Question 1

An external issue to be considered when setting a price is

Accepted Answer

A)  the quality of competing products or services. 
B)  the quality of materials and labor. 
C)  a price geared toward a minimum return on investment. 
D)  the total costs of the product or service.

Question 2

The gross margin-based price is computed by adding total production costs per unit to the total production costs per unit times the gross margin markup percentage.

Accepted Answer

A) True 
 B)False

Question 3

Gross margin is the difference between sales and the variable production costs of those sales.

Accepted Answer

A) True 
 B)False

Question 4

An external issue to be considered when setting a price is

Accepted Answer

A)  the quality of materials and labor. 
B)  total demand for the product or service. 
C)  usage of scarce resources. 
D)  the variable costs of the product or service.

Question 5

Which of the following items should not be used to measure the performance of a manager whose division "sells" to other divisions of the company exclusively?

Accepted Answer

A)  Negotiated profit margin within the transfer prices 
B)  Labor efficiency rates 
C)  Corporate overhead allocations 
D)  Variable costs of production

Question 6

A target price is an estimate of a price for a product or service that potential customers will be willing to pay.

Accepted Answer

A) True 
 B)False

Question 7

The market price must be included in the analysis of a transfer price if the semi-finished product has an existing market for the selling division to consider.

Accepted Answer

A) True 
 B)False

Question 8

To stay in business, a company must have a selling price that is

Accepted Answer

A)  acceptable to the customer. 
B)  able to recover the variable costs of production. 
C)  the highest in the marketplace. 
D)  equal to or lower than the company's costs per unit.

Question 9

Transfer prices are often called artificial or created prices.

Accepted Answer

A) True 
 B)False

Question 10

Transfer prices are used for internal decisions and performance evaluation purposes and are not made known to the outside world.

Accepted Answer

A) True 
 B)False

Question 11

For the return on assets pricing method, the desired rate of return on assets per unit is added to the total costs and expenses per unit to determine the selling price.

Accepted Answer

A) True 
 B)False

Question 12

A selling division with adequate capacity to fulfill the demand of the buying division should sell to the buying division at any price that recovers incremental costs.

Accepted Answer

A) True 
 B)False

Question 13

Within the relevant range, fixed and variable costs are fairly predictable.

Accepted Answer

A) True 
 B)False

Question 14

The pricing of intracompany transactions should not have an effect on the determination of the product cost and the selling price to external customers.

Accepted Answer

A) True 
 B)False

Question 15

Profit measurement and return on investment for decentralized divisions are important gauges for performance evaluation.

Accepted Answer

A) True 
 B)False

Question 16

Cost and price information are irrelevant to transfer prices.

Accepted Answer

A) True 
 B)False

Question 17

The state of Illinois has passed a law requiring that every automobile be inspected at least once a year for pollution control. Anfang Enterprises is considering entering into this type of business. After extensive studies, Joseph Anfang has developed the following set of projected annual data on which to make his decision: $\begin{array}{|l|l|}
\hline \text { Direct service labor } & \$ 363,000.00 \
\hline \text { Variable service overhead costs } & 270,000.00 \
\hline \text { Fixed service overhead costs } & 280,000.00 \
\hline \text { Marketing expenses } & 120,000.00 \
\hline \text { General and administrative expenses } & 170,000.00 \
\hline \text { Minimum profit } & 90,000.00 \
\hline \text { Cost of assets employed } & 500,000.00 \
\hline
\end{array}$ 
Anfang believes that his company will inspect 100,000 automobiles per year. The company earns an average of 18.75 percent return on its assets.
-
The projected cost for inspecting each automobile would be

Accepted Answer

A)  $11.13. 
B)  $12.03. 
C)  $12.93. 
D)  $10.03.

Question 18

A company producing custom-designed products for its customers can be more conservative in its pricing strategy than a company producing standardized items.

Accepted Answer

A) True 
 B)False

Question 19

An external issue to be considered when setting a price is

Accepted Answer

A)  the variable costs of the product or service. 
B)  the desired rate of return. 
C)  the quality of materials and labor. 
D)  the number of competing products or services.

Question 20

An internal issue to be considered when setting a price is

Accepted Answer

A)  whether the process is labor-intensive or automated. 
B)  the customer's preferences for quality versus price. 
C)  current prices of competing products or services. 
D)  the life of the product or service.

Exam 11: Pricing Decisions, Incl Target Costing and Transfer Pricing

An external issue to be considered when setting a price is

The gross margin-based price is computed by adding total production costs per unit to the total production costs per unit times the gross margin markup percentage.

Gross margin is the difference between sales and the variable production costs of those sales.

An external issue to be considered when setting a price is

Which of the following items should not be used to measure the performance of a manager whose division "sells" to other divisions of the company exclusively?

A target price is an estimate of a price for a product or service that potential customers will be willing to pay.

The market price must be included in the analysis of a transfer price if the semi-finished product has an existing market for the selling division to consider.

To stay in business, a company must have a selling price that is

Transfer prices are often called artificial or created prices.

Transfer prices are used for internal decisions and performance evaluation purposes and are not made known to the outside world.

For the return on assets pricing method, the desired rate of return on assets per unit is added to the total costs and expenses per unit to determine the selling price.

A selling division with adequate capacity to fulfill the demand of the buying division should sell to the buying division at any price that recovers incremental costs.

Within the relevant range, fixed and variable costs are fairly predictable.

The pricing of intracompany transactions should not have an effect on the determination of the product cost and the selling price to external customers.

Profit measurement and return on investment for decentralized divisions are important gauges for performance evaluation.

Cost and price information are irrelevant to transfer prices.

A company producing custom-designed products for its customers can be more conservative in its pricing strategy than a company producing standardized items.

An external issue to be considered when setting a price is

An internal issue to be considered when setting a price is