Question 1

Surent Corporation has the following information available on Product K: $\begin{array}{lr}
\text {Number of units sold each year. }&80,000\
\text {Unit product cost. }&\$25\
\text {Investment in Product K }&\$400,000\
\text {Required return on investment }&20\%\
\end{array}$
 The company uses the absorption costing approach to cost-plus pricing described in the text and a 50% markup. Based on these data, the company's total selling and administrative expenses associated with Product K each year are:

Accepted Answer

A) $80,000 
B) $200,000 
C) $920,000 
D) $800,000

Question 2

The selling price would be closest to:

Accepted Answer

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

Question 3

Erdahl Corporation's management believes that every 7% increase in the selling price of one of the company's products leads to a 11% decrease in the product's total unit sales. The product's price elasticity of demand as defined in the text is closest to:

Accepted Answer

A) -1.72 
B) -1.84 
C) -1.05 
D) -2.05

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

Under the absorption approach to costs-plus pricing described in the text, selling and administrative costs are included in the cost base when computing a selling price.

Accepted Answer

A) True 
 B)False

Question 6

Holding all other things constant, an increase in variable selling costs will affect:

Accepted Answer

A) the selling price under the absorption costing approach to cost-plus pricing. 
B) the profit-maximizing price. 
C) both the selling price under the absorption costing approach to cost-plus pricing and the profit-maximizing price. 
D) neither the selling price under the absorption costing approach to cost-plus pricing nor the profit-maximizing price.

Question 7

The formula for target cost is:
Target cost = Anticipated selling price + Desired profit

Accepted Answer

A) True 
 B)False

Question 8

Hepler Corporation would like to use target costing for a new product that is under consideration. At a selling price of $76 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 12%.
Required:
Determine the target cost per unit for the new product.

Accepted Answer

The answer of Hepler Corporation would like to use target...

Question 9

Gordy Corporation's management has found that every 3% increase in the selling price of one of the company's products leads to a 6% decrease in the product's total unit sales. The product's absorption costing unit product cost is $22.00. The variable production cost of the product is $6.80 per unit and the variable selling and administrative cost is $2.40 per unit. According to the formula in the text, the product's profit-maximizing price is closest to:

Accepted Answer

A) $17.77 
B) $31.39 
C) $17.61 
D) $42.12

Question 10

The product's price elasticity of demand as defined in the text is closest to:

Accepted Answer

A) -1.75 
B) -2.22 
C) -2.06 
D) -1.07

Question 11

The product's price elasticity of demand as defined in the text is closest to:

Accepted Answer

A) -2.13 
B) -1.47 
C) -1.57 
D) -1.81

Question 12

Warvel Corporation's management has found that every 5% increase in the selling price of one of the company's products leads to an 8% decrease in the product's total unit sales. The variable production cost of the product is $18.00 per unit and the variable selling and administrative cost is $12.00 per unit. According to the formula in the text, the product's profit-maximizing price is closest to:

Accepted Answer

A) $63.08 
B) $72.31 
C) $96.41 
D) $58.67

Question 13

Hanson Corporation recently changed the selling price of one of its products. Data concerning sales for comparable periods before and after the price change are presented below. $$\begin{array} { c c } 
\text { Selling Price } & \text { Unit Sales } \
\$ 62.00 & 5,200 \
\$ 63.00 & 5,000
\end{array}$$ The product's price elasticity of demand as defined in the text is closest to:

Accepted Answer

A) -1.71 
B) -1.65 
C) -1.85 
D) -2.45

Question 14

Sawit Corporation, a manufacturer of woodworking tools, wants to introduce a new power screwdriver. To compete effectively, the screwdriver cannot be priced at more than $14. The company requires a 15% rate of return on investment on all new products. In order to produce and sell 80,000 screwdrivers each year, the company will need to make an investment of $800,000. The target cost per screwdriver would be:

Accepted Answer

A) $15.50 
B) $1.50 
C) $14.00 
D) $12.50

Question 15

Price elasticity measures the degree to which consumers resent an increase in price.

Accepted Answer

A) True 
 B)False

Question 16

Simmons Corporation estimated that the following costs and activity would be associated with Product T: $\begin{array}{lr}
\text {Number of units sold annually }&80,000 \
\text {Required investment. }&\$ 900,000 \
\text {Unit product cost. }&\$ 35 \
\text {Total selling and administrative expenses }&\$ 600,000
\end{array}$ If the company uses the absorption costing approach to cost-plus pricing described in the text and desires a 20% ROI, the selling price for Product T would be:

Accepted Answer

A) $37.25 
B) $38.75 
C) $42.00 
D) $44.75

Question 17

The price elasticity of demand is NOT used in the absorption costing approach to cost-plus pricing to determine the markup over cost.

Accepted Answer

A) True 
 B)False

Question 18

The product's price elasticity of demand as defined in the text is closest to:

Accepted Answer

A) -3.19 
B) -2.02 
C) -2.70 
D) -4.13

Question 19

Holding all other things constant, an increase in the company's required return on investment (ROI) will affect:

Accepted Answer

A) the selling price under the absorption costing approach to cost-plus pricing. 
B) the profit-maximizing price. 
C) both the selling price under the absorption costing approach to cost-plus pricing and the profit-maximizing price. 
D) neither the selling price under the absorption costing approach to cost-plus pricing nor the profit-maximizing price.

Question 20

If the unit sales for one product are more sensitive to price increases than another product, then its markup over variable cost should be less than for the other product if the company wants to maximize profit.

Accepted Answer

A) True 
 B)False

Exam 1: Pricing Products and Services

The selling price would be closest to:

Erdahl Corporation's management believes that every 7% increase in the selling price of one of the company's products leads to a 11% decrease in the product's total unit sales. The product's price elasticity of demand as defined in the text is closest to:

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

Under the absorption approach to costs-plus pricing described in the text, selling and administrative costs are included in the cost base when computing a selling price.

Holding all other things constant, an increase in variable selling costs will affect:

The formula for target cost is: Target cost = Anticipated selling price + Desired profit

The product's price elasticity of demand as defined in the text is closest to:

The product's price elasticity of demand as defined in the text is closest to:

Price elasticity measures the degree to which consumers resent an increase in price.

The price elasticity of demand is NOT used in the absorption costing approach to cost-plus pricing to determine the markup over cost.

The product's price elasticity of demand as defined in the text is closest to:

Holding all other things constant, an increase in the company's required return on investment (ROI) will affect:

If the unit sales for one product are more sensitive to price increases than another product, then its markup over variable cost should be less than for the other product if the company wants to maximize profit.