $420,000 in this product and expects a return on investment of 8%.
Direct labor is a variable cost in this company.
-The markup on absorption cost is closest to:

Accepted Answer

A)  37.2% 
B)  8.0% 
C)  102.4% 
D)  38.4% 
A)  37.2% 
B)  8.0% 
C)  102.4% 
D)  38.4%

Question 9

The price elasticity of demand is used in the absorption costing approach to cost-plus pricing to determine the markup over cost.

Accepted Answer

A) True 
 B)False

Question 10

Trevor Company is contemplating the introduction of a new product. The company has gathered the following information concerning the product:   
The company uses the absorption costing approach to cost-plus pricing as described in the text.
Required:
a. Compute the markup on absorption cost.
b. Compute the selling price.
c. If the price computed in "b" above is charged, and costs turn out as projected, can the company be assured that no loss will be sustained on the new product? Explain.

Accepted Answer

a. Markup percentage on absorption cost

Question 11

The more sensitive customers are to price,

Accepted Answer

A)  the smaller (in absolute value) is the price elasticity of demand. 
B)  the more inelastic is the demand for a product. 
C)  the larger (in absolute value) is the price elasticity of demand. 
D)  the more likely price elasticity of demand will be greater than +1. 
A)  the smaller (in absolute value) is the price elasticity of demand. 
B)  the more inelastic is the demand for a product. 
C)  the larger (in absolute value) is the price elasticity of demand. 
D)  the more likely price elasticity of demand will be greater than +1.

Question 12

Raymond Company estimates that an investment of $800,000 would be necessary to produce and sell 40,000 units of Product S each year. Costs associated with the new product would be:   The company requires a 20% return on the investment in all products. The company used the absorption costing approach to cost-plus pricing as described in the text.
-The selling price based on the absorption costing approach would be:

Accepted Answer

A)  $48.38 
B)  $56.25 
C)  $52.50 
D)  $51.38 
A)  $48.38 
B)  $56.25 
C)  $52.50 
D)  $51.38

Question 13

The management of Matsuura 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 1,000 units of the new product annually. The new product would require an investment of $254,000 and has a required return on investment of 10%.
-The absorption costing unit product cost is:

Accepted Answer

A)  $90 
B)  $97 
C)  $67 
D)  $69 
A)  $90 
B)  $97 
C)  $67 
D)  $69

Question 14

Holding all other things constant, an increase in fixed production costs will affect:

Accepted Answer

A)  the selling price under the absorption costing approach to cost-plus pricing. 
B)  the profit-maximizing price. 
C)  both the selling price under the absorption costing approach to cost-plus pricing and the profit-maximizing price. 
D)  neither the selling price under the absorption costing approach to cost-plus pricing nor the profit-maximizing price. 
A)  the selling price under the absorption costing approach to cost-plus pricing. 
B)  the profit-maximizing price. 
C)  both the selling price under the absorption costing approach to cost-plus pricing and the profit-maximizing price. 
D)  neither the selling price under the absorption costing approach to cost-plus pricing nor the profit-maximizing price.

Question 15

Management of Delaune Corporation is considering a new product, an outdoor speaker that would have a selling price of $45 per unit and projected sales of 70,000 units. Launching the new product would require an investment of $200,000. The desired return on investment is 12%.
Required:
Determine the target cost per unit for the outdoor speaker.

Accepted Answer

The answer of Management of Delaune Corporation is considering a...

Question 16

Elio Corporation would like to use target costing for a new product that is under consideration. At a selling price of $84 per unit, management projects sales of 40,000 units. The new product would require an investment of $400,000. The desired return on investment is 11%.
Required:
Determine the target cost per unit for the new product.

Accepted Answer

The answer of Elio Corporation would like to use target...

Question 17

Gorsche Company's management has found that every 3% increase in the selling price of one of the company's products leads to a 8% decrease in the product's total unit sales. The product's absorption costing unit product cost is $11.50. The variable production cost of the product is $6.20 per unit and the variable selling and administrative cost is $1.00 per unit.
According to the formula in the text, the product's profit-maximizing price is closest to:

Accepted Answer

A)  $11.15 
B)  $11.91 
C)  $19.65 
D)  $17.82 
A)  $11.15 
B)  $11.91 
C)  $19.65 
D)  $17.82

Question 18

The management of Fanton Corporation is considering introducing a new product-a compact lawn blower. At a selling price of $38 per unit, management projects sales of 60,000 units. The lawn blower would require an investment of $500,000. The desired return on investment is 18%.
-The desired profit according to the target costing calculations is:

Accepted Answer

A)  $410,400 
B)  $2,190,000 
C)  $2,280,000 
D)  $90,000 
A)  $410,400 
B)  $2,190,000 
C)  $2,280,000 
D)  $90,000

Question 19

Epler Company's management believes that every 3% decrease in the selling price of one of the company's products leads to a 8% increase in the product's total unit sales. The product's price elasticity of demand as defined in the text is closest to:

Accepted Answer

A)  -1.29 
B)  -2.87 
C)  -3.83 
D)  -2.53 
A)  -1.29 
B)  -2.87 
C)  -3.83 
D)  -2.53

Question 20

Straus Company, a manufacturer of electronic products, wants to introduce a new calculator. To compete effectively, the calculator could not be priced at more than $40. The company requires a 20% rate of return on investment on all new products. In order to produce and sell 30,000 calculators each year, the company would have to make an investment of $850,000. The target cost per calculator would be:

Accepted Answer

A)  $16.50 
B)  $23.50 
C)  $28.33 
D)  $34.33 
A)  $16.50 
B)  $23.50 
C)  $28.33 
D)  $34.33

Holding all other things constant, an increase in fixed selling costs will affect:

Price elasticity measures the degree to which unit sales are affected by a change in price.

The price elasticity of demand is used in the absorption costing approach to cost-plus pricing to determine the markup over cost.

The more sensitive customers are to price,

Holding all other things constant, an increase in fixed production costs will affect:

Epler Company's management believes that every 3% decrease in the selling price of one of the company's products leads to a 8% increase in the product's total unit sales. The product's price elasticity of demand as defined in the text is closest to:

Managerial Accounting and the Business Environment

Managerial Accounting and Cost Concepts

Systems Design: Job-Order Costing

Systems Design: Process Costing

Cost Behavior Analysis and Use

Cost-Volume-Profit Relationship

Variable Costing: a Tool for Management

Activity Based Costing: a Tool to Aid Decision-Making

Profit Planning

Flexible Budgets and Performance Analysis

Standard Costs and Operating Performance Measures

Segment Reporting, Decentralization, and the Balanced Scorecard

Relevant Costs for Decision Making

Capital Budgeting Decisions

How Well Am I Doing Statement of Cash Flows

How Well Am I Doing Financial Statement Analysis

Profitability Analysis

Further Classification of Labor Costs

Cost of Quality

the Predetermined Overhead Rate and Capacity

Fifo Method

Service Department Allocations

Least-Squares Regression Computations

Abc Action Analysis

Using a Modified Form of Activity-Based Costing to

Predetermined Overhead Rates and Overhead Analysis

Journal Entries to Record Variances

Transfer Pricing

Service Department Charges

The Concept of Present Value

Income Taxes in Capital Budgeting Decisions

The Direct Method of Determining the Net Cash Provided by

Filters

Exam 17: Pricing Products and Services

Holding all other things constant, an increase in fixed selling costs will affect:

Price elasticity measures the degree to which unit sales are affected by a change in price.

The price elasticity of demand is used in the absorption costing approach to cost-plus pricing to determine the markup over cost.

The more sensitive customers are to price,

Holding all other things constant, an increase in fixed production costs will affect:

Epler Company's management believes that every 3% decrease in the selling price of one of the company's products leads to a 8% increase in the product's total unit sales. The product's price elasticity of demand as defined in the text is closest to:

Managerial Accounting and the Business Environment

Managerial Accounting and Cost Concepts

Systems Design: Job-Order Costing

Systems Design: Process Costing

Cost Behavior Analysis and Use

Cost-Volume-Profit Relationship

Variable Costing: a Tool for Management

Activity Based Costing: a Tool to Aid Decision-Making

Profit Planning

Flexible Budgets and Performance Analysis

Standard Costs and Operating Performance Measures

Segment Reporting, Decentralization, and the Balanced Scorecard

Relevant Costs for Decision Making

Capital Budgeting Decisions

How Well Am I Doing Statement of Cash Flows

How Well Am I Doing Financial Statement Analysis

Profitability Analysis

Further Classification of Labor Costs

Cost of Quality

the Predetermined Overhead Rate and Capacity

Fifo Method

Service Department Allocations

Least-Squares Regression Computations

Abc Action Analysis

Using a Modified Form of Activity-Based Costing to

Predetermined Overhead Rates and Overhead Analysis

Journal Entries to Record Variances

Transfer Pricing

Service Department Charges

The Concept of Present Value

Income Taxes in Capital Budgeting Decisions

The Direct Method of Determining the Net Cash Provided by

Filters