Question 1

Figure 10-5
Ander Company produces precision equipment for major buyers. Of the six customers, one accounts for 40 per cent of the sales, with the remaining five accounting for the rest of the sales. The five smaller customers purchase equipment in roughly equal quantities. Orders placed by the smaller customers are about the same size. Data concerning Ander's customer activity follow:  Order-filling costs for Ander Company total £360,000, and sales-force costs are £375,000.
-Refer to Figure 10-5, what amount of order-filling costs would be allocated to the large customer if these costs are allocated based on sales volume?

Accepted Answer

A)  £144,000 
B)  £216,000 
C)  £150,000 
D)  £225,000

Question 2

Figure 10-2
Anderson Company manufactures a variety of toys and games. John Boone, president, is disappointed in the sales of a new board game. The game sold only 10,000 units in 2011 when 30,000 were projected. Sales for 2008 look no better. At £100 per game, it is not a hot seller. Direct costs of the board game are £56 variable cost and £100,000 fixed. John is considering several options. Option One: Cut the price to £70 and perhaps sell 15,000 units. Option Two: Cut the price to £60, reduce material costs by £10, and cut advertising by £60,000. Anticipated volume for this option is 10,000 units. Option Three: Cut the price to £80 and include a £10 mail-in rebate offer. It is anticipated that 15,000 units could be sold and only 30 per cent of the rebate coupons would be redeemed.
-Refer to Figure 10-2. What is the profit (loss) from Option One?

Accepted Answer

A)  £1,050,000 
B)  £210,000 
C)  £950,000 
D)  £110,000

Question 3

Many products have a predictable profit or product life cycle. Describe the product life cycle from the marketing perspective. In addition, graph profit versus the different phases. Finally, discuss the impact of the product life cycle on products, learning effects, setups, purchasing, and marketing expenses.

Accepted Answer

The answer of Many products have a predictable profit or...

Question 4

Figure 10-6
Multiple Products Co. has predicted the following costs for this year for 100,000 units: 
-Refer to Figure 10-6. What is the manufacturing cost mark up needed to obtain a target profit of £100,000?

Accepted Answer

A)  100 per cent 
B)  67 per cent 
C)  50 per cent 
D)  25 per cent

Question 5

Figure 10-6
Multiple Products Co. has predicted the following costs for this year for 100,000 units: 
-Refer to Figure 10-6. What is the mark up on variable costs needed to achieve a target profit of £100,000?

Accepted Answer

A)  375 per cent 
B)  275 per cent 
C)  250 per cent 
D)  200 per cent

Question 6

The activity-based resource usage model improves managerial control and decision making such as

Accepted Answer

A)  the best way to use excess activity capacity in the system. 
B)  maximization of individual unit performance. 
C)  increasing the allocation of costs. 
D)  focusing on managing costs rather than activities.

Question 7

When cost-based pricing is employed and mark up is based on manufacturing costs, the mark up must be sufficiently large enough to:

Accepted Answer

A)  cover selling expenses. 
B)  cover administrative expenses. 
C)  provide for the desired profit. 
D)  accomplish all of the above.

Question 8

Figure 10-3
Farr Company had the following information: 
-Refer to Figure 10-3. What is the mark up based on cost of goods sold?

Accepted Answer

A)  50.0% 
B)  100.0% 
C)  37.5% 
D)  62.5%

Question 9

A target cost is computed as

Accepted Answer

A)  the cost to manufacture plus a desired mark up. 
B)  the cost to manufacture plus the designated selling expenses. 
C)  the market willingness to pay less the cost to manufacture. 
D)  the market willingness to pay less the desired profit.

Question 10

Figure 10-6
Multiple Products Co. has predicted the following costs for this year for 100,000 units: 
-Refer to Figure 10-6. What is the mark up on variable costs needed to break even?

Accepted Answer

A)  100 per cent 
B)  40 per cent 
C)  140 per cent 
D)  180 per cent

Question 11

Products might consume overhead in different proportions due to

Accepted Answer

A)  differences in product size. 
B)  differences in setup times. 
C)  differences in product complexity. 
D)  all of the above.

Question 12

Figure 10-4
Jamie Ltd. had the following information: 
-Refer to Figure 10-4. What would be the price for something that has a cost of £500, assuming that the mark up is based on cost of goods sold?

Accepted Answer

A)  £833 
B)  £625 
C)  £708 
D)  £2,000

Question 13

Which of the following stages is characterized by rapid increases in sales and production?

Accepted Answer

A)  Introduction 
B)  Growth 
C)  Maturity 
D)  Decline

Question 14

World-class organizations operating in competitive markets are more likely to take which one of the following approaches toward pricing?

Accepted Answer

A)  Begin with cost data as given and determine price by adding a reasonable mark-up. 
B)  Determine price based on the amount management believes customers are willing to pay. 
C)  Employ a cost-based approach to pricing. 
D)  Determine the price that keeps the facilities fully utilized.

Question 15

Price skimming occurs in which of the following life-cycle stages?

Accepted Answer

A)  Introduction 
B)  Growth 
C)  Maturity 
D)  Decline

Question 16

Which of the following statements concerning target costing is NOT true?

Accepted Answer

A)  Implementing target costing requires detailed information on the cost of alternative activities. 
B)  Target costing can be applied to components of products as well as the new products as a whole. 
C)  A primary advantage of target costing is that it requires little or no coordination among processes. 
D)  Short product life cycles increase the importance of target costing.

Question 17

Figure 10-5
Ander Company produces precision equipment for major buyers. Of the six customers, one accounts for 40 per cent of the sales, with the remaining five accounting for the rest of the sales. The five smaller customers purchase equipment in roughly equal quantities. Orders placed by the smaller customers are about the same size. Data concerning Ander's customer activity follow:  Order-filling costs for Ander Company total £360,000, and sales-force costs are £375,000.
-Refer to Figure 10-5 above, what amount of order-filling costs would be allocated to the five smaller customers if these costs are allocated using an activity-based costing approach?

Accepted Answer

A)  £10,000 
B)  £350,000 
C)  £28,800 
D)  £331,200

Question 18

Cost-based pricing has traditionally been important because:

Accepted Answer

A)  cost data are available. 
B)  cost-based prices are defensible. 
C)  revenues must exceed costs if the firm is to remain in business. 
D)  of all of the above.

Question 19

Which of the following statements describes a legitimate disadvantage of cost-based pricing?

Accepted Answer

A)  Marginal costs and revenues are difficult to measure. 
B)  Determining the amount a customer is willing to pay may require sufficient estimation. 
C)  Customers may not be willing to pay the price determined by the procedure. 
D)  all of the above

Question 20

Figure 10-5
Ander Company produces precision equipment for major buyers. Of the six customers, one accounts for 40 per cent of the sales, with the remaining five accounting for the rest of the sales. The five smaller customers purchase equipment in roughly equal quantities. Orders placed by the smaller customers are about the same size. Data concerning Ander's customer activity follow:  Order-filling costs for Ander Company total £360,000, and sales-force costs are £375,000.
-Refer to Figure 10-5 above, what amount of order-filling costs would be allocated to the large customer if these costs are allocated using an activity-based costing approach?

Accepted Answer

A)  £10,000 
B)  £350,000 
C)  £28,800 
D)  £331,200

Exam 10: Activity-Based Costing

Figure 10-6 Multiple Products Co. has predicted the following costs for this year for 100,000 units: -Refer to Figure 10-6. What is the manufacturing cost mark up needed to obtain a target profit of £100,000?

Figure 10-6 Multiple Products Co. has predicted the following costs for this year for 100,000 units: -Refer to Figure 10-6. What is the mark up on variable costs needed to achieve a target profit of £100,000?