Exam 14: Strategic Management of Costs

A transfer price that reduces suboptimal decisions without consuming a lot of time is:

Predatory pricing is illegal in Canada.

A transfer price is required only when goods or services are transferred between cost centres in the same organization.

The Internet is likely to:

Market-based prices are typically based on some measure of customer demand.

When two or more organizations conspire to set prices above a competitive price, they are engaging in:

A major drawback of cost-based pricing is that it:

Certain highways in British Columbia require users to pay a toll for their use. Toll prices vary according to the time of day, demonstrating the use of:

The Mukilteo Division of Snohomish Corp. produces and sells a product to outside and internal customers. Per-unit data collected from its operations include: Outside sales price \ 640 Direct materials 105 Direct labour 250 Fixed overhead 180 If Mukilteo has excess capacity available to meet an internal order, what transfer price should be set?

The internet enables managers to have greater access to market prices which results in prices being more consistent.

Which of the following factors affect a product's profit-maximizing price? I. Fixed costs II. Price elasticity of demand III. Variable costs

BLG Corporation produces and sells yachts for wealthy customers. BLG's accountants produced the data shown below as a basis for client negotiations for the coming year: Biq Winner Sport Star CEO Basic yacht \ 600 \ 600 \ 600 Customization costs 300 500 200 Marketing costs 100 400 300 Total costs \ 1,000 \ 1,500 \ 1,100 Assume that all the preceding costs are avoidable. The company will incur an additional $800 in unavoidable costs during the coming year. BLG's managers want to achieve a profit margin of 80% based on total costs. BLG's system is best described as:

The sensitivity of sales to price increases is called the price elasticity of demand.

Problems with market-based transfer prices include:

Not-for-profit organizations price products in the same manner as for-profit organizations.

To establish a cost-based price, managers need data on consumer demand.

In a dual-rate transfer pricing system, the selling department is credited for the market price and the buying department is charged the product's variable cost.

A company with subsidiaries located in both high and low tax countries could charge a low transfer price in the high-tax countries so that most of the contribution margin arises where taxes are the lowest.

Division X sells organic high-gluten flour to Division Y. Division X incurs costs of $0.375 per kilogram of flour. Division Y makes loaves of bread that sell for $2.50 each. Division Y incurs costs of $1.25 per loaf, excluding the cost of flour. Each loaf of bread uses one-half kilogram of flour. What is the operating income for the entire organization if 100,000 loaves of bread are sold?

BLG Corporation produces and sells yachts for wealthy customers. BLG's accountants produced the data shown below as a basis for client negotiations for the coming year: Biq Winner Sport Star CEO Basic yacht \ 600 \ 600 \ 600 Customization costs 300 500 200 Marketing costs 100 400 300 Total costs \ 1,000 \ 1,500 \ 1,100 Assume that all the preceding costs are avoidable. The company will incur an additional $800 in unavoidable costs during the coming year. BLG's managers want to achieve a profit margin of 80% based on total costs. Suppose BLG allocates unavoidable corporate costs based on total avoidable costs. The selling price of Sport Star's yacht will be: