Deck 8: Pricing

Question 1

In a competitive environment, the company must set a target cost and a target selling price.

Answer 1

False

Question 2

A negotiated transfer price should be used when an outside market for the goods does not exist.

Answer 2

True

Question 3

Divisions within vertically integrated companies normally sell goods only to other divisions within the same company.

Answer 3

False

Question 4

Using the negotiated transfer pricing approach, a minimum transfer price is established by the selling division.

Question 5

In most cases, a company sets the price instead of it being set by the competitive market.

Question 6

Sales volume plays a large role in determining per unit costs in the cost-plus pricing approach.

Question 7

In a competitive market, a company is forced to act as a price taker and must emphasize minimizing and controlling costs.

Question 8

There are two approaches for determining a transfer price: cost-based and market-based.

Question 9

The markup percentage in the variable-cost approach is computed by dividing the desired ROI/unit plus fixed costs/unit by the variable costs/unit.

Question 10

Under the variable-cost approach, the cost base consists of all of the variable costs associated with a product except variable selling and administrative costs.

Question 11

A problem with a cost-based transfer price is that it does not provide adequate incentive for the selling division to control costs.

Question 12

The difference between the target price and the desired profit is the target cost of the product.

Question 13

The material loading charge is expressed as a percentage of the total estimated cost of materials for the year.

Question 14

In time-and-material pricing, the material charge is based on the cost of direct materials used and a material loading charge for related overhead costs.

Question 15

The cost-plus pricing approach establishes a cost base and adds a markup to this base to determine a target selling price.

Question 16

In the formula for a minimum transfer price, opportunity cost is the contribution margin of goods sold externally.

Question 17

If a cost-based transfer price is used, the transfer price must be based on variable cost.

Question 18

The first step for time-and-material pricing is to calculate the material loading charge.

Question 19

The cost-plus pricing model gives consideration to the demand side-whether customers will pay the target selling price.

Question 20

The market-based transfer price approach produces a higher total contribution margin to the company than the cost-based approach.

Question 21

Larry Cable Inc. plans to introduce a new product and is using the target cost approach. Projected sales revenue is $810,000 ($4.05 per unit) and target costs are $730,000. What is the desired profit per unit?

A) $0.40
B) $2.03
C) $3.65
D) None of the above

Question 22

Factors that can affect pricing decisions include all of the following except

A) cost considerations.
B) environment.
C) pricing objectives.
D) All of these are factors.

Question 23

Wasson Widget Company is contemplating the production and sale of a new widget. Projected sales are $300,000 (or 75,000 units) and desired profit is $36,000. What is the target cost per unit?

A) $4.00
B) $3.52
C) $4.48
D) $4.80

Question 24

All of the following are factors that can affect pricing decisions except

A) cost considerations.
B) demand.
C) environment.
D) All of these are factors.

Question 25

The first step in the absorption-cost approach is to compute the markup percentage used in setting the target selling price.

Question 26

Target cost is comprised of

A) variable and fixed manufacturing costs only.
B) variable manufacturing and selling and administrative costs only.
C) total manufacturing and selling and administrative costs.
D) fixed manufacturing and selling and administrative costs only.

Question 27

A company that is a price taker would most likely use which of the following methods?

A) Time-and-material pricing
B) Target costing
C) Cost plus pricing, contribution approach
D) Cost plus pricing, absorption approach

Question 28

Differences in tax rates between countries can complicate the determination of the appropriate transfer price.

Question 29

A company must price its product to cover its costs and earn a reasonable profit in

A) all cases.
B) its early years.
C) the long run.
D) the short run.

Question 30

Companies that sell products whose prices are set by market forces are called

A) price givers.
B) price leaders.
C) price takers.
D) price setters.

Question 31

Bond Co. is using the target cost approach on a new product. Information gathered so far reveals: $$\begin{array} { l l } \text { Expected annual sales } & 400,000 \text { units } \\\text { Desired profit per unit } & \$ 0.35 \\\text { Target cost } & \$ 168,000\end{array}$$ What is the target selling price per unit?

