Question 1

Peak-load pricing is a form of price discrimination and is illegal.

Accepted Answer

A) True 
 B)False

Question 2

Answer the following questions using the information below:
Marcia 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. Marcia 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:
  
-What is the full cost of the product per unit?

Accepted Answer

A) $60 
B) $180 
C) $198 
D) $66 
A) $60 
B) $180 
C) $198 
D) $66

Question 3

Answer the following questions using the information below:
Delgreco Products manufactures high-tech cell phones. Delgreco Products has a policy of adding a 30% markup to full costs and currently has excess capacity. The following information pertains to the company's normal operations per month:
    
-A short-run pricing decision typically has a time horizon of less than:

Accepted Answer

A) one year 
B) two years 
C) five years 
D) None of these answers is correct. 
A) one year 
B) two years 
C) five years 
D) None of these answers is correct.

Question 4

A graph comparing locked-in costs with incurred costs will have:

Accepted Answer

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 
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

Question 5

Answer the following questions using the information below:
Cox Lighting manufactures table lamps 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 2,000 units.
  
-Would you recommend the $20 price increase?

Accepted Answer

A) No, because demand decreased. 
B) No, because the selling price increases. 
C) Yes, because contribution margin per unit increases. 
D) Yes, because operating income increases. 
A) No, because demand decreased. 
B) No, because the selling price increases. 
C) Yes, because contribution margin per unit increases. 
D) Yes, because operating income increases.

Question 6

Kezer Crafts currently sells motor boats for $6,000. It has costs of $4,650. A competitor is bringing a new motor boat to the market that will sell for $5,500. Management believes it must lower the price to $5,500 to compete in the market for motor boats. Marketing believes that the new price will cause sales to increase by 12.5%, even with a new competitor in the market. Kezer Crafts' sales are currently 2,000 motor boats per year.
Required:
a. What is the target cost if target operating income is 25% of sales?
b. What is the change in operating income if marketing is correct and only the sales price is changed?
c. What is the target cost if the company wants to maintain its same income level, and marketing is correct?

Accepted Answer

a. $5,500 - ($5,500 × 0.25)= $

Question 7

Locked-in costs, or designed-in costs, are costs that have NOT yet been incurred but, based on decisions that have already been made, will be incurred in the future.

Accepted Answer

A) True 
 B)False

Question 8

Answer the following questions using the information below:
After conducting a market research study, Ed 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 $120. The annual target sales volume for interior doors is 20,000. Ed has target operating income of 20% of sales.
-What is the target cost?

Accepted Answer

A) $1,800,000 
B) $1,920,000 
C) $2,520,000 
D) $2,016,000 
A) $1,800,000 
B) $1,920,000 
C) $2,520,000 
D) $2,016,000

Question 9

Answer the following questions using the information below:
Marcia 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. Marcia 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:
  
-If the European customer wanted a long-term commitment for supplying this product, what price would most likely be quoted?

Accepted Answer

A) $66.00 
B) $180.00 
C) $216.00 
D) $236.00 
A) $66.00 
B) $180.00 
C) $216.00 
D) $236.00

Question 10

Answer the following questions using the information below:
Timothy Company has invested $1,000,000 in a plant to make vending machines. The target operating income desired from the plant is $150,000 annually. The company plans annual sales of 1,500 vending machines at a selling price of $1,000 each.
-What is the target rate of return on investment for Timothy Company?

Accepted Answer

A) 15.0% 
B) 17.6% 
C) 10.0% 
D) 11.1% 
A) 15.0% 
B) 17.6% 
C) 10.0% 
D) 11.1%

Question 11

Which of the following statements is FALSE regarding cost-plus pricing?

Accepted Answer

A) A company selects a cost base that it regards as reliable. 
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) The selling price computed is only a prospective price. 
D) The cost-plus price chosen has already been studied for customer reaction to the price. 
A) A company selects a cost base that it regards as reliable. 
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) The selling price computed is only a prospective price. 
D) The cost-plus price chosen has already been studied for customer reaction to the price.

