Deck 18: Pricing Decisions

Question 1

Variable selling and administrative costs are excluded from the cost base used to set a selling price under the absorption approach to cost-plus pricing described in the text.

Answer 1

True

Question 2

The target costing approach was developed in recognition of two important characteristics of markets and costs. First, many companies have less control over price than they like to think. Second, most of a product's cost is determined when it is designed.

Answer 2

True

Question 3

Target costing is primarily used with well-established products.

Answer 3

False

Question 4

The markup over cost under the absorption costing approach would decrease if the unit product cost increases, holding everything else constant.

Question 5

In target costing, the cost of a product is the starting point and the selling price follows from the cost.

Question 6

The markup over cost under the absorption costing approach would decrease if the required rate of return increases, holding everything else constant.

Question 7

Most of the opportunities to reduce the cost of a product come from outsourcing production to where labor is relatively inexpensive.

Question 8

Demand for a product is said to be elastic if a change in price has little effect on the number of units sold.

Question 9

Companies that use value-based pricing establish selling prices based on the economic value of the benefits that their products and services provide to customers.

Question 10

Generally speaking, managers should set higher prices when demand is elastic and lower prices when demand is inelastic.

Question 11

In value-based pricing, the value of what differentiates a product from the best available alternative is known as the differentiation value.

Question 12

In the absorption approach to cost-plus pricing, the anticipated markup in dollars is equal to the anticipated profit.

Question 13

If the formula for the markup percentage on absorption cost is used for setting prices, then the company's desired return on investment (ROI) will be attained regardless of how many units are actually sold.

Question 14

In value-based pricing, the economic value to the customer equals the reference value less the differentiation value.

Question 15

The sensitivity of unit sales to changes in price is called the price elasticity of demand.

Question 16

Under the absorption approach to cost-plus pricing described in the text, all fixed costs are included in the cost base in setting a selling price.

Question 17

Target costing involves adding a target profit per unit to actual unit cost to determine the selling price.

Question 18

The absorption costing approach to cost-plus pricing will result in attaining the company's required rate of return only if forecasted unit sales are realized.

Question 19

A product's economic value to the customer is the variable cost of the product plus the value of what differentiates the product from that alternative.

Question 20

All other things equal including costs, if customers are more sensitive to price for one product than another, then to maximize profit the first product should have a higher price.

Question 21

Kirgan, 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 57,000 units per year.
The company has invested $140,000 in this product and expects a return on investment of 13%.
The selling price based on the absorption costing approach would be closest to:

A) $77.42
B) $99.65
C) $77.10
D) $61.13

Question 22

"Cost-plus" pricing means that all costs--manufacturing, selling, and administrative--are included in the cost base from which the target selling price is derived.

Question 23

Holding all other things constant, if the expected unit sales increase, then the markup under absorption costing will:

A) increase.
B) decrease.
C) remain the same.
D) The effect cannot be determined.

Question 24

Reppond Corporation manufactures numerous products, one of which is called Gamma38. The company has provided the following data about this product: Assume that the total traceable fixed expense does not change. How many units of product Gamma38 would Reppond need to sell at a price of $94.05 to earn the same net operating income that it currently earns at a price of $99.00? (Round your answer up to the nearest whole number.)

A) 177,897
B) 200,000
C) 151,212
D) 187,000

Question 25

Marvel Corporation estimates that the following costs and activity would be associated with the manufacture and sale of product Y: If the company uses the absorption costing approach to cost-plus pricing described in the text and desires a 15% rate of return on investment (ROI), the required markup on absorption cost for product Y would be:

A) 12%
B) 15%
C) 26%
D) 38%

Question 26

Hoder Corporation manufactures numerous products, one of which is called Gamma45. The company has provided the following data about this product: Assume that the total traceable fixed expense does not change. How many units of product Gamma45 would Hoder need to sell at a price of $38.95 to earn the same net operating income that it currently earns at a price of $41.00? (Round your answer up to the nearest whole number.)

A) 56,667
B) 72,362
C) 68,342
D) 66,000

Question 27

Willow Corporation manufactures and sells 20,000 units of Product Z each year. In order to produce and sell this many units, it has been necessary for the company to make an investment of $500,000 in Product Z. The company requires a 20% rate of return on all investments in products. Selling and administrative expenses associated with Product Z total $200,000 per year. The unit product cost of Product Z is $20. The company uses the absorption costing approach to cost-plus pricing described in the text. The selling price for Product Z is:

A) $25
B) $30
C) $35
D) $40

Question 28

Ladle Corporation uses the absorption costing approach to cost-plus pricing described in the text to set prices for its products. Based on budgeted sales of 63,000 units next year, the unit product cost of a particular product is $39.00. The company's selling and administrative expenses for this product are budgeted to be $1,020,600 in total for the year. The company has invested $560,000 in this product and expects a return on investment of 11%. The markup on absorption cost for this product would be closest to:

A) 12.0%
B) 41.5%
C) 52.5%
D) 44.0%

Question 29

Acri Corporation manufactures numerous products, one of which is called Omicron09. The company has provided the following data about this product: Assume that the total traceable fixed expense does not change. If Acri decreases the price of Omicron09 to $71.76, what percentage change in unit sales would provide the same net operating income as is currently being earned at a price of $78.00? (Your answer should be rounded to the nearest 0.1%.)

A) 27.4%
B) 9.0%
C) −20.0%
D) −14.5%

Question 30

Hammen Corporation manufactures numerous products, one of which is called Omicron43. The company has provided the following data about this product: Assume that the total traceable fixed expense does not change. If Hammen decreases the price of Omicron43 to $16.20, what percentage change in unit sales would provide the same net operating income as is currently being earned at a price of $18.00? (Your answer should be rounded to the nearest 0.1%.)

A) 11.8%
B) −20.0%
C) 29.0%
D) −13.3%

Question 31

The following information is available on Bruder 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:

A) $240,000
B) $300,000
C) $140,000
D) $200,000

Question 32

Whittenton Corporation manufactures numerous products, one of which is called Tau14. The company has provided the following data about this product: What is the net operating income for product Tau14 at the current price?

A) $100,000
B) $3,050,000
C) $1,200,000
D) $4,150,000

Question 33

Magney, 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 84,000 units next year, the unit product cost of a particular product is $40.80. The company's selling and administrative expenses for this product are budgeted to be $1,705,200 in total for the year. The company has invested $300,000 in this product and expects a return on investment of 14%. The selling price for this product based on the absorption costing approach would be closest to:

A) $92.25
B) $61.60
C) $46.51
D) $61.10

Question 34

Jaakola 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 $360,000 in this product and expects a return on investment of 15%. The markup on absorption cost would be closest to:

A) 27.1%
B) 29.9%
C) 84.3%
D) 15.0%

Question 35

Seamons 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 40% markup. Based on these data, the company's total selling and administrative expenses associated with Product K each year are:

A) $132,000
B) $852,000
C) $528,000
D) $172,800

Question 36

Which of the following items are included in the cost base under the absorption approach to cost-plus pricing?

A) Choice A
B) Choice B
C) Choice C
D) Choice D

Question 37

Demand for a product is said to be elastic if a change in price has:

A) no effect on the volume of units sold.
B) substantial effect on the volume of units sold.
C) little effect on the volume of units sold.
D) little effect on the volume of units produced.

Question 38

Perwin Corporation estimates that an investment of $800,000 would be needed to produce and sell 50,000 units of Product B each year. At this level of activity, the unit product cost would be $50. Selling and administrative expenses would total $400,000 each year. The company uses the absorption costing approach to cost-plus pricing described in the text. If a 20% rate of return on investment is desired, then the required markup for Product B would be closest to:

A) 20%
B) 22%
C) 24%
D) 26%

Question 39

Starowicz Corporation manufactures numerous products, one of which is called Beta10. The company has provided the following data about this product: Management is considering decreasing the price of Beta10 by 7%, from $12.00 to $11.16. The company's marketing managers estimate that this price reduction would increase unit sales by 15%, from 120,000 units to 138,000 units. Assuming that the total traceable fixed expense does not change, what net operating income will product Beta-10 earn at a price of $11.16 if this sales forecast is correct?

A) −$40,800
B) $16,080
C) $379,200
D) $436,080

Question 40

Minden Corporation estimates that the following costs and activity would be associated with the manufacture and sale of product A: If the company uses the absorption costing approach to cost-plus pricing described in the text and desires a 15% rate of return on investment (ROI), the required markup on absorption cost for Product A would be closest to:

A) 12%
B) 15%
C) 60%
D) 72%

Question 41

Chasin Industries Inc. has developed a new robot, model JB-32, that is designed to offer superior performance to a comparable robot sold by Chasin's main competitor. The competing robot sells for $11,000 and needs to be replaced after 1,000 hours of use. It also requires $1,000 of preventive maintenance during its useful life. Model JB-32's performance capabilities are similar to the competing product with two important exceptions-it needs to be replaced only after 2,000 hours of use and it requires $1,000 of preventive maintenance during its useful life. From a value-based pricing standpoint what is the reference value that Chasin should consider when pricing model JB-32?

A) $11,000
B) $12,000
C) $22,000
D) $13,000

Question 42

Schimpf Industries Inc. has developed a new grinder, model WC-13, that is designed to offer superior performance to a comparable grinder sold by Schimpf's main competitor. The competing grinder sells for $24,000 and needs to be replaced after 1,000 hours of use. It also requires $2,000 of preventive maintenance during its useful life. Model WC-13's performance capabilities are similar to the competing product with two important exceptions-it needs to be replaced only after 4,000 hours of use and it requires $5,000 of preventive maintenance during its useful life. From a value-based pricing standpoint what range of possible prices should Schimpf consider when setting a price for model WC-13?

A) $24,000 ≤ Value-based price ≤ $99,000
B) $75,000 ≤ Value-based price ≤ $96,000
C) $24,000 ≤ Value-based price ≤ $96,000
D) $75,000 ≤ Value-based price ≤ $99,000

Question 43

Montecalvo Logistic Solutions Corporation has developed a new forklift-model PI-28-that has been designed to outperform a competitor's best-selling forklift. The competitor's product has a useful life of 10,000 hours of service, has operating costs that average $9.70 per hour, and sells for $139,000. In contrast, model PI-28 has a useful life of 20,000 hours of service and its operating cost is $5.50 per hour. Montecalvo has not yet established a selling price for model PI-28. From a value-based pricing standpoint what is the differentiation value offered by PI-28 relative to the competitor's offering for each 20,000 hours of service?

A) $223,000
B) $236,000
C) $84,000
D) $249,000

Question 44

Hennig Plastics Equipment Corporation has developed a new injection mold-model XP-30-that has been designed to outperform a competitor's best-selling injection mold. Model XP-30 has a useful life of 60,000 hours of service and its operating cost is $1.20 per hour. In contrast, the competitor's product has a useful life of 30,000 hours of service and has operating costs that average $2.10 per hour. The competitor's injection mold sells for $149,000. Hennig has not yet established a selling price for model XP-30. From a value-based pricing standpoint what is XP-30's economic value to the customer over its 60,000 hour useful life?

A) $221,000
B) $212,000
C) $203,000
D) $352,000

Question 45

Ludy Mechanical Corporation has developed a new industrial grinder-model YS-48-that has been designed to outperform a competitor's best-selling industrial grinder. Model YS-48 has a useful life of 100,000 hours of service and its operating cost is $0.90 per hour. In contrast, the competitor's product has a useful life of 20,000 hours of service and has operating costs that average $1.50 per hour. The competitor's industrial grinder sells for $169,000. Ludy has not yet established a selling price for model YS-48. From a value-based pricing standpoint what is the differentiation value offered by YS-48 relative to the competitor's offering for each 100,000 hours of service?

