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WorksheetsPG MA CH 13
Total questions: 110
Worksheet time: 55mins
1) As a general rule of economics, companies should only produce and sell units as long as
A) there is customer demand for the product
B) there is a relatively small supply of the product when compared to past operating periods
C) the revenue from an additional unit exceeds the cost of producing it
D) there is a generous supply of low-cost direct materials
2) In setting prices for products and services, managers may attempt to charge what the customer is willing to pay however, too high a price may ________.
A) deter a customer from purchasing a product and seek alternatives
B) increase demand and demand for the product
C) indicate supply is too plentiful
D) decrease a competitor's market share
3) Companies must always examine their pricing ________.
A) based on the supply of the product
B) based on the full cost of producing the product and price to make a profit
C) through the eyes of their customers and then manage costs to produce a profit
D) based on the GAAP cost of producing the product and then add a mark-up
4) 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) Managers must always be aware of the competition when pricing their products
5) 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
6) 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.
7) 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
8) 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.
9) 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
13.2(1) Which of the following examples would have as its purpose the allocation of costs to motivate employees?
A) deciding on a selling g price for a product
B) encouraging sales representatives to emphasize high-margin products
C) to cost products a a "fair" price under a government contract
t D) to cost inventories for reporting to external parties
13.2(2)Which of the following are true regarding long-run pricing decisions?
A) they result in maximizing return on investment
B) they include adjusting product mix in a competitive environment
C) the price needs to be sufficient enough to break-even
D) use prices that include a reasonable return on invested capital
13.2(3) 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.
13.2(4) 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
13.2(5) Jack's Back Porch manufactures rustic furniture. The cost accounting system estimates manufacturing costs to be $270 per table, consisting of 80% variable costs and 20% fixed costs. The company has surplus capacity available. It is Jack's Back Porch's policy to add a 60% markup to full costs. A large hotel chain is currently expanding and has decided to decorate all new hotels using the rustic style. Jack's Back Porch is invited to submit a bid to the hotel chain. What per unit price will Jack's Back Porch most likely bid on this long-term order?
A) $86.40 per unit
B) $162.00 per unit
C) $345.60 per unit
D) $432.00 per unit
13.2(6) Zolas' Heaters is approached by Ms. Leila, a new customer, to fulfill a large one-timeonly 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: Direct materials $420 Direct manufacturing labor 100 Variable manufacturing support 70 Fixed manufacturing support 200 Total manufacturing costs 790 Markup (30% of total manufacturing costs)237 Estimated selling price $1027 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 the same?
A) $790
B) $590
C) $520
D) $1027
13.2(7) 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: Direct materials $190 Direct manufacturing labor 180 Variable manufacturing support 280 Fixed manufacturing support 140 Total manufacturing costs 790 Markup (10% of total manufacturing costs) 79 Estimated selling price $869 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 the same?
A) $650
B) $790
C) $869
D) $370
13.2(8) 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 20% markup to full costs and currently has excess capacity. The following per unit data apply for sales to regular customers: Variable costs: Direct materials $50 Direct labor 30 Manufacturing overhead 10 Marketing costs 20 Fixed costs: Manufacturing overhead 110 Marketing costs 30 Total costs 250 Markup (20% of total costs) 50 Estimated selling price $300 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 the same?
A) $110
B) $250
C) $300
D) $190
13.2(9) 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: Output units 30,000tables Machine-hours 6000 hours Direct manufacturing labor-hours 10,000hours Direct materials per unit $50 Direct manufacturing labor per hour $12.00 Variable manufacturing overhead costs $322,500 Fixed manufacturing overhead costs $1,200,000 Product and process design costs $600,000 Marketing and distribution costs $1,290,000 For long-run pricing of the coffee tables, what price will most likely be used by Grounded Coffee?
A) $64.75
B) $103.00
C) $167.75
D) $201.30
13.2(10) 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: Output units 1600 phones Machine-hours 650 hours Direct manufacturing labor-hours 1000 hours Direct materials per unit $20 Direct manufacturing labor per hour $6.40 Variable manufacturing overhead costs $14,000 Fixed manufacturing overhead costs $48,000 Product and process design costs $32,000 Marketing and distribution costs $65,600 For long-run pricing of the cell phones, what price will most likely be used by Quick Connect?
A) $32.75
B) $91.00
C) $123.75
D) $148.50
13.2(11) Which one of the following activities would most likely be considered a long-run pricing decision?