Question 12

Answer the following questions using the information below:
Gerry's Generator Supply is approached by Mr. Sandman, a new customer, to fulfill a large one-time-only special order for a product similar to one offered to regular customers. Gerry's Generator Supply has excess capacity. The following per unit data apply for sales to regular customers:
  
-For Gerry's Generators, what is the minimum acceptable price of this one-time-only special order?

Accepted Answer

A) $1,800 
B) $2,000 
C) $2,150 
D) $2,580 
A) $1,800 
B) $2,000 
C) $2,150 
D) $2,580

Question 13

Value engineering may result in all of the following EXCEPT:

Accepted Answer

A) improved product design 
B) changes in materials specifications 
C) increases in the quantity of nonvalue-added cost drivers 
D) the evaluation of all business functions within the value chain 
A) improved product design 
B) changes in materials specifications 
C) increases in the quantity of nonvalue-added cost drivers 
D) the evaluation of all business functions within the value chain

Question 14

A product's markup percentage needs to cover nonmanufacturing variable costs when the cost base is:

Accepted Answer

A) the full cost of the product 
B) the variable cost of the product 
C) variable manufacturing costs 
D) All of these answers are correct. 
A) the full cost of the product 
B) the variable cost of the product 
C) variable manufacturing costs 
D) All of these answers are correct.

Question 15

Customer life-cycle costs are the:

Accepted Answer

A) costs incurred by the selling company to satisfy the customer 
B) costs to the customer for buying and using a product 
C) same as the selling life-cycle prices 
D) replacement costs of using a product or service 
A) costs incurred by the selling company to satisfy the customer 
B) costs to the customer for buying and using a product 
C) same as the selling life-cycle prices 
D) replacement costs of using a product or service

Question 16

Answer the following questions using the information below:
Timothy Company has invested $1,000,000 in a plant to make vending machines. The target operating income desired from the plant is $150,000 annually. The company plans annual sales of 1,500 vending machines at a selling price of $1,000 each.
-What is the cost base of each vending machine for Timothy Company?

Accepted Answer

A) $720 
B) $900 
C) $850 
D) $890 
A) $720 
B) $900 
C) $850 
D) $890

Question 17

A hotel in Orlando, Florida, experiences peak periods and slower times. How should prices be adjusted during peak periods? During slow times? Why?

Accepted Answer

For the inelastic product line, when pri

Question 18

Short-term pricing decisions:

Accepted Answer

A) use costs that may be irrelevant for long-term pricing decisions 
B) are more opportunistic 
C) tend to decrease prices when demand is strong 
D) have a time horizon of more than one year 
A) use costs that may be irrelevant for long-term pricing decisions 
B) are more opportunistic 
C) tend to decrease prices when demand is strong 
D) have a time horizon of more than one year

Question 19

Steven Corporation manufactures fishing poles that have a price of $42.00. It has costs of $32.64 A competitor is introducing a new fishing pole that will sell for $36.00. Management believes it must lower the price to $36.00 to compete in the highly cost-conscious fishing pole market. Marketing believes that the new price will maintain the current sales level. Steven Corporation's sales are currently 200,000 poles per year.
Required:
a. What is the target cost for the new price if target operating income is 20% of sales?
b. What is the change in operating income for the year if $18.00 is the new price and costs remain the same?
c. What is the target cost per unit if the selling price is reduced to $36.00 and the company wants to maintain its same income level?

Accepted Answer

a. $36.00 - ($36.00 × 0.20)= $

Question 20

Competitors:

Accepted Answer

A) with alternative products can force a company to lower its prices 
B) can gain a competitive pricing advantage with knowledge of your costs and operating policies 
C) may span international borders 
D) All of these answers are correct. 
A) with alternative products can force a company to lower its prices 
B) can gain a competitive pricing advantage with knowledge of your costs and operating policies 
C) may span international borders 
D) All of these answers are correct.