A) $736,000
B) $60,000
C) $199,000
D) $259,000

Question 46

Secore Robotics Corporation has developed a new robot-model TR-53-that has been designed to outperform a competitor's best-selling robot. The competitor's product has a useful life of 20,000 hours of service, has operating costs that average $1.30 per hour, and sells for $109,000. In contrast, model TR-53 has a useful life of 100,000 hours of service and its operating cost is $0.80 per hour. Secore has not yet established a selling price for model TR-53. From a value-based pricing standpoint what is the reference value that Secore should consider when pricing model TR-53?

A) $189,000
B) $135,000
C) $545,000
D) $109,000

Question 47

Woodridge Corporation manufactures numerous products, one of which is called Alpha32. The company has provided the following data about this product: Management is considering increasing the price of Alpha32 by 4%, from $99.00 to $102.96. The company's marketing managers estimate that this price hike would decrease unit sales by 5%, from 90,000 units to 85,500 units. Assuming that the total traceable fixed expense does not change, what net operating income will product Alpha32 earn at a price of $102.96 if this sales forecast is correct?

A) $556,400
B) $2,246,400
C) $444,080
D) $2,134,080

Question 48

Eastwood Corporation manufactures numerous products, one of which is called Beta96. The company has provided the following data about this product: Management is considering decreasing the price of Beta96 by 8%, from $88.00 to $80.96. The company's marketing managers estimate that this price reduction would increase unit sales by 10%, from 60,000 units to 66,000 units. Assuming that the total traceable fixed expense does not change, what net operating income will product Beta96 earn at a price of $80.96 if this sales forecast is correct?

A) $1,845,360
B) $1,677,600
C) −$302,400
D) −$134,640

Question 49

Attal Corporation manufactures numerous products, one of which is called Epsilon05. The company has provided the following data about this product: Assume that the total traceable fixed expense does not change. If Attal increases the price of Epsilon05 to $75.60, what percentage change in unit sales would provide the same net operating income as is currently being earned at a price of $72.00? (Your answer should be rounded to the nearest 0.1%.)

A) −11.0%
B) −10.0%
C) −19.2%
D) −9.2%

Question 50

Kopec Corporation manufactures numerous products, one of which is called Delta42. The company has provided the following data about this product: Assume that the total traceable fixed expense does not change. How many units of product Delta42 would Kopec need to sell at a price of $60.50 to earn the same net operating income that it currently earns at a price of $55.00? (Round your answer up to the nearest whole number.)

A) 122,642
B) 154,762
C) 134,717
D) 144,500

Question 51

Hilfiger Industries Inc. has developed a new forklift, model UH-40, that is designed to offer superior performance to a comparable forklift sold by Hilfiger's main competitor. The competing forklift sells for $96,000 and needs to be replaced after 1,000 hours of use. It also requires $9,000 of preventive maintenance during its useful life. Model UH-40's performance capabilities are similar to the competing product with two important exceptions-it needs to be replaced only after 2,000 hours of use and it requires $13,000 of preventive maintenance during its useful life. From a value-based pricing standpoint what is model UH-40's economic value to the customer over its 2,000 hour life?

A) $114,000
B) $197,000
C) $101,000
D) $192,000

Question 52

Inscho Corporation manufactures numerous products, one of which is called Delta10. The company has provided the following data about this product: Assume that the total traceable fixed expense does not change. How many units of product Delta10 would Inscho need to sell at a price of $90.95 to earn the same net operating income that it currently earns at a price of $85.00? (Round your answer up to the nearest whole number.)

A) 125,938
B) 126,000
C) 118,051
D) 106,192

Question 53

Contento Corporation manufactures numerous products, one of which is called Kappa15. The company has provided the following data about this product: What is the net operating income for product Kappa15 at the current price?

A) $4,800,000
B) $13,600,000
C) $260,000
D) $9,060,000

Question 54

Napp Heavy Machinery Corporation has developed a new drill press-model GJ-37-that has been designed to outperform a competitor's best-selling drill press. The competitor's product has a useful life of 30,000 hours of service, has operating costs that average $1.70 per hour, and sells for $169,000. In contrast, model GJ-37 has a useful life of 120,000 hours of service and its operating cost is $1.10 per hour. Napp has not yet established a selling price for model GJ-37. From a value-based pricing standpoint what range of possible prices should Napp consider when setting a price for GJ-37?

A) $579,000 ≤ Value-based price ≤ $748,000
B) $169,000 ≤ Value-based price ≤ $748,000
C) $301,000 ≤ Value-based price ≤ $579,000
D) $169,000 ≤ Value-based price ≤ $301,000

Question 55

Rapson Pure Water Solutions Corporation has developed a new water purification system-model EN-78-that has been designed to outperform a competitor's best-selling water purification system. Model EN-78 has a useful life of 120,000 hours of service and its operating cost is $0.70 per hour. In contrast, the competitor's product has a useful life of 40,000 hours of service and has operating costs that average $1.20 per hour. The competitor's water purification system sells for $149,000. Rapson has not yet established a selling price for model EN-78. From a value-based pricing standpoint what range of possible prices should Rapson consider when setting a price for EN-78?

A) $233,000 ≤ Value-based price ≤ $358,000
B) $358,000 ≤ Value-based price ≤ $507,000
C) $149,000 ≤ Value-based price ≤ $507,000
D) $149,000 ≤ Value-based price ≤ $233,000

Question 56

Cogdill Corporation manufactures numerous products, one of which is called Epsilon78. The company has provided the following data about this product: Assume that the total traceable fixed expense does not change. If Cogdill increases the price of Epsilon78 to $19.76, what percentage change in unit sales would provide the same net operating income as is currently being earned at a price of $19.00? (Your answer should be rounded to the nearest 0.1%.)

A) −14.7%
B) −28.3%
C) −5.0%
D) −16.0%

Question 57

Paluso Corporation manufactures numerous products, one of which is called Alpha42. The company has provided the following data about this product: Management is considering increasing the price of Alpha42 by 4%, from $18.00 to $18.72. The company's marketing managers estimate that this price hike would decrease unit sales by 10%, from 180,000 units to 162,000 units. Assuming that the total traceable fixed expense does not change, what net operating income will product Alpha-42 earn at a price of $18.72 if this sales forecast is correct?

A) $764,640
B) $209,600
C) $849,600
D) $124,640

Question 58

Conaghan Avionics Corporation has developed a new high pressure pump-model RA-79-that has been designed to outperform a competitor's best-selling high pressure pump. The competitor's product has a useful life of 30,000 hours of service, has operating costs that average $3.60 per hour, and sells for $159,000. In contrast, model RA-79 has a useful life of 60,000 hours of service and its operating cost is $2.00 per hour. Conaghan has not yet established a selling price for model RA-79. From a value-based pricing standpoint what is RA-79's economic value to the customer over its 60,000 hour useful life?

A) $414,000
B) $267,000
C) $255,000
D) $279,000

Question 59

Cables Electronics Corporation has developed a new instrument-model XG-75-that has been designed to outperform a competitor's best-selling instrument. Model XG-75 has a useful life of 40,000 hours of service and its operating cost is $2.80 per hour. In contrast, the competitor's product has a useful life of 20,000 hours of service and has operating costs that average $5.00 per hour. The competitor's instrument sells for $169,000. Cables has not yet established a selling price for model XG-75. From a value-based pricing standpoint what is the reference value that Cables should consider when pricing model XG-75?