A) one-time-only special order pricing that would result in achieving the break-even point
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
13.2(12) Which of the following statements about pricing is true?
A) pricing for products sold to the federal government can be priced to include all costs of the product including marketing costs
B) companies that sell commodity-like items usually use the cost-plus approach to pricing
C) companies in competitive markets use the market approach to pricing
D) regulators will intervene in noncompetitive industries and markets but usually will not regulate company pricing policies in competitive industries
13.2(13) 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.
13.2(14) Which of the following is true of price bidding with the federal government?
A) the price can only cover direct costs
B) the price can only cover direct costs and marketing costs
C) the price is based on costs that include fully allocated manufacturing and design costs but not include marketing costs
D) the price can include only fixed manufacturing costs and design costs but not include marketing costs
13.2(15) In a long-run, it is worthwhile to sell a product only if the selling price exceeds ________.
A) the total of all the direct costs of the product
B) the total manufacturing costs of the product
C) the total of the fixed costs of the value chain
D) full cost of the product and a markup that provides an adequate return on capital
13.2(16) Jack's Back Porch manufactures rustic furniture. The cost accounting system estimates manufacturing costs to be $300 per table, consisting of 60% variable costs and 40% fixed costs. The company has surplus capacity available. It is Jack's Back Porch's policy to add a 70% markup to full costs. Jack's Back Porch is invited to bid on a one-time-only special order to supply 150 rustic tables. What is the lowest price Jack's Back Porch should bid on this special order?
A) $45,000
B) $18,000
C) $27,000
D) $76,500
13.2(17) Cool Air Inc., manufactures single room sized air conditioners. The cost accounting system estimates manufacturing costs to be $230 per air conditioner, consisting of 60% variable costs and 40% fixed costs. The company has surplus capacity available. It is Cool Air Inc.'s policy to add a 30% markup to full costs. Cool Air Inc., is invited to bid on a one-time-only special order to supply 110 air conditioners. What is the lowest price Cool Air Inc. should bid on this special order?
A) $15,180
B) $25,300
C) $35,420
D) $32,890
13.2(18) Cool Air Inc., manufactures single room sized air conditioners. The cost accounting system estimates manufacturing costs to be $250 per air conditioner, consisting of 80% variable costs and 20% fixed costs. The company has surplus capacity available. It is Cool Air 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. Cool Air Inc. is invited to submit a bid to the motel chain. What per unit price will Cool Air Inc. most likely bid for this special order of 200 units? Assume that the price is being fixed for a long-term commitment.
A) $250.00 per unit
B) $200.00 per unit
C) $325.00 per unit
D) $300.00 per unit
13.2(19) Zolas' Heaters is approached by Ms. Leila, a new customer, to fulfill a large one-timeonly 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: 12 Copyright © 2018 Pearson Education, Inc. Downloaded by Chrysann Evelyn Russella (chrysannevelynra@gmail.com) lOMoARcPSD|30894346 Direct materials $450.00 Direct manufacturing labor 160.00 Variable manufacturing support 100.00 Fixed manufacturing support 210.00 Total manufacturing costs 920.00 Markup (25% of total manufacturing costs)230.00 Estimated selling price $1150.00 For Zolas' Heaters, what is the minimum acceptable price of this one-time-only special order
A) $710.00
B) $920.00
C) $610.00
D) $1150.00
13.2(20) 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: Direct materials $1800.00 Direct manufacturing labor 130.00 Variable manufacturing support 210.00 Fixed manufacturing support 150.00 Total manufacturing costs 2290.00 Markup (20% of total manufacturing costs)458.00 Estimated selling price $2748.00 For Golden Generator Supply, what is the minimum acceptable price of this one-time-only special order?
A) $1930.00
B) $2140.00
C) $2290.00
D) $2748.00
13.2(21) 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: Direct materials $1900.00 Direct manufacturing labor 120.00 Variable manufacturing support 210.00 Fixed manufacturing support 170.00 Total manufacturing costs 2400.00 Markup (25% of total manufacturing costs)600.00 Estimated selling price $3000.00 If Golden Generator Supply accepts the order at $2640, what is the amount contributed towards fixed costs and profit on a sales order of 1600 units?
A) $384,000
B) $656,000
C) $1,232,000
D) $992,000
13.2(22) 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: Variable costs: Direct materials $90 Direct labor 30 Manufacturing overhead 40 Marketing costs 30 Fixed costs: Manufacturing overhead 180 Marketing costs 10 Total costs 380 Markup (10% of total costs) 38 Estimated selling price $418 For Gracius Manufacturing, what is the minimum acceptable price of this one-time-only special order?
A) $120
B) $160
C) $190
D) $380
13.2(23) 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 20% markup to full costs and currently has excess capacity. The following per unit data apply for sales to regular customers: Variable costs: Direct materials $60 Direct labor 30 Manufacturing overhead 40 Marketing costs 10 Fixed costs: Manufacturing overhead 180 Marketing costs 40 Total costs 360 Markup (20% of total costs) 72 Estimated selling price $432 What is the full cost of the product per unit for Gracius Manufacturing?
A) $90
B) $140
C) $360
D) $432
13.2(24) Grounded Coffee Products manufactures coffee tables. Grounded Coffee Products has a policy of adding a 10% markup to full costs and currently has excess capacity. The following information pertains to the company's normal operations per month: Output units 20,000tables Machine-hours 6000 hours Direct manufacturing labor-hours 14,000hours Direct materials per unit $140 Direct manufacturing labor per hour $20 Variable manufacturing overhead costs $360,000 Fixed manufacturing overhead costs $1,500,000 Product and process design costs $1,400,000 Marketing and distribution costs $1,000,000 Grounded Coffee Products is approached by an overseas customer to fulfill a one-time-only special order for 5000 units. All cost relationships remain the same except for a one-time setup charge of $60,000. 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? (Round your final answer to the nearest cent.)
A) $184.00
B) $484.00
C) $172.00
D) $238.00
13.2(25) Quick Connect manufactures high-tech cell phones. Quick Connect has a policy of adding a 25% markup to full costs and currently has excess capacity. The following information pertains to the company's normal operations per month: Output units 1500 phones Machine-hours 1100 hours Direct manufacturing labor-hours 1200 hours Direct materials per unit $23 Direct manufacturing labor per hour $9 Variable manufacturing overhead costs$214,500 Fixed manufacturing overhead costs $126,700 Product and process design costs $143,400 Marketing and distribution costs $154,045 Quick Connect Products is approached by an overseas customer to fulfill a one-time-only special order for 150 units. All cost relationships remain the same except for a one-time setup charge of $2025. 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) $30.20
B) $173.20
C) $186.70
D) $188.50
13.2(26) Which of the following 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 target return on investment
13.3(1) 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) a price is an estimate of customers' perceived value of the product.
. D) a price is calculated by adding a markup component to the cost base.
13.3(2) Which of the following is true of value 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 systematic evaluation of all aspects of the value chain, with the objective of reducing costs and achieving a predetermined quality level.
D) It is the process by which the competitor's products are disassembled and analyzed.
13.3(3) 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
13.3(4) 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
5) Place the following steps for the implementation of target costing in order: A = Derive a target cost B = Develop a target price C = Perform value engineering 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
13.3(6) Which of the following is an objective of value engineering?
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
13.3(7) 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
13.3(8) Which of the following 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
13.3(9) Which of the following is true of target costing?
A) the target cost is the target price minus the target operating income per unit
B) the target cost includes all past costs to produce the product
C) input from suppliers and distributors are not relevant.
D) a key goal is to minimize value added activities of a product
13.3(10) 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.
13.3(11) 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
13.3(12) 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
13.3(13) After conducting a market research study, Magnificent 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 $270. The annual target sales volume for interior doors is 29,000. Magnificent has target operating income of 40% of sales. What are target sales revenues?
A) $3,132,000
B) $4,698,000
C) $7,830,000
D) $10,962,000
13.3(14) After conducting a market research study, Magnificent 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 $250. The annual target sales volume for interior doors is 28,000. Magnificent has target operating income of 40% of sales. What is the target operating income?
A) $2,800,000
B) $4,200,000
C) $7,000,000
D) $9,800,000
13.3(15) After conducting a market research study, Magnificent 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 21,000. Magnificent has target operating income of 20% of sales. What is the target cost?
A) $6,048,000
B) $5,040,000
C) $4,032,000
D.) $1,008,000
13.3(16) After conducting a market research study, Magnificent 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 $260. The annual target sales volume for interior doors is 20,000. Magnificent has target operating income of 40% of sales. What is the target cost for each interior door?
A) $364
B) $260
C) $156
D) $104
13.3(17) Sales of Granite City Products Inc. have been on a steady decline for the last 12 months. A market research study conducted revealed that the product of Granite City Products Inc. can be sold only for $440 as opposed to the current market price charged of $540 per unit. Granite City Products Inc. has decided to revise its sales price to $440. The annual sales target volume of the product after price revision is 260 units. Granite City Products Inc. wants to earn 30% on its sales amount. What are the target sales revenues?
A) $148,720
B) $114,400
C) $80,080
D) $42,120
13.3(18) Sales of Granite City Products Inc. have been on a steady decline for the last 12 months. A market research study conducted revealed that the product of Granite City Products Inc. can be sold only for $420 as opposed to the current market price charged of $520 per unit. Granite City Products Inc. has decided to revise its sales price to $420. The annual sales target volume of the product after price revision is 280 units. Granite City Products Inc. wants to earn 30% on its sales amount. What is the target operating income?
A) $82,320
B) $35,280
C) $117,600
D) $152,880
13.3(19) Sales of Granite City Products Inc. have been on a steady decline for the last 12 months. A market research study conducted revealed that the product of Granite City Products Inc. can be sold only for $500 as opposed to the current market price charged of $600 per unit. Granite City Products Inc. has decided to revise its sales price to $500. The annual sales target volume of the product after price revision is 200 units. Granite City Products Inc. wants to earn 40% on its sales amount. What is the total target cost?
A) $140,000
B) $60,000
C) $100,000
D) $40,000
13.3(20) Sales of Granite City Products Inc. have been on a steady decline for the last 12 months. A market research study conducted revealed that the product of Granite City Products Inc. can be sold only for $480 as opposed to the current market price charged of $580 per unit. Granite City Products Inc. has decided to revise its sales price to $480. The annual sales target volume of the product after price revision is 280 units. Granite City Products Inc. wants to earn 30% on its sales amount. What is the target cost per unit?
A) $625.00
B) $336.00
C) $480.00
D) $145.00
21) Block Island TV currently sells large televisions for $380. It has costs of $290. A competitor is bringing a new large television to market that will sell for $310. Management believes it must lower the price to $310 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 110,000 televisions per year. What is the target cost per unit if target operating income is 35% of sales?
A) $108.50
B) $133.00
C) $201.50
d. $247.00
13.3(22) Block Island TV currently sells large televisions for $380. It has costs of $320. A competitor is bringing a new large television to market that will sell for $360. Management believes it must lower the price to $360 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 150,000 televisions per year. What is the change in operating income if marketing is correct and only the sales price is changed?
A) $6,600,000
B) $3,000,000
C) $(6,600,000)
D) ($2,400,000)
13.3(23) Block Island TV currently sells large televisions for $380. It has costs of $290. A competitor is bringing a new large television to market that will sell for $320. Management believes it must lower the price to $320 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 120,000 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) $224.00
B) $238.18
C) $230.00
D) $290.00
13.3(24) Twenty Technologies, currently sells 17" monitors for $280. It has costs of $220. 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. Twenty Technologies believes that the new price will cause sales to increase by 10%, even with a new competitor in the market. Twenty Technologies' sales are currently 5100 monitors per year. What is the target cost if the target operating income is 25% of sales?
A) $230.00
B) $210.00
C) $172.50
D) $165.00
13.3(25) Twenty Technologies, currently sells 17" monitors for $270. It has costs of $230. A competitor is bringing a new 17" monitor to market that will sell for $245. Management believes it must lower the price to $245 to compete in the market for 17" monitors. Twenty Technologies believes that the new price will cause sales to increase by 10%, even with a new competitor in the market. Twenty Technologies's sales are currently 5200 monitors per year. What is the change in operating income if marketing manager is correct and only the sales price is changed?
A) $130,000
B) $122,200
C) ($122,200)
D) ($130,000)
13.3(26) All of the following are typical results of value engineering except:
A) assembling and analyzing competitor's product.
B) setting the target cost and then designing the product.
C) changes in material specifications to reduce costs
D) modifications in process methods
13.3(27) When the firm uses the target-costing approach to pricing, the target cost per unit is the difference between the per unit target price and the per unit target ________.
A) contribution margin
B) operating income
C) cost of goods sold
D) gross margin
13.3(28) Xtech Games Inc. has a new video game cassette for the upcoming holiday season. It is trying to determine the target cost for the game if the selling price per unit will be set at $70, the going price for video games, and the firm wants to earn a target operating income of 30% of sales. What will be the target cost per unit for the new game?
A) $70
B) $49
C) $30
D) $21
13.3(29) Bouchard Company manufactures a product that currently has a full cost of $700. Its target operating income per unit is $80 and management's budgets assume that same target operating income per unit for the foreseeable future. To stay competitive, Bouchard management believes it must cut its price by 25%. What will be its new target cost?
A) $700
B) $505.00
C) $585.00
D) $80
13.3(30) Bouchard Company manufactures a product that currently has a full cost of $700. Its target operating income per unit is $50 and management's budgets assume that same target operating income per unit for the foreseeable future. To stay competitive, Bouchard management believes it must cut its price by 15%. What will be its new target price?
A) $700
B) $587.50
C) $637.50
D) $50
13.4(1) Which of the following is a cost that, if eliminated, would reduce the actual or perceived value or utility (usefulness) customers experience from using the product or service?
A) Non-value-added cost
B) Discretionary cost
C) Value-added cost
D) Committed cost
13.4(2) At what point are direct material costs per unit "locked in"?
A) designed
B) assembled
C) sold
D) delivered
13.4(4) Making design decisions is an example of managing costs:
A) during planning phase; before they are incurred but are "locked in"
B) during the production phase; when they are incurred
C) after the production phase; after they are locked in
D.) after they are committed to during the budgeting phase
13.4(5) Which of the following is not a step of value-engineering?
A) Understanding customer requirements and value-added and non-value added costs
B) Set a price using the market approach
C) Anticipating how costs are locked in before they are incurred
D) Using cross-functional teams to redesign products and process to reduce costs while meeting customer needs
13.4(6) Which f the following methods focuses on reducing costs during the manufacturing stage?
A) Target costing
B) Kaizen costing
C) Cost-plus pricing
D) Life-cycle costing
13.4(7) Which of the following is an example of value added cost?
A) cost of machine breakdown
B) cost of defective products
C) rework costs
D) direct machining costs
13.4(8) In some industries, such as legal and consulting, most costs are locked in ________.
A) when they are incurred
B) during the design stage
C) during the customer-service stage
D) during the marketing stage
13.4(9) Which of the following costs can be classified into both value-added and non-value-added costs?
A) production control costs
B) machine breakdown costs
C) rework costs
D) direct material costs
13.4(10) A graph comparing locked-in costs with incurred costs will have ________.
A) locked-in costs rising much faster initially, but dropping to zero after the product is manufactured
B) the two cost lines running parallel until the end of the process, when they join
C) locked-in costs rising much faster initially than the incurred cost, but joining the incurred cost line at the completion of the value-chain functions
D) no differences unless the product is manufactured inefficiently
13.4(11) Which of the following is true of locked-in costs?
A) Locked-in costs are the same as sunk costs
B) Locked-in costs are always fixed costs.
C) Locked-in costs are incurred costs.
D) Locked-in costs are also called designed-in costs.
13.4(12) Costing systems measure ________.
A) locked in costs
B) sunk costs
C) cost incurrence
D) out of pocked costs
13.4(13) A locked-in cost is a(n) ________. A) opportunity cost that is fixed in the short run B) cost that can be changed in the short run C) cost that has not yet been incurred, but based on decisions that have already been made, will be incurred in the future D) cost that has been incurred, but based on decisions that have already been made, will be not incurred in the future
A) opportunity cost that is fixed in the short run
B) cost that can be changed in the short run
C) cost that has not yet been incurred, but based on decisions that have already been made, will be incurred in the future
D) cost that has been incurred, but based on decisions that have already been made, will be not incurred in the future
13.7(1) Knowledge Transfer Associates is in the process of evaluating its new client services for the business systems consulting division. ∙ Server Planning, a new service, incurred $270,000 in development costs. ∙ The direct costs of providing the service, which is all labor, averages $40 per hour. ∙ Other costs for this service are estimated at $310,000 per year. ∙ The current program for server planning is expected to last for two years. At that time, expected new operating systems are likely to make the service non viable. ∙ Customer service expenses average $300 per client, with each job lasting an average of 60 hours. The current staff expects to bill 22,800 hours for each of the two years the program is in effect. Billing averages $100 per hour. What is the estimated life-cycle operating income for both years combined?
