Deck 13: Pricing Decisions and Cost Management

Question 1

In a noncompetitive environment,the key factor affecting pricing decisions is the ________.

A) customer's willingness to pay
B) price charged for alternative products
C) information on competitor's cost structure
D) minimum price acceptable to the firm

Answer 1

A

Question 2

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

Answer 2

True

Question 3

Too high a price may ________.

A) deter a customer from purchasing a product
B) increase demand for the product
C) indicate supply is too plentiful
D) decrease a competitor's market share

Answer 3

A

Question 4

Which of the following statements is true of costs and pricing decisions?

A) Companies get profit from selling products only when they are the price makers.
B) Companies supply products as long as the price the customer is willing to pay for its products exceeds the price that is charged by the competitor.
C) Companies supply products as long as there is a demand for the product in the market regardless of the price at which the products are sold.
D) Companies supply products as long as the revenues from selling the additional units exceed the cost of producing them.

Question 5

Long-run pricing decisions ________.

A) have a time horizon of less than one year
B) include adjusting product mix in a competitive environment
C) and short-run pricing decisions generally have the same relevant costs
D) use prices that include a reasonable return on investment

Question 6

Which of the following statements is true about the factors that affect pricing decisions?

A) Information about competitors' technologies is not useful for pricing decisions.
B) Information about a competitor in a perfect market affects pricing decisions.
C) Increase in price of a substitute product does not affect pricing decisions.
D) Fluctuations in exchange rates between different countries' currencies affect pricing decisions.

Question 7

Which of the following statements is true of the cost of producing a product?

A) It controls pricing in highly competitive markets.
B) It affects the willingness of a company to supply a product.
C) It includes manufacturing costs, but not product design costs for pricing decisions.
D) It is not a factor to be taken into account while pricing a product.

Question 8

Companies must always examine pricing decisions through the eyes of their creditors.

Question 9

For a company operating in a perfectly competitive market,cost information affects the pricing decisions of the company.

Question 10

If U.S dollar strengthens against the Japanese Yen,Japanese producers selling goods in U.S markets will have to increase the prices of products to recover the extra cost arising from currency fluctuation.

Question 11

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

Question 12

Which of the following is true of long-run pricing?

A) It is fixed at a level that recovers the variable cost of the company and a pre-determined profit markup.
B) It is generally a function of the market factors and the cost involved in production is generally not a consideration.
C) It is a strategic decision designed to build long-run relationships with customers based on stable and predictable prices.
D) It is based only on internal requirements like cost and estimated rate of return as in the long run these requirements are the driving factors of any organization.

Question 13

A company operating in a perfectly competitive market has more leeway to set higher prices than a firm that is a monopolist.

Question 14

Short-term pricing decisions ________.

A) use costs that may be irrelevant for long-term pricing decisions
B) are more opportunistic
C) tend to decrease prices when demand is strong
D) have a time horizon of more than one year

Question 15

In markets with little or no competition,the key factor affecting price is the cost of production to the company.

Question 16

In a perfectly competitive market,which of the following is a primary factor influencing pricing decisions?

A) cost of production
B) availability of raw materials in the market
C) information on competitor's cost structure
D) value customers place on product

Question 17

Three major influences on pricing decisions are ________.

A) competition, costs, and customers
B) competition, demand, and production efficiency
C) continuous improvement, customer satisfaction, and supply
D) variable costs, fixed costs, and mixed costs

Question 18

Companies should only produce and sell units as long as ________.

A) there is customer demand for the product
B) the competition allows it
C) the revenue from an additional unit exceeds the cost of producing it
D) there is a generous supply of low-cost direct materials

Question 19

Companies must always examine their pricing ________.

A) based on the supply of the product
B) based on the cost of producing the product
C) through the eyes of their customers
D) through the eyes of their competitors

Question 20

Claudia Geer,controller,discusses the pricing of a new product with the sales manager,James Nolan.What major influences must Claudia and James consider in pricing the new product? Discuss each briefly.

Question 21

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: $\begin{array}{l}\text { Varible costs: }\\\begin{array}{lr}\text { Direct materials } & \$ 30 \\\text { Direct labor } & 10 \\\text { Manufacturing overhead } & 20 \\\text { Marketing costs } & 10\\\text { Fixed costs: }\\\text { Manufacturing overhead }& 100 \\\text { Marketing costs } & 190 \\\text { Total costs } & 190 \\\text { Markup ( } 10 \% \text { of total costs) } & 1909 \\\text { Estimated ælling price } & \$ 20\end{array}\end{array}$ If the European customer wanted a long-term commitment,and not a one-time-only special order,for supplying this product,calculate the most likely price to be quoted assuming the markup remains same?

A) $70.00
B) $190.00
C) $209.00
D) $239.00

Question 22

For long-run pricing decisions,using stable prices has the advantage of ________.

A) minimizing the need to monitor competitor's prices frequently
B) reducing the need to change cost structures frequently
C) reducing competition
D) helping to build buyer-seller relationships

Question 23

Purple Trees manufactures rustic furniture.The cost accounting system estimates manufacturing costs to be $240 per table,consisting of 60% variable costs and 40% fixed costs.The company has surplus capacity available.It is Purple Trees' policy to add a 75% markup to full costs. Purple Trees is invited to bid on a one-time-only special order to supply 100 rustic tables.What is the lowest price Purple Trees should bid on this special order?

A) $7,200
B) $12,000
C) $14,400
D) $42,000

Question 24

Answer the following questions using the information below:
Weather Inc., manufactures single room sized air conditioners. The cost accounting system estimates manufacturing costs to be $190 per air conditioner, consisting of 75% variable costs and 25% fixed costs. The company has surplus capacity available. It is Weather Inc.'s policy to add a 30% markup to full costs.

-Zolas' Heaters is approached by Ms.Leila,a new customer,to fulfill a large one-time-only special order for a product similar to one offered to regular customers.Zolas' Heaters has excess capacity.The following per unit data apply for sales to regular customers: $$\begin{array} { l r } \text { Direct materials } & \$ 400 \\\text { Direct manufacturing labor } & 120 \\\text { Variable manufacturing support } & 60 \\\text { Fixed manufacturing support } & 200 \\\quad \text { Total manufacturing costs } & 780 \\\text { Markup (20\% of total manufacturing costs) } & 156 \\\text { Estimated selling price } & \$ 936\end{array}$$ For Zolas' Heaters,what is the minimum acceptable price of this one-time-only special order?

A) $580
B) $780
C) $520
D) $1,014

Question 25

Answer the following questions using the information below:
Weather Inc., manufactures single room sized air conditioners. The cost accounting system estimates manufacturing costs to be $190 per air conditioner, consisting of 75% variable costs and 25% fixed costs. The company has surplus capacity available. It is Weather Inc.'s policy to add a 30% markup to full costs.
A medium sized motel chain is currently expanding and has decided to create more rooms and air condition all of its rooms,which are currently not air conditioned.Weather Inc.is invited to submit a bid to the motel chain.What per unit price will Weather Inc.most likely bid for this special order of 200 units? Assume that the price is being fixed for a long-term commitment.

A) $190.00 per unit
B) $142.50 per unit
C) $247.00 per unit
D) $230.00 per unit

Question 26

Zolas' Heaters is approached by Ms.Leila,a new customer,to fulfill a large one-time-only special order for a product similar to one offered to regular customers.Zolas' Heaters has excess capacity.The following per unit data apply for sales to regular customers: $$\begin{array} { l r } \text { Direct materials } & \$ 400 \\\text { Direct manufacturing labor } & 120 \\\text { Variable manufacturing support } & 60 \\\text { Fixed manufacturing support } & 200 \\\quad \text { Total manufacturing costs } & 780 \\\text { Markup (20\% of total manufacturing costs) } & 156 \\\text { Estimated selling price } & \$ 936\end{array}$$ If Ms.Leila wanted a long-term commitment,and not a one-time-special order,for supplying this product,calculate the most likely price to be quoted assuming the markup remains same?

A) $780
B) $580
C) $520
D) $936

Question 27

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: $$\begin{array} { l r } \text { Output units } & 1,250 \text { phones } \\\text { Machine-hours } & 750 \text { hours } \\\text { Direct manufacturing labor-hours } & 700 \text { hours } \\& \\\text { Direct materials per unit } & \$ 20 \\\text { Direct manufacturing labor per hour } & \$ 8 \\\text { Variable manufacturing overhead costs } & \$ 175,000.00 \\\text { Fixed manufacturing overhead costs } & \$ 126,300 \\\text { Product and process design costs } & \$ 143,000 \\\text { Marketing and distribution costs } & \$ 153,645\end{array}$$ For long-run pricing of the cell phones,what price will most likely be used by Quick Connect?

A) $95.00
B) $135.00
C) $175.00
D) $210.00

Question 28

Answer the following questions using the information below:
Weather Inc., manufactures single room sized air conditioners. The cost accounting system estimates manufacturing costs to be $190 per air conditioner, consisting of 75% variable costs and 25% fixed costs. The company has surplus capacity available. It is Weather Inc.'s policy to add a 30% markup to full costs.
Weather Inc.,is invited to bid on a one-time-only special order to supply 100 air conditioners.What is the lowest price Weather Inc.should bid on this special order?

A) $14,250
B) $18,525
C) $25,000
D) $24,700

Question 29

Short-run prices should at least recover ________.

A) full cost of producing a product
B) fixed manufacturing overhead
C) variable cost of producing a product
D) variable and fixed manufacturing overhead

Question 30

Answer the following questions using the information below:
Golden Generator Supply is approached by Mr. Stephen, a new customer, to fulfill a large one-time-only special order for a product similar to one offered to regular customers. Golden Generator Supply has excess capacity. The following per unit data apply for sales to regular customers:
$$\begin{array} { l r } \text { Direct materials } & \$ 1,700.00 \\\text { Direct manufacturing labor } & 100.00 \\\text { Variable manufacturing support } & 200.00 \\\text { Fixed manufacturing support } & \underline { 150.00 } \\\quad \text { Total manufacturing costs } & 2,150.00 \\\text { Markup (30\% of total manufacturing costs) } & 645.00 \\\text { Estimated selling price } & \$ 2,795.00 \\\hline\end{array}$$

-If Golden Generator Supply accepts the order at $2,350,what is the amount contributed towards fixed costs and profit on a sales order of 1,000 units?

A) $200,000
B) $350,000
C) $795,000
D) $1,000,000

Question 31

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?

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

Question 32

In a long-run,it is worthwhile to sell a product only if the selling price exceeds ________.

A) direct costs of the product
B) manufacturing costs of the product
C) fixed cost of the product
D) full cost of the product and a markup

Question 33

A price-bidding decision for a one-time-only special order includes an analysis of all ________.

A) manufacturing costs
B) cost drivers related to the product
C) direct and indirect variable costs of each function in the value chain
D) fixed manufacturing costs

Question 34

Answer the following questions using the information below:
Golden Generator Supply is approached by Mr. Stephen, a new customer, to fulfill a large one-time-only special order for a product similar to one offered to regular customers. Golden Generator Supply has excess capacity. The following per unit data apply for sales to regular customers:
$$\begin{array} { l r } \text { Direct materials } & \$ 1,700.00 \\\text { Direct manufacturing labor } & 100.00 \\\text { Variable manufacturing support } & 200.00 \\\text { Fixed manufacturing support } & \underline { 150.00 } \\\quad \text { Total manufacturing costs } & 2,150.00 \\\text { Markup (30\% of total manufacturing costs) } & 645.00 \\\text { Estimated selling price } & \$ 2,795.00 \\\hline\end{array}$$

-For Golden Generator Supply,what is the minimum acceptable price of this one-time-only special order?

A) $1,800
B) $2,000
C) $2,150
D) $2,580

Question 35

Golden Generator Supply is approached by Mr.Stephen,a new customer,to fulfill a large one-time-only special order for a product similar to one offered to regular customers.Golden Generator Supply has excess capacity.The following per unit data apply for sales to regular customers: $$\begin{array} { l r } \text { Direct materials } & \$ 1,700.00 \\\text { Direct manufacturing labor } & 100.00 \\\text { Variable manufacturing support } & 200.00 \\\text { Fixed manufacturing support } & \underline { 150.00 } \\\quad \text { Total manufacturing costs } & 2,150.00 \\\text { Markup (30\% of total manufacturing costs) } & 645.00 \\\text { Estimated selling price } & \$ 2,795.00 \\\hline\end{array}$$ If Mr.Stephen wanted a long-term commitment,and not a one-time-only special order,for supplying this product,calculate the most likely price to be quoted assuming the markup remains same?

A) $2,000
B) $2,150
C) $2,795
D) $2,800

Question 36

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?

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

Question 37

Which of the following is regarded as a purpose of cost allocation?

A) It helps in identifying the potential customers for a product.
B) It provides the profit margin earned.
C) It helps in maintaining decorum among managers.
D) It provides information for economic decisions.

Question 38

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:
$\begin{array}{l}\text { Variable costs: }\\\begin{array}{lr}\text { Direct materials } & \$ 30 \\\text { Direct labor } & 10 \\\text { Manufacturing overhead } & 20 \\\text { Marketing costs } & 10\end{array}\\\text { Fixed costs: }\\\begin{array}{lr}\quad {\text { Manufacturing overhead }} & 100 \\\quad \text { Marketing costs } & 20 \\\text { Total costs } & 190 \\\text { Markup (10\% of total costs) } & 19 \\\text { Estimated æelling price } & \$ 209\end{array}\end{array}$

-For Gracius Manufacturing,what is the minimum acceptable price of this one-time-only special order?

A) $40
B) $60
C) $70
D) $190

Question 39

Which one of the following activities would most likely be considered a long-run pricing decision?

A) one-time-only special order pricing
B) product mix adjustments in a competitive market
C) setting prices to generate a reasonable rate of return on investment
D) changing prices in response to weak demand

Question 40

Purple Trees manufactures rustic furniture.The cost accounting system estimates manufacturing costs to be $240 per table,consisting of 60% variable costs and 40% fixed costs.The company has surplus capacity available.It is Purple Trees' policy to add a 75% markup to full costs. A large hotel chain is currently expanding and has decided to decorate all new hotels using the rustic style.Purple Trees is invited to submit a bid to the hotel chain.What per unit price will Purple Trees most likely bid on this long-term order?

A) $168 per unit
B) $180 per unit
C) $252 per unit
D) $420 per unit

Question 41

Cost allocation encourages design of products that are simpler to manufacture and less costly to service.

Question 42

Greentree Incorporated manufactures rustic furniture.The cost accounting system estimates manufacturing costs to be $120 per table,consisting of 60% variable costs and 40% fixed costs.The company has surplus capacity available.It is Greentree's policy to add a 30% markup to full costs.
a.Greentree Incorporated is invited to bid on an order to supply 100 rustic tables.What is the lowest price Greentree should bid on this one-time-only special order?
b.A large hotel chain is currently expanding and has decided to decorate all new hotels using the rustic style.Greentree Incorporated is invited to submit a bid to the hotel chain.What is the lowest price per unit Greentree should bid on this long-term order?

Question 43

Which of the following is true of reverse engineering?

A) It is the process of building a new product by first determining the selling price of the product.
B) It is the process by which a company analyzes its own process to reduce cost.
C) It is the process by which a company markets a product by analyzing competitors marketing strategy.
D) It is the process by which the competitor's products are disassembled and analyzed.

Question 44

Two different approaches to pricing decisions are market based and cost based.

Question 45

Long-run pricing is an operational decision and not a strategic decision as perceived by many.

Question 46

Explain the differences between short-run pricing decisions and long-run pricing decisions.

Question 47

Relevant costs for target pricing are ________.

A) variable manufacturing costs
B) variable manufacturing and variable nonmanufacturing costs
C) all fixed costs
D) all future costs, both variable and fixed

Question 48

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: $\begin{array}{lll}\text { Output units } & 20,000 \text { tables } \\\text { Machine-hours } & 8,000 \text { hours } \\\text { Direct manufacturing labor-hours } & 10,000 \text { hours } \\\text { Direct materials per unit } & \$ 105 \\\text { Direct manufacturing labor per hour } & \$ 10\\\text { Variable manufacturing overhead costs } & \$ 322,500 \\\text { Fixed manufacturing overhead costs } & \$ 1,200,000 \\\text { Product and process design costs } & \$ 1,100,000 \\\text { Marketing and distribution costs } & \$ 1,125,000\end{array}$ Grounded Coffee Products is approached by an overseas customer to fulfill a one-time-only special order for 1,000 units.All cost relationships remain the same except for a one-time setup charge of $20,000.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?

A) $146.125
B) $1346.125
C) $126.125
D) $946.125

Question 49

The department usually in the best position to identify customers' needs is the ________.

A) production department
B) sales and marketing department
C) design department
D) distribution department

Question 50

Companies operating in competitive markets should ideally use cost-plus approach to pricing.

Question 51

Companies operating in competitive markets generally use the market-based approach.

Question 52

Place the following steps for the implementation of target costing in order: $A =$ Derive a target cost
$\mathrm { B } =$ Develop a target price
$\mathrm { C } =$ Perform value engineering
$\mathrm { D } =$ Determine target operating income

A) $B D A C$
B) $B A D C$
C) $A D B C$
D) $A B C D$

Question 53

Companies operating in markets that are not competitive favor cost-based approaches.

Question 54

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

Question 55

Cost allocation is necessary for accurate income measurement.

Question 56

Which of the following is explains the cost-plus approach to pricing decisions?

A) arriving at a price for the product based on the competitive pricing prevalent in the market
B) arriving at a price based on the perceived value to a customer given the cost of design and added features
C) arriving at a price based on the demand and supply trends in the market
D) arriving at a price that earns a specific return given the cost of the product

Question 57

Longball Company manufactures basketball backboards.The following information pertains to the company's normal operations per month:
Required:
a.For long-run pricing,what is the full-cost base per unit?
b.Longball Company is approached by an overseas city to fulfill a one-time-only special order for 1,000 units.All cost relationships remain the same except for an additional one-time setup charge of $40,000.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?

Question 58

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

Question 59

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?

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

Question 60

Which of the following is true of target pricing?

A) It is used for short-term pricing decisions.
B) It is one form of cost-based pricing.
C) Its estimates are based on customers' perceived value of the product.
D) It is calculated by adding a markup component to the cost base.

Question 61

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 if the company wants to maintain its same income level,and marketing is correct (rounded to the nearest cent)?

A) $225.00
B) $227.27
C) $246.68
D) $280.00

Question 62

Answer the following questions using the information below:
Silicon Technologies, currently sells 17" monitors for $270. It has costs of $210. A competitor is bringing a new 17" monitor to market that will sell for $230. Management believes it must lower the price to $230 to compete in the market for 17" monitors. Silicon believes that the new price will cause sales to increase by 10%, even with a new competitor in the market. Silicon's sales are currently 5,000 monitors per year.
What is the change in operating income if marketing manager is correct and only the sales price is changed?

A) $200,000
B) $190,000
C) $(190,000)
D) $(200,000)

Question 63

Answer the following questions using the information below:
After conducting a market research study, Ed Manufacturing decided to produce a new interior door to complement its exterior door line. It is estimated that the new interior door can be sold at a target price of $240. The annual target sales volume for interior doors is 20,000. Ed has target operating income of 20% of sales.

-What is the target cost for each interior door?

A) $288
B) $240
C) $192
D) $48

Question 64

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?

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

Question 65

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?

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

Question 66

Answer the following questions using the information below:
Sales of Blair Inc. have been on a steady decline for the last 12 months. A market research study conducted revealed that the product of Blair Inc. can be sold only for $400 as opposed to the current market price charged of $500 per unit. Blair Inc. has decided to revise its sales price to $400. The annual sales target volume of the product after price revision is 200 units. Blair Inc. wants to earn 18% on its sales amount.
What is the target operating income?

A) $16,992
B) $14,400
C) $11,808
D) $3,240

Question 67

Answer the following questions using the information below:
Sales of Blair Inc. have been on a steady decline for the last 12 months. A market research study conducted revealed that the product of Blair Inc. can be sold only for $400 as opposed to the current market price charged of $500 per unit. Blair Inc. has decided to revise its sales price to $400. The annual sales target volume of the product after price revision is 200 units. Blair Inc. wants to earn 18% on its sales amount.
What are the target sales revenues?

A) $94,400
B) $80,000
C) $65,600
D) $18,000

Question 68

Managers need to understand customers because ________.

A) they are the key in influencing the board decisions and help in formulating policies with the suppliers
B) they guide the managers to formulate pricing policies
C) they are more knowledgeable as they easy access to price and other information online
D) they influence the costing decisions of the product

Question 69

Answer the following questions using the information below:
Sales of Blair Inc. have been on a steady decline for the last 12 months. A market research study conducted revealed that the product of Blair Inc. can be sold only for $400 as opposed to the current market price charged of $500 per unit. Blair Inc. has decided to revise its sales price to $400. The annual sales target volume of the product after price revision is 200 units. Blair Inc. wants to earn 18% on its sales amount.
What is the target cost per unit?

A) $387.04
B) $328.00
C) $268.96
D) $73.80

Question 70

Which of the following is true of target costing?

A) In target costing, all future costs are considered for long-run pricing.
B) In target costing, cost is the starting point for determining the price of the product.
C) In target costing, input from suppliers and distributors are not relevant.
D) In target costing, a key goal is to minimize value added activities of a product.

Question 71

Answer the following questions using the information below:
After conducting a market research study, Ed Manufacturing decided to produce a new interior door to complement its exterior door line. It is estimated that the new interior door can be sold at a target price of $240. The annual target sales volume for interior doors is 20,000. Ed has target operating income of 20% of sales.

-What is the target cost?

A) $5,760,000
B) $4,800,000
C) $3,840,000
D) $960,000

Question 72

Answer the following questions using the information below:
After conducting a market research study, Ed Manufacturing decided to produce a new interior door to complement its exterior door line. It is estimated that the new interior door can be sold at a target price of $240. The annual target sales volume for interior doors is 20,000. Ed has target operating income of 20% of sales.
What are target sales revenues?

A) $960,000
B) $3,840,000
C) $4,800,000
D) $5,760,000

Question 73

________ identifies an estimated price customers are willing to pay and then computes the cost to be achieved to earn the desired profit.

A) Cost-plus pricing
B) Target costing
C) Kaizen costing
D) Peak-load costing

Question 74

The product strategy in which companies first determine the price at which they can sell a new product and then design a product that can be produced at a low enough cost to provide adequate operating income is referred to as ________.

A) cost-plus pricing
B) target costing
C) kaizen costing
D) full costing

Question 75

In relation to target costing,which of the following best describes target cost per unit?

A) It is the targeted cost of producing one unit to achieve the current year's budgeted profit.
B) It is the estimated long-run cost of a product that enables the company to achieve its target operating income.
C) It is the cost that can be achieved by ensuring that the company produced its products at maximum efficiency.
D) It is the budgeted cost that the company estimates in producing a unit in the current budget period.

Question 76

Which of the following is an

A) to reduce cost by eliminating all value-added activities
B) to streamline and add non-value added activities
C) to reduce the total cost of the product
D) to understand competitors' product design

Question 77

Answer the following questions using the information below:
Sales of Blair Inc. have been on a steady decline for the last 12 months. A market research study conducted revealed that the product of Blair Inc. can be sold only for $400 as opposed to the current market price charged of $500 per unit. Blair Inc. has decided to revise its sales price to $400. The annual sales target volume of the product after price revision is 200 units. Blair Inc. wants to earn 18% on its sales amount.
What is the total target cost?

A) $77,408
B) $65,600
C) $53,792
D) $14,760

Question 78

Answer the following questions using the information below:
Silicon Technologies, currently sells 17" monitors for $270. It has costs of $210. A competitor is bringing a new 17" monitor to market that will sell for $230. Management believes it must lower the price to $230 to compete in the market for 17" monitors. Silicon believes that the new price will cause sales to increase by 10%, even with a new competitor in the market. Silicon's sales are currently 5,000 monitors per year.
What is the target cost if the target operating income is 25% of sales?

A) $230.00
B) $207.00
C) $172.50
D) $115.00

Question 79

When target costing and target pricing are used together ________.

A) the target cost is established first, then the target price
B) the target cost is the estimated long-run cost that enables a product or service to achieve a desired profit
C) the focus of target pricing is to undercut the competition
D) target costs are generally higher than current costs

Question 80

Answer the following questions using the information below:
After conducting a market research study, Ed Manufacturing decided to produce a new interior door to complement its exterior door line. It is estimated that the new interior door can be sold at a target price of $240. The annual target sales volume for interior doors is 20,000. Ed has target operating income of 20% of sales.

-What is the target operating income?

A) $960,000
B) $3,840,000
C) $4,800,000
D) $5,760,000