A) $269,000
B) $281,000
C) $338,000
D) $169,000

Question 60

Olivier Industries Inc. has developed a new instrument, model AG-06, that is designed to offer superior performance to a comparable instrument sold by Olivier's main competitor. The competing instrument sells for $74,000 and needs to be replaced after 1,000 hours of use. It also requires $7,000 of preventive maintenance during its useful life. Model AG-06's performance capabilities are similar to the competing product with two important exceptions-it needs to be replaced only after 4,000 hours of use and it requires $14,000 of preventive maintenance during its useful life. From a value-based pricing standpoint what is the differentiation value offered by model AG-06 relative to the competitor's offering for each 4,000 hours of usage?

A) $296,000
B) $102,000
C) $236,000
D) $14,000

Question 61

Spach Corporation manufactures numerous products, one of which is called Beta-68. The company has provided the following data about this product: Assume that the total traceable fixed expense does not change. How many units of product Beta-68 would Spach need to sell at a price of $15.20 to earn the same net operating income that it currently earns at a price of $16.00? (Round your answer up to the nearest whole number.)

A) 126,924
B) 111,538
C) 96,667
D) 121,000

Question 62

The management of Musselman 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 9,000 units of the new product annually. The new product would require an investment of $1,305,000 and has a required return on investment of 10%.
The absorption costing unit product cost is:

A) $51
B) $54
C) $75
D) $86

Question 63

A new product, an automated crepe maker, is being introduced at Knutt Corporation. At a selling price of $59 per unit, management projects sales of 70,000 units. Launching the crepe maker as a new product would require an investment of $500,000. The desired return on investment is 12%. The target cost per crepe maker is closest to:

A) $59.00
B) $66.08
C) $58.14
D) $65.12

Question 64

Nance Corporation is about to introduce a new product. The following costs would be incurred if 40,000 units are produced and sold each year: Nance Corporation uses the absorption costing approach to cost-plus pricing as described in the text.
After introducing the product, the company finds that it has excess capacity. A foreign dealer has offered to purchase 5,000 units of the product at a special price of $21 per unit. This sale would not disturb regular business. If the special price is accepted on the 5,000 units, the effect on total net income for the year should be:

A) $45,000 increase
B) $30,000 increase
C) $5,000 increase
D) $26,250 decrease

Question 65

Diedrich 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 67,000 units per year.
The company has invested $420,000 in this product and expects a return on investment of 12%.
Direct labor is a variable cost in this company.
The markup on absorption cost is closest to:

A) 12.0%
B) 51.0%
C) 49.6%
D) 126.7%

Question 66

Ecob Corporation 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 19,000 units next year, the unit product cost of a particular product is $16.00. The company's selling and administrative expenses for this product are budgeted to be $250,800 in total for the year. The company has invested $440,000 in this product and expects a return on investment of 14%. The markup on absorption cost for this product would be closest to:

A) 96.5%
B) 102.8%
C) 14.0%
D) 82.5%

Question 67

Home Products, Inc., is planning the introduction of a new food dryer. To compete effectively, the dryer would have to be priced at no more than $40 per unit. An investment of $600,000 would have to be made in order to produce and sell the new dryer. The company requires a return on investment of at least 25% on new products. Assuming that the company expects to produce and sell 30,000 dryers per year, the target cost per dryer would be closest to:

A) $18.00
B) $35.00
C) $20.00
D) $24.67

Question 68

Nance Corporation is about to introduce a new product. The following costs would be incurred if 40,000 units are produced and sold each year: Nance Corporation uses the absorption costing approach to cost-plus pricing as described in the text.
Assume that the company has not yet determined a markup to use on the new product. The new product would require an investment of $1,200,000. The company requires a 25% rate of return on investment in all new products. The markup under the absorption costing approach would be closest to:

A) 70.0%
B) 50.0%
C) 83.3%
D) 63.3%

Question 69

Mercer Corporation estimates that an investment of $650,000 would be necessary to produce and sell 60,000 units of a new product each year. Other costs associated with the new product would be: The company requires a 25% 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:

A) 51.0%
B) 12.5%
C) 24.0%
D) 59.5%

Question 70

Mercer Corporation estimates that an investment of $650,000 would be necessary to produce and sell 60,000 units of a new product each year. Other costs associated with the new product would be: The company requires a 25% return on the investment in all products. The company uses the absorption costing approach costing to pricing as described in the text.
The selling price would be closest to:

A) $28.71
B) $26.50
C) $22.00
D) $32.67

Question 71

Ecob Corporation 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 19,000 units next year, the unit product cost of a particular product is $16.00. The company's selling and administrative expenses for this product are budgeted to be $250,800 in total for the year. The company has invested $440,000 in this product and expects a return on investment of 14%. The selling price based on the absorption costing approach for this product would be closest to:

A) $59.21
B) $29.20
C) $32.44
D) $18.24

Question 72

Diedrich 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 67,000 units per year.
The company has invested $420,000 in this product and expects a return on investment of 12%.
Direct labor is a variable cost in this company.
The selling price based on the absorption costing approach is closest to:

A) $83.80
B) $56.32
C) $84.56
D) $126.53

Question 73

The management of Musselman 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 9,000 units of the new product annually. The new product would require an investment of $1,305,000 and has a required return on investment of 10%.
The markup percentage on absorption cost is closest to:

A) 25%
B) 34%
C) 15%
D) 10%

Question 74

Alway Candy Corporation is implementing a target costing approach for its latest new product, the "Big Glob" candy bar. The following information relates to the Big Glob: Based on this information, what is Alway's target selling price per bar for the Big Glob?

A) $0.70
B) $0.72
C) $0.75
D) $0.80

Question 75

The management of Giammarino Corporation is considering introducing a new product--a compact barbecue. At a selling price of $78 per unit, management projects sales of 10,000 units. Launching the barbecue as a new product would require an investment of $100,000. The desired return on investment is 11%. The target cost per barbecue is closest to:

A) $86.58
B) $78.00
C) $76.90
D) $85.36

Question 76

Spach Corporation manufactures numerous products, one of which is called Beta68. The company has provided the following data about this product: Management is considering decreasing the price of Beta68 by 5%, from$16.00 to $15.20. The company's marketing managers estimate that this price reduction would increase unit sales by 10%, from 110,000 units to 121,000 units. Assuming that the total traceable fixed expense does not change, what net operating income will product Beta68 earn at a price of $15.20 if this sales forecast is correct?

A) $629,200
B) $572,000
C) ($8,000)
D) $49,200

Question 77

Hanisch Corporation would like to use target costing for a new product it is considering introducing. At a selling price of $22 per unit, management projects sales of 50,000 units. The new product would require an investment of $400,000. The desired return on investment is 14%. The target cost per unit is closest to:

A) $22.00
B) $23.80
C) $20.88
D) $25.08

Question 78

Timdat Corporation, a manufacturer of moderate-priced time pieces, would like to introduce a new electronic watch. To compete effectively, the watch could not be priced at more than $30. The company requires a return on investment of 25% on all new products. The plan is to produce and sell 40,000 watches each year. This would require a $600,000 investment. The target cost per watch would be:

A) $10.00
B) $20.00
C) $26.25
D) $45.00

Question 79

Weitman Corporation manufactures numerous products, one of which is called Epsilon50. The company has provided the following data about this product: What is the net operating income for product Epsilon50 at the current price?

A) $1,430,000
B) $150,000
C) $3,770,000
D) $2,490,000

Question 80

The management of Musselman 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 9,000 units of the new product annually. The new product would require an investment of $1,305,000 and has a required return on investment of 10%.
The unit target selling price using the absorption costing approach is closest to:

A) $115.00
B) $86.50
C) $100.50
D) $83.33