A) $0.42
B) $0.70
C) $0.35
D) $0.77

Question 32

Because absorption cost data already exists in general ledger accounts, it is cost effective to use it for pricing.

Question 33

The absorption-cost approach is consistent with generally accepted accounting principles because it defines the cost base as the manufacturing cost.

Question 34

In which of the following situations would a company not set the prices of its products?

A) When the product is not easily differentiated from competing products
B) When the product is specially made for a customer
C) When there are few or no other producers capable of making a similar product
D) When the product can be effectively differentiated from others

Question 35

Prices are set by the competitive market when

A) the product is specially made for a customer.
B) there are no other producers capable of manufacturing a similar item.
C) a company can effectively differentiate its product from others.
D) a product is not easily distinguished from competing products.

Question 36

In most cases, prices are set by the

A) customers.
B) competitive market.
C) largest competitor.
D) selling company.

Question 37

The calculation to determine target cost is

A) variable manufacturing costs + fixed manufacturing costs.
B) sales price - (variable manufacturing costs + fixed manufacturing costs).
C) variable manufacturing costs + selling and administrative variable costs.
D) sales price - desired profit.

Question 38

Boomer Boombox Inc. wants to produce and sell a new lightweight radio. Desired profit per unit is $1.84. The expected unit sales price is $22 based on 10,000 units. What is the total target cost?

A) $201,600
B) $220,000
C) $18,400
D) $238,400

Question 39

Well Water Inc. wants to produce and sell a new flavored water. In order to penetrate the market, the product will have to sell at $2.00 per 12 oz. bottle. The following data has been collected: $$\begin{array} { l c } \text { Annual sales } & 50,000 \text { bottles } \\\text { Projected selling and administrative costs } & \$ 8,000 \\\text { Desired profit } & \$ 70,000\end{array}$$ The target cost per bottle is

A) $0.44.
B) $0.60.
C) $0.16.
D) $0.40.

Question 40

The number of transfers between divisions that are located in different countries has decreased as companies rely more on outsourcing.

Question 41

When using cost-plus pricing, which amount per unit does not change when the expected volume differs from the budgeted volume?

A) Variable cost
B) Fixed cost
C) Desired ROI
D) Target selling price

Question 42

Use the following information for questions
Custom Shoes Co. has gathered the following information concerning one model of shoe: $\begin{array}{ll}\text { Variable manufacturing costs } & \$ 40,000 \\\text { Variable selling and administrative costs } & \$ 20,000 \\\text { Fixed manufacturing costs } & \$ 160,000 \\\text { Fixed selling and administrative costs } & \$ 120,000 \\\text { Investment } & \$ 1,700,000 \\\text { ROl } & 30 \% \\\text { Planned production and sales } & 5,000 \text { pairs }\end{array}$

-What is the target selling price per pair of shoes?

A) $142
B) $170
C) $114
D) $158

Question 43

In cost-plus pricing, the markup percentage is computed by dividing the desired ROI per unit by the

A) fixed cost per unit.
B) total cost per unit.
C) total manufacturing cost per unit.
D) variable cost per unit.

Question 44

Bellingham Suit Co. has received a shipment of suits that cost $200 each. If the company uses cost-plus pricing and applies a markup percentage of 60%, what is the sales price per suit?

A) $333
B) $320
C) $280
D) $500

Question 45

Use the following information for questions
Custom Shoes Co. has gathered the following information concerning one model of shoe: $\begin{array}{ll}\text { Variable manufacturing costs } & \$ 40,000 \\\text { Variable selling and administrative costs } & \$ 20,000 \\\text { Fixed manufacturing costs } & \$ 160,000 \\\text { Fixed selling and administrative costs } & \$ 120,000 \\\text { Investment } & \$ 1,700,000 \\\text { ROl } & 30 \% \\\text { Planned production and sales } & 5,000 \text { pairs }\end{array}$

-What is the desired ROI per pair of shoes?

A) $68
B) $168
C) $102
D) $170

Question 46

Use the following information for questions
Custom Shoes Co. has gathered the following information concerning one model of shoe: $\begin{array}{ll}\text { Variable manufacturing costs } & \$ 40,000 \\\text { Variable selling and administrative costs } & \$ 20,000 \\\text { Fixed manufacturing costs } & \$ 160,000 \\\text { Fixed selling and administrative costs } & \$ 120,000 \\\text { Investment } & \$ 1,700,000 \\\text { ROl } & 30 \% \\\text { Planned production and sales } & 5,000 \text { pairs }\end{array}$

-What is the markup percentage?

A) 150%
B) 255%
C) 850%
D) 182%

Question 47

The following per unit information is available for a new product of Red Ribbon Company: $$\begin{array} { l r } \text { Desired ROI } & \$ 20 \\\text { Fixed cost } & 40 \\\text { Variable cost } & 60 \\\text { Total cost } & 100 \\\text { Selling price } & 120\end{array}$$ Red Ribbon Company's markup percentage would be

A) 17%.
B) 20%.
C) 33%.
D) 50%.

Question 48

All of the following are correct statements about the cost-plus pricing approach except that it

A) is simple to compute.
B) considers customer demand.
C) includes only variable costs in the cost base.
D) will only work when the company sells the quantity it budgeted.

Question 49

In cost-plus pricing, the markup consists of

A) manufacturing costs.
B) desired ROI.
C) selling and administrative costs.
D) total cost and desired ROI.

Question 50

Why does the unit selling price increase when expected volume is lower than budgeted volume?

A) Variable costs and fixed costs have to be spread over fewer units.
B) Fixed costs and desired ROI have to be spread over fewer units.
C) Variable costs and desired ROI have to be spread over fewer units.
D) Fixed costs only have to be spread over fewer units.

Question 51

The cost-plus pricing approach's major advantage is

A) it considers customer demand.
B) that sales volume has no effect on per unit costs.
C) it is simple to compute.
D) it can be used to determine a product's target cost.

Question 52

Use the following information for questions
Brislin Products has a new product going on the market next year. The following data are projections for production and sales: $\begin{array}{ll}\text { Variable costs } & \$ 250,000 \\\text { Fixed costs } & \$ 450,000 \\\text { Rol } & 14 \% \\\text { Investment } & \$ 2,000,000 \\\text { Sales } & 200,000 \text { units }\end{array}$

-What is the target selling price per unit?

A) $4.90
B) $3.50
C) $2.65
D) $3.65

Question 53

The desired ROI per unit is calculated by

A) multiplying the ROI by the investment and dividing by the estimated volume.
B) multiplying the unit selling price by the ROI.
C) dividing the total cost by the estimated volume and multiplying by the ROI.
D) dividing the ROI by the estimated volume and subtracting the result from the unit cost.

Question 54

The markup percentage is

A) 20.69%.
B) 22.59%.
C) 25%.
D) 26.09%.

Question 55

Bryson Company has just developed a new product. The following data is available for this product: $$\begin{array} { l r } \text { Desired ROl per unit } & \$ 30 \\\text { Fixed cost per unit } & 50 \\\text { Variable cost per unit } & 75 \\\text { Total cost per unit } & 125\end{array}$$ The target selling price for this product is

A) $155.
B) $125.
C) $105.
D) $80.

Question 56

Use the following information for questions
Custom Shoes Co. has gathered the following information concerning one model of shoe: $\begin{array}{ll}\text { Variable manufacturing costs } & \$ 40,000 \\\text { Variable selling and administrative costs } & \$ 20,000 \\\text { Fixed manufacturing costs } & \$ 160,000 \\\text { Fixed selling and administrative costs } & \$ 120,000 \\\text { Investment } & \$ 1,700,000 \\\text { ROl } & 30 \% \\\text { Planned production and sales } & 5,000 \text { pairs }\end{array}$

-What is the total cost per pair of shoes?

A) $40
B) $68
C) $168
D) $96

Question 57

Use the following information for questions
Brislin Products has a new product going on the market next year. The following data are projections for production and sales: $\begin{array}{ll}\text { Variable costs } & \$ 250,000 \\\text { Fixed costs } & \$ 450,000 \\\text { Rol } & 14 \% \\\text { Investment } & \$ 2,000,000 \\\text { Sales } & 200,000 \text { units }\end{array}$

-What would the markup percentage be if only 150,000 units were sold and Brislin still wanted to earn the desired ROI?

A) 32.95%
B) 53.33%
C) 35.0%
D) 44.00%

Question 58

A company using cost-plus pricing has an ROI of 24%, total sales of 20,000 units and a desired ROI per unit of $30. What was the amount of investment?

A) $144,000
B) $2,500,000
C) $456,000
D) $789,475

Question 59

In cost-plus pricing, the target selling price is computed as

A) variable cost per unit + desired ROI per unit.
B) fixed cost per unit + desired ROI per unit.
C) total unit cost + desired ROI per unit.
D) variable cost per unit + fixed manufacturing cost per unit + desired ROI per unit.

Question 60

Use the following information for questions
Brislin Products has a new product going on the market next year. The following data are projections for production and sales: $\begin{array}{ll}\text { Variable costs } & \$ 250,000 \\\text { Fixed costs } & \$ 450,000 \\\text { Rol } & 14 \% \\\text { Investment } & \$ 2,000,000 \\\text { Sales } & 200,000 \text { units }\end{array}$

-What is the markup percentage?

A) 112%
B) 20%
C) 62%
D) 40%

Question 61

In January 2019, Wheels 'N Spokes repairs a bicycle that uses parts of $180. Its material loading charge on this repair would be

A) $72.
B) $108.
C) $180.
D) $252.

Question 62

The last step in determining the material loading charge percentage is to

A) estimate annual costs for purchasing, receiving, and storing materials.
B) estimate the total cost of parts and materials.
C) divide material charges by the total estimated costs of parts and materials.
D) add a desired profit margin on the materials themselves.

Question 63

The first step for time-and-material pricing is to calculate the

A) charge for obtaining materials.
B) charge for holding materials.
C) labor charge per hour.
D) charges for a particular job.

Question 64

The labor charge per hour in time-and-material pricing includes all of the following except

A) an allowance for a desired profit.
B) charges for labor loading.
C) selling and administrative costs.
D) overhead costs.

Question 65

The time component under time-and-material pricing includes a

A) loading charge.
B) charge for receiving, handling, and storing materials.
C) portion of the materials clerk's wages.
D) profit margin.

Question 66

In the cost-plus pricing approach, the desired ROI per unit is computed by multiplying the ROI percentage by

A) fixed costs.
B) total assets.
C) total costs.
D) variable costs.

Question 67

Use the following information for questions
Carlos Consulting Inc. provides financial consulting and has collected the following data for the next year's budgeted activity for a lead consultant. $$\begin{array} { c l } \text { Consultants' wages } & \$ 90,000 \\\text { Fringe benefits } & \$ 22,500 \\\text { Related overhead } & \$ 17,500 \\\text { Supply clerk's wages } & \$ 18,000 \\\text { Fringe benefits } & \$ 4,000 \\\text { Related overhead } & \$ 20,000 \\\text { Profit margin per hour } & \$ 20 \\\text { Profit margin on materials } & 15 \% \\\text { Total estimated consulting hours } & 5,000 \\\text { Total estimated material costs } & \$ 168,000\end{array}$$

-A consulting job takes 20 hours of consulting time and $180 of materials. The client's bill would be

A) $1,172.
B) $772.
C) $952.
D) $1,100.

Question 68

The target selling price for this television is

A) $550.
B) $1,000.
C) $1,050.
D) $1,300.

Question 69

Dudly Drafting Services uses a 45% material loading charge and a labor rate of $20 per hour. How much will be charged on a job that requires 3.5 hours of work and $40 of materials?

A) $128
B) $110
C) $88
D) $133

Question 70

Which of the following organizations would most likely not use time-and-material pricing?

A) Automobile repair company
B) Engineering firm
C) Custom furniture manufacturer
D) Public accounting firm

Question 71

Use the following information for questions
Carlos Consulting Inc. provides financial consulting and has collected the following data for the next year's budgeted activity for a lead consultant. $$\begin{array} { c l } \text { Consultants' wages } & \$ 90,000 \\\text { Fringe benefits } & \$ 22,500 \\\text { Related overhead } & \$ 17,500 \\\text { Supply clerk's wages } & \$ 18,000 \\\text { Fringe benefits } & \$ 4,000 \\\text { Related overhead } & \$ 20,000 \\\text { Profit margin per hour } & \$ 20 \\\text { Profit margin on materials } & 15 \% \\\text { Total estimated consulting hours } & 5,000 \\\text { Total estimated material costs } & \$ 168,000\end{array}$$

-The material loading charge is

A) 15%.
B) 25%.
C) 40%.
D) 55%.

Question 72

In March 2019, Wheels 'N Spokes repairs a bicycle that takes two hours to repair and uses parts of $240. The bill for this repair would be

A) $520.
B) $560.
C) $592.
D) $616.

Question 73

Using time-and-material pricing involves how many steps?

A) 4
B) 3
C) 2
D) 1

Question 74

In time-and-material pricing, the charge for a particular job is the sum of the labor charge and the

A) materials charge.
B) material loading charge.
C) materials charge + desired profit.
D) materials charge + the material loading charge.

Question 75

The last step in calculating the hourly rate to be charged in time-and-material pricing is to

A) estimate the total labor costs plus fringe benefits.
B) estimate the total labor hours.
C) add a profit margin.
D) add a charge for overhead costs.

Question 76

Use the following information for questions
Lonely Guy Repair Service recently performed repair services for a customer that totaled $400. Somehow the bill was lost and the company accountant was trying to recreate the bill from memory. This is what was remembered: $$\begin{array} { l l } \text { Total bill } & \$ 600 \\\text { Labor profit margin } & \$ 10 \\\text { Materials profit margin } & 20 \% \\\text { Total labor charges } & \$ 390 \\\text { Cost of materials used } & \$ 120 \\\text { Total hourly cost } & \$ 22.50\end{array}$$

-What was the material loading charge?

A) 37.5%
B) 43.8%
C) 61.3%
D) 75%

Question 77

Lawrence Legal Services recently billed a customer $690. Labor hours were 6 and the cost of the materials used was $150. If the company's hourly labor rate was $75, what material loading charge was used?

A) 30%
B) 50%
C) 60%
D) 100%

Question 78

In time-and-material pricing, a material loading charge covers all of the following except

A) purchasing costs.
B) related overhead.
C) desired profit margin.
D) All of these are covered.

Question 79

Use the following information for questions
Carlos Consulting Inc. provides financial consulting and has collected the following data for the next year's budgeted activity for a lead consultant. $$\begin{array} { c l } \text { Consultants' wages } & \$ 90,000 \\\text { Fringe benefits } & \$ 22,500 \\\text { Related overhead } & \$ 17,500 \\\text { Supply clerk's wages } & \$ 18,000 \\\text { Fringe benefits } & \$ 4,000 \\\text { Related overhead } & \$ 20,000 \\\text { Profit margin per hour } & \$ 20 \\\text { Profit margin on materials } & 15 \% \\\text { Total estimated consulting hours } & 5,000 \\\text { Total estimated material costs } & \$ 168,000\end{array}$$

-The labor rate per hour is

A) $42.50.
B) $26.00.
C) $41.50.
D) $46.00.

Question 80

Use the following information for questions
Lonely Guy Repair Service recently performed repair services for a customer that totaled $400. Somehow the bill was lost and the company accountant was trying to recreate the bill from memory. This is what was remembered: $$\begin{array} { l l } \text { Total bill } & \$ 600 \\\text { Labor profit margin } & \$ 10 \\\text { Materials profit margin } & 20 \% \\\text { Total labor charges } & \$ 390 \\\text { Cost of materials used } & \$ 120 \\\text { Total hourly cost } & \$ 22.50\end{array}$$

-How many hours were billed on the job?

A) 19.5
B) 18.5
C) 17.3
D) 12.0