Peak-load pricing is a form of price discrimination and is illegal.

A graph comparing locked-in costs with incurred costs will have:

Answer the following questions using the information below: Cox Lighting manufactures table lamps 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 2,000 units. -Would you recommend the $20 price increase?

Locked-in costs, or designed-in costs, are costs that have NOT yet been incurred but, based on decisions that have already been made, will be incurred in the future.

Which of the following statements is FALSE regarding cost-plus pricing?

Value engineering may result in all of the following EXCEPT:

A product's markup percentage needs to cover nonmanufacturing variable costs when the cost base is:

Customer life-cycle costs are the:

A hotel in Orlando, Florida, experiences peak periods and slower times. How should prices be adjusted during peak periods? During slow times? Why?

Short-term pricing decisions:

Competitors:

The Accountants Role in the Organization

An Introduction to Cost Terms and Purposes

Cost-Volume-Profit Analysis

Job Costing

Activity-Based Costing and Activity-Based Management

Master Budget and Responsibility Accounting

Flexible Budgets, Direct-Cost Variances, and Management Control

Flexible Budgets, Overhead Cost Variances, and Management Control

Inventory Costing and Capacity Analysis

Determining How Costs Behave

Decision Making and Relevant Information

Strategy, Balanced Scorecard, and Strategic Profitability Analysis

Cost Allocation, Customer-Profitability Analysis, and Sales-Variance Analysis

Allocation of Support-Department Costs, Common Costs, and Revenues

Cost Allocation: Joint Products and Byproducts

Process Costing

Spoilage, Rework, and Scrap

Balanced Scorecard: Quality, Time, and the Theory of Constraints

Inventory Management, Just-In-Time, and Simplified Costing Methods

Capital Budgeting and Cost Analysis

Management Control Systems, Transfer Pricing, and Multinational Considerations

Performance Measurement, Compensation, and Multinational Considerations

Filters

Exam 12: Pricing Decisions and Cost Management

Peak-load pricing is a form of price discrimination and is illegal.

A graph comparing locked-in costs with incurred costs will have:

Answer the following questions using the information below: Cox Lighting manufactures table lamps 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 2,000 units. -Would you recommend the $20 price increase?

Locked-in costs, or designed-in costs, are costs that have NOT yet been incurred but, based on decisions that have already been made, will be incurred in the future.

Which of the following statements is FALSE regarding cost-plus pricing?

Value engineering may result in all of the following EXCEPT:

A product's markup percentage needs to cover nonmanufacturing variable costs when the cost base is:

Customer life-cycle costs are the:

A hotel in Orlando, Florida, experiences peak periods and slower times. How should prices be adjusted during peak periods? During slow times? Why?

Short-term pricing decisions:

Competitors:

The Accountants Role in the Organization

An Introduction to Cost Terms and Purposes

Cost-Volume-Profit Analysis

Job Costing

Activity-Based Costing and Activity-Based Management

Master Budget and Responsibility Accounting

Flexible Budgets, Direct-Cost Variances, and Management Control

Flexible Budgets, Overhead Cost Variances, and Management Control

Inventory Costing and Capacity Analysis

Determining How Costs Behave

Decision Making and Relevant Information

Strategy, Balanced Scorecard, and Strategic Profitability Analysis

Cost Allocation, Customer-Profitability Analysis, and Sales-Variance Analysis

Allocation of Support-Department Costs, Common Costs, and Revenues

Cost Allocation: Joint Products and Byproducts

Process Costing

Spoilage, Rework, and Scrap

Balanced Scorecard: Quality, Time, and the Theory of Constraints

Inventory Management, Just-In-Time, and Simplified Costing Methods

Capital Budgeting and Cost Analysis

Management Control Systems, Transfer Pricing, and Multinational Considerations

Performance Measurement, Compensation, and Multinational Considerations

Filters