A) $944,000
B) $1,618,000
C) ($674,000)
D) $1,348,000
13.7(2) Which of the following is the best description of price discrimination?
A) setting different prices for different products
B) charging different prices for quantity amounts
C) using variable costing for some products and full costing for other products when setting prices
D) charging different prices to different customers or clients for the same products or services
13.7(3) Roberto Inc., operates a chain of luxury hotels in the Asia-Pacific region. It charges $150 for one night stay. However when 90% of the rooms are occupied, Roberto charges a premium of 20% on room tariff for the remaining rooms. What pricing method has Roberto Inc. adopted?
A) customer-preference pricing
B) seasonal-load pricing
C) peak-load pricing
D) capacity pricing
13.7(4) Which of the following choices is the practice of charging a higher price for the same product or service when demand approaches the physical limit of the capacity to produce that product or service?
A) Price discrimination
B) Peak-load pricing
C) Demand-based pricing
D) Customer preference pricing
13.7(5) When demand for a product is very elastic and prices are increased, demand will ________.
A) remain the same, and operating profits will increase
B) remain the same, and operating profits may either increase or decrease
C) decrease, and operating profits will decrease
D) decrease, and operating profits may either increase or decrease
13.7(6) Which of the following is an example of price discrimination?
A) Larry's offers a 30% discount to buyers making repeat purchases within 30 days.
B) Enrique Corp sells different kind of goods at different prices.
C) Chang sells his wares at different prices based on the market conditions.
D. Nathan sells his ice-creams for a discount during winter season.
13.7(7) Troy City Inc., manufactures a product and is considering raising the price by $20 a unit for the coming year. With a $20 price increase, demand is expected to fall by 2500 units. Currently Projected Demand 21,000 units 18,500 units Selling price $170 $190 Variable costs per unit $110 $110 Would you recommend the $20 price increase?
A) No, because demand decreased
B) No, because the contribution margin decreases.
C) Yes, because inventory turnover increases.
D) Yes, because operating income increases.
13.7(8) Toy City Inc., manufactures a product and is considering raising the price by $40 a unit for the coming year. With a $40 price increase, demand is expected to fall by 2800 units. Currently Projected Demand 23,000 units 20,200 units Selling price $160 $200 Variable costs per unit $100 $100 Bright Inc., has a capacity to produce 28,800 units. Due to an increase in the electricity costs, there is a sudden spike in demand by 2800 units. If the company adopts peak-load pricing policy and charges a premium of 20% over the current sales price, what is the total contribution on the sale of additional units?
A) $257,600
B) $280,000
C) $537,600
D) $526,400
13.7(9) Velim Electronics manufactures electric shavers and is considering decreasing the price by $3 a unit for the coming year. With a $3 price decrease, the unit demand is expected to increase by 25%, and a high volume materials discount is expected to decrease the variable costs per unit by $2 per unit. Currently Projected Demand 50,000 units 62,500 units Selling price $60 $57 Variable costs per unit $52 $50 Would you recommend the $3 price decrease?
A) Yes, because demand decreases.
B.) No, because the selling price decreases.
C) Yes, because operating income increases.
D) No, because contribution margin per unit increases.
13.7(10) Einstein Motors, has a capacity to produce 38,000 electric cars. Due to a temporary subsidy announced, there is a sudden increase in demand. Einstein decides to adopt peakload pricing and charge a premium of 30% over its normal selling price of $4000. It has already accepted orders for 29,000 units at normal selling price. What is the total contribution to the company on sale of additional 9000 units if the variable cost per unit is $2000?
A) $36,000,000
B) $28,800,000
C) $18,000,000
D) $10,800,000
13.7(11) The Maize Eagles are evaluating ticket prices for its basketball games. Studies show that Friday and Saturday night games average more than twice the number of fans compared to other days. The following information pertains to the stadium's normal operations per season: Average fans per game (all games) 2500 fans Average fans per Friday and Saturday night games3500 fans Number of home games per season 30 games Stadium capacity 3500 seats Variable operating costs per operating hour $3000 Marketing costs per season for basketball $139,500 Customer-service costs per season for basketball$25,000 The stadium is open for 4 operating hours on each day a game is played. All employees work by the hour except for the administrators. A maximum of one game is played per day and each fan has only one ticket per game. The stadium authority wants to charge more for games on Friday and Saturday. What is the minimum price that should be charged for peak attendance nights?
A) $4.99
B) $4.80
C) $6.99
D) $209.80
13.7(12) Hitz Video Rental is evaluating rental prices. Historical data show that Friday and Saturday have twice the rentals of other days of the week. The following information pertains to the store's normal operations per week: Average rentals per day on Friday and Saturday 1350 Average rentals per day on Sunday through Thursday600 Store hours per day 12 Total units available for rent 10,000 Variable operating costs per hour $43 Marketing costs per week $1900 Customer service costs per week $250 The store manager wants to charge more for rentals on Friday and Saturday. What is the minimum price that should be charged during peak rental days?
A) $0.61
B) $0.64
C) $0.68
D) $1.01
13.5(1) The cost-plus pricing approach is generally in the form ________.
A) Cost base + Markup component = Prospective selling price
B) Prospective selling price - Cost base = Markup component
C) Cost base + Gross margin = Prospective selling price
D) Variable cost + Fixed cost + Contribution margin = Prospective selling price
13.5(2) A product costs $100 to manufacture and $40 to market and $20 to distribute (ship to customers.) R&D costs are allocated at $30 per unit. Based on a targeted rate of return, manager uses a mark-up of 60%. What is the markup component based on a Cost-Plus pricing approach?
A) $60
B) $84
C) $96
D) $114
13.5(3) Which of the following can be used to determine markup percentage in the case of costplus pricing?
A) Target annual operating income / Invested capital
B) Estimated annual dividend / Invested capital
C) Target sales revenue / Target annual operating income
D) Estimated annual dividend / Target annual operating income
13.5(4) A product costs $600 to manufacture and $20 to market and $10 to distribute (ship to customers.) R&D costs are allocated at $40 per unit. Based on a targeted rate of return, manager uses a mark-up of 30%. What is the prospective selling price based on a Cost-Plus pricing approach?
A) $780
B) $806
C) $819
D) $871
13.5(5) Samuels Company is considering pricing its 10,000-gallon petroleum tanks using either variable manufacturing or full product costs as the base. The variable cost base provides a prospective price of $6,000 and the full cost base provides a prospective price of $6,100. Which of the following explains the difference in the two prices?
A) the estimated amount of profit
B) the variable cost base estimates fixed costs in the markup percentage while the full cost base includes an amount for fixed costs
C) there is no explanation since this is known as price discrimination
D) the difference is caused by the inability to estimate fixed cost per unit with any degree of reliability
13.5(6) A company's invested capital is $13,000,000 and management has determined that the target rate of return on investment is 10%. Last year, the company produced 131,313 units and this year expects to units sales to be 10% above last year. The cost of the product is estimated to be $13 per unit. What is the target operating income per unit? (Round any intermediary calculations to the nearest unit and your final answer to the nearest cent.)
A) $9.00
B) $9.90
C) $13.00
D) $6.50
13.5(7) The amount of a markup percentage that customers are willing to pay is usually higher when which of the following conditions exist?
A) there is idle capacity
B) demand is strong
C) competition is intense
D) demand is elastic
13.5(8) When making pricing decisions managers should include fixed cost per unit in the cost because ________.
A) it leads to reporting higher operating income for the period
B) it allows managers to report positive contribution as long as prices are above variable costs
C) in the long run, the price of a product must exceed the full cost of the product
D) it requires the management accountant to perform a detailed analysis of cost-behavior patterns to separate product costs into variable and fixed components
13.5(9) Which of the following statements is true regarding cost-plus pricing?
A) It starts with a target price which is the estimated price for a product.
B) A company uses a markup percentage that estimates a product price that covers full product costs and earns the required return on investment.
C) It first determines product characteristics and target price on the basis of customer preferences and then computes a target cost.
D) The cost-plus price chosen has already been studied for customer reaction to the price
13.5(10) Which of the following is an advantage of using full cost of the product as the cost base?
A) Managers are informed regarding the minimum long-run cost they need to recover to stay in business.
B) Using the full cost of the product as a basis for pricing increases the temptation to cut prices below full costs.
C) Fixed cost allocations can be arbitrary while using full cost of the product as the cost base.
D) It requires a detailed analysis of cost behavior for computations and hence promotes a better understanding of the cost behavior.
13.5(11) Real Wood Structures Company has invested $1,040,000 in a plant to build small tool sheds. The target operating income desired from the plant is $156,000 annually. The company plans annual sales of 1200 sheds at a selling price of $1100 each. What is the target rate of return on investment for Real Wood Structures Company?
A) 18.0%
B) 15.0%
C) 11.8%
D) 85.0%
13.5(12) Ocean Grove Vending Company has invested $1,450,000 in a plant to make vending machines. The target operating income desired from the plant is $362,500 annually. The company plans annual sales of 1500 vending machines at a selling price of $1000 each. What is the markup percentage as a percentage of cost for Ocean Grove Vending Company?
A) 24.17%
B) 31.87%
C) 75.83%
D) 25.00%
13.5(13) Ocean Grove Vending Company has invested $980,000 in a plant to make vending machines. The target operating income desired from the plant is $196,000 annually. The company plans annual sales of 1600 vending machines at a selling price of $1100 each. What is the cost base of each vending machine for Ocean Grove Vending Company?
A) $1100
B) $1422
C) $978
D) $613
13.5(14) Crimpson Company has invested $2,100,000 in a plant to make commercial juicer machines. The target operating income desired from the plant is $305,000 annually. The company plans annual sales of 7400 juicer machines at a selling price of $600 each. What is the target rate of return on investment for Crimpson Company?
A) 6.9%
B) 7.4%
C) 14.5%
D) 12.5%
13.5(15) Crimpson Company has invested $2,200,000 in a plant to make commercial juicer machines. The target operating income desired from the plant is $303,000 annually. The company plans annual sales of 7000 juicer machines at a selling price of $500 each. What is the markup percentage as a percentage of cost for Crimpson Company?
A) 8.7%
B) 13.8%
C) 9.5%
D) 0.9%
13.5(16) Crimpson Company has invested $2,200,000 in a plant to make commercial juicer machines. The target operating income desired from the plant is $306,000 annually. The company plans annual sales of 7700 juicer machines at a selling price of $300 each. What is the cost base of each juicer machine for Crimpson Company?
A) $260.26
B) $39.74
C) $300.00
D) $285.71
13.5(17) Wilde Corporation budgeted the following costs for the production of its one and only product for the next fiscal year: Direct materials $1,125,000 Direct labor 775,000 Manufacturing overhead Variable 850,000 Fixed 680,000 Selling and administrative Variable 380,000 Fixed 510,000 Total costs $4,320,000 Wilde has an annual target operating income of $920,000. The markup percentage for setting prices as a percentage of total manufacturing costs is ________.
A) 52.8%
B) 78.5%
C) 214.2%
D) 41.7%
13.5(18) Wilde Corporation budgeted the following costs for the production of its one and only product for the next fiscal year: Direct materials $1,150,000 Direct labor 775,000 Manufacturing overhead Variable 850,000 Fixed 670,000 Selling and administrative Variable 410,000 Fixed 490,000 Total costs $4,345,000 Wilde has an annual target operating income of $920,000. The markup percentage for setting prices as a percentage of variable manufacturing costs is ________.
A) 52.83%
B) 89.73%
C) 65.31%
D) 21.17%
13.5(19) Wilde Corporation budgeted the following costs for the production of its one and only product for the next fiscal year: Direct materials $1,140,000 Direct labor 795,000 Manufacturing overhead Variable 840,000 Fixed 700,000 Selling and administrative Variable 360,000 Fixed 530,000 Total costs $4,365,000 Wilde has an annual target operating income of $920,000. The markup percentage for setting prices as a percentage of the variable cost of the product is ________.
A) 46.3%
B) 39.2%
C) 27.5%
D) 68.6%
13.5(20) Wilde Corporation budgeted the following costs for the production of its one and only product for the next fiscal year: Direct materials $1,135,000 Direct labor 800,000 Manufacturing overhead Variable 880,000 Fixed 650,000 Selling and administrative Variable 380,000 Fixed 510,000 Total costs $4,355,000 Wilde has an annual target operating income of $990,000. The markup percentage for setting prices as a percentage of the full cost of the product is ________.
A) 31.9%
B) 36.3%
C) 45.8%
D) 22.7%
13.5(21) Sandra Clothing Company has invested $51,000,000 in its business. The target rate of return for the company is 12%. It has long-term assets of $23,000,000. Cost of debt for the company is 8%. It expects to sell 12,000 units in the upcoming year. What will be the target operating income per unit for Sandra Clothing Company?
A) $153
B) $230
C) $340
D) $510
