Question 1

The markup on absorption cost for this product would be closest to:

Accepted Answer

A) 45.1% 
B) 36.7% 
C) 11.0% 
D) 34.1%

Question 2

Desalvo Corporation is introducing a new product whose direct materials cost is $41 per unit, direct labor cost is $20 per unit, variable manufacturing overhead is $5 per unit, and variable selling and administrative expense is $4 per unit. The annual fixed manufacturing overhead associated with the product is $120,000 and its annual fixed selling and administrative expense is $8,000. Management plans to produce and sell 8,000 units of the new product annually. The new product would require an investment of $2,192,000 and has a required return on investment of 10%. Management would like to set the selling price on a new product using the absorption costing approach to cost-plus pricing.
Required:
a. Determine the unit product cost for the new product.
b. Determine the markup percentage on absorption cost for the new product.
c. Determine the selling price for the new product using the absorption costing approach.

Accepted Answer

The answer of Desalvo Corporation is introducing a new product...

Question 3

Okamoto Corporation's management believes that every 7% increase in the selling price of one of the company's products would lead to a 10% decrease in the product's total unit sales. The variable cost per unit of this product is $69.20.
Required:
a. Compute the product's price elasticity of demand as defined in the text to two decimal places.
b. Compute the product's profit-maximizing price according to the formula in the text.

Accepted Answer

The answer of Okamoto Corporation's management believes that every 7%...

Question 4

Most of the opportunities to reduce the cost of a product come from designing the product so that it is simple to make, uses inexpensive parts, and is robust and reliable.

Accepted Answer

A) True 
 B)False

Question 5

The markup percentage on absorption cost is closest to:

Accepted Answer

A) 25% 
B) 10% 
C) 15% 
D) 41%

Question 6

The product's profit-maximizing price according to the formula in the text is closest to:

Accepted Answer

A) $259.84 
B) $33.99 
C) $40.89 
D) $31.81

Question 7

The selling price based on the absorption costing approach for this product would be closest to:

Accepted Answer

A) $110.76 
B) $81.00 
C) $67.04 
D) $82.59

Question 8

Pashicke 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. $$\begin{array} { c c } 
\text { Selling Price } & \text { Unit Sales } \
\$ 46.00 & 7,300 \
\$ 44.00 & 7,840
\end{array}$$ The product's variable cost is $17.10 per unit.
Required:
a Compute the product's price elasticity of demand as defined in the text to two decimal places.
b. Compute the product's profit-maximizing price according to the formula in the text.

Accepted Answer

The answer of Pashicke Corporation recently changed the selling price...

Question 9

Gillis Corporation's marketing manager believes that every 10% increase in the selling price of one of the company's products would lead to a 15% decrease in the product's total unit sales. The product's absorption costing unit product cost is $20.00. The variable production cost is $6.00 per unit and the variable selling and administrative cost is $3.00. The fixed selling and administrative expense averages $0.50 per unit.
Required:
a. Compute the product's price elasticity of demand as defined in the text to two decimal places.
b. Compute the product's profit-maximizing price according to the formula in the text.

Accepted Answer

The answer of Gillis Corporation's marketing manager believes that every...

Question 10

Holding all other things constant, if the price elasticity of demand increases (i.e., becomes more negative), then the markup under the economists' approach to pricing will:

Accepted Answer

A) increase. 
B) decrease. 
C) remain the same. 
D) The effect cannot be determined.

Question 11

The management of Brockington Corporation is considering introducing a new product--a compact barbecue. At a selling price of $80 per unit, management projects sales of 70,000 units. Launching the barbecue as a new product would require an investment of $400,000. The desired return on investment is 15%. The target cost per barbecue is closest to:

Accepted Answer

A) $79.14 
B) $92.00 
C) $91.01 
D) $80.00

Question 12

Green Hornet Corporation is contemplating the introduction of a new product. The company has gathered the following information concerning the product: $\begin{array}{lr}
\text {Number of units to be produced and sold each year.  }&16,000 \
\text {Investment required by the company }&\$ 400,000 \
\text { Expected unit product cost. }&\$ 30 \
\text { Expected annual selling and administrative expenses  }&\$ 100,000 \
\text { Desired rate of return on investment.}&20 \%
\end{array}$ The company uses the absorption costing approach to cost-plus pricing as described in the text.
Required:
a. Compute the markup on absorption cost.
b. Compute the selling price.

Accepted Answer

The answer of Green Hornet Corporation is contemplating the introduction...

Question 13

The price elasticity of demand is NOT used to determine the markup over cost when computing the profit-maximizing price.

Accepted Answer

A) True 
 B)False

Question 14

The markup on absorption cost is closest to:

Accepted Answer

A) 96.5% 
B) 15.0% 
C) 31.2% 
D) 30.0%

Question 15

Holding all other things constant, an increase in fixed production costs will affect:

Accepted Answer

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

Question 16

The markup percentage on the new product would be closest to:

Accepted Answer

A) 15.0% 
B) 46.6% 
C) 31.6% 
D) 50.0%

Question 17

The new product would require an investment of $1,200,000 on which the company would like to earn a return of 22 percent. The markup using the absorption costing approach would be:

Accepted Answer

A) 93.8% 
B) 32.6% 
C) 71.3% 
D) 57.5%

Question 18

The markup over cost under the absorption costing approach would increase if selling and administrative expenses increase, holding everything else constant.

Accepted Answer

A) True 
 B)False

Question 19

If a product is price inelastic, then only a very large change in selling price will result in a substantial change in the volume of units sold.

Accepted Answer

A) True 
 B)False

Question 20

Holding all other things constant, an increase in how sensitive customers are to price would affect:

Accepted Answer

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

Exam 1: Pricing Products and Services

The markup on absorption cost for this product would be closest to:

Most of the opportunities to reduce the cost of a product come from designing the product so that it is simple to make, uses inexpensive parts, and is robust and reliable.

The markup percentage on absorption cost is closest to:

The product's profit-maximizing price according to the formula in the text is closest to:

The selling price based on the absorption costing approach for this product would be closest to:

Holding all other things constant, if the price elasticity of demand increases (i.e., becomes more negative) , then the markup under the economists' approach to pricing will:

The price elasticity of demand is NOT used to determine the markup over cost when computing the profit-maximizing price.

The markup on absorption cost is closest to:

Holding all other things constant, an increase in fixed production costs will affect:

The markup percentage on the new product would be closest to:

The new product would require an investment of $1,200,000 on which the company would like to earn a return of 22 percent. The markup using the absorption costing approach would be:

The markup over cost under the absorption costing approach would increase if selling and administrative expenses increase, holding everything else constant.

If a product is price inelastic, then only a very large change in selling price will result in a substantial change in the volume of units sold.

Holding all other things constant, an increase in how sensitive customers are to price would affect: