Question 1

Which of the following is true of target costing?

Accepted Answer

A)  In target costing, all future costs are considered for long-run pricing. 
B)  In target costing, cost is the starting point for determining the price of the product. 
C)  In target costing, input from suppliers and distributors are not relevant. 
D)  In target costing, a key goal is to minimize value added activities of a product. 
A)  In target costing, all future costs are considered for long-run pricing. 
B)  In target costing, cost is the starting point for determining the price of the product. 
C)  In target costing, input from suppliers and distributors are not relevant. 
D)  In target costing, a key goal is to minimize value added activities of a product.

Question 2

Which of the following is an example of price discrimination?

Accepted Answer

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. 
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.

Question 3

Which of the following is true of reverse engineering?

Accepted Answer

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 company markets a product by analyzing competitors marketing strategy. 
D)  It is the process by which the competitor's products are disassembled and analyzed. 
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 company markets a product by analyzing competitors marketing strategy. 
D)  It is the process by which the competitor's products are disassembled and analyzed.

Question 4

Cost allocation encourages design of products that are simpler to manufacture and less costly to service.

Accepted Answer

A) True 
 B)False

Question 5

Answer the following questions using the information below:
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 $250,000 in development costs.
• The direct costs of providing the service, which is all labor, averages $50 per hour.
• Other costs for this service are estimated at $300,000 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 $250 per client, with each job lasting an average of 40 hours. The current staff expects to bill 15,000 hours for each of the two years the program is in effect. Billing averages $90 per hour.
-What are the estimated life-cycle revenues?

Accepted Answer

A)  $2,700,000 
B)  $3,000,000 
C)  $3,400,000 
D)  $1,350,000 
A)  $2,700,000 
B)  $3,000,000 
C)  $3,400,000 
D)  $1,350,000

Question 6

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 7

Zolas' Heaters is approached by Ms.Leila,a new customer,to fulfill a large one-time-only 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: $$\begin{array} { l r } 
\text { Direct materials } & \$ 400 \
\text { Direct manufacturing labor } & 120 \
\text { Variable manufacturing support } & 60 \
\text { Fixed manufacturing support } & 200 \
\quad \text { Total manufacturing costs } & 780 \
\text { Markup (20\% of total manufacturing costs) } & 156 \
\text { Estimated selling price } & \$ 936
\end{array}$$ 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 same?

Accepted Answer

A)  $780 
B)  $580 
C)  $520 
D)  $936 
A)  $780 
B)  $580 
C)  $520 
D)  $936

Question 8

When making pricing decisions managers should include fixed cost per unit in the cost because ________.

Accepted Answer

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 
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

Question 9

Answer the following questions using the information below:
Silicon Technologies, currently sells 17" monitors for $270. It has costs of $210. 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. Silicon believes that the new price will cause sales to increase by 10%, even with a new competitor in the market. Silicon's sales are currently 5,000 monitors per year.
-What is the change in operating income if marketing manager is correct and only the sales price is changed?

Accepted Answer

A)  $200,000 
B)  $190,000 
C)  $(190,000) 
D)  $(200,000) 
A)  $200,000 
B)  $190,000 
C)  $(190,000) 
D)  $(200,000)

Question 10

A non-value-added cost is a cost that,if eliminated,would reduce the actual or perceived value or utility (usefulness)customers experience from using the product or service.

Accepted Answer

A) True 
 B)False

Question 11

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 ________.

Accepted Answer

A)  contribution margin 
B)  operating income 
C)  production costs 
D)  gross margin 
A)  contribution margin 
B)  operating income 
C)  production costs 
D)  gross margin

Question 12

Purple Trees manufactures rustic furniture.The cost accounting system estimates manufacturing costs to be $240 per table,consisting of 60% variable costs and 40% fixed costs.The company has surplus capacity available.It is Purple Trees' policy to add a 75% markup to full costs. Purple Trees is invited to bid on a one-time-only special order to supply 100 rustic tables.What is the lowest price Purple Trees should bid on this special order?

Accepted Answer

A)  $7,200 
B)  $12,000 
C)  $14,400 
D)  $42,000 
A)  $7,200 
B)  $12,000 
C)  $14,400 
D)  $42,000

Question 13

Answer the following questions using the information below:
Wilde Corporation budgeted the following costs for the production of its one and only product for the next fiscal year:
 $\begin{array}{lr}
\text { Direct materials } & \$ 1,125,000 \
\text { Direct labor } & 775,000 \
\text { Manufacturing overhead } & \
\quad \text { Variable } & 840,000 \
\quad \text { Fixed } & 645,000\
\text { Selling and administrative }\
\text { Variable } & 360,000 \
\text { Fixed } & 480,000 \
\text { Total costs } & \$ 4,225,000
\end{array}$ Wilde has an annual target operating income of $900,000.
-The markup percentage for setting prices as a percentage of the full cost of the product is ________.

Accepted Answer

A)  328.9% 
B)  36.6% 
C)  228.5% 
D)  21.3% 
A)  328.9% 
B)  36.6% 
C)  228.5% 
D)  21.3%

Question 14

Reverse engineering has the objective of reducing costs while still satisfying customer needs.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following scenarios is an example of predatory pricing?

Accepted Answer

A)  Ceramic Corp sells its products below average total costs during off-peak seasons. 
B)  Almeda flowers has arrived at an informal agreement with other sellers in the area to charge a very high selling price. 
C)  Anton Inc., sells its products for $25 in the U.S, however it can sell the same product for double the price in its home country. 
D)  Duyen Inc., is launching a new product and has decided to sell its product below its average variable costs until it drives competitors out of market. 
A)  Ceramic Corp sells its products below average total costs during off-peak seasons. 
B)  Almeda flowers has arrived at an informal agreement with other sellers in the area to charge a very high selling price. 
C)  Anton Inc., sells its products for $25 in the U.S, however it can sell the same product for double the price in its home country. 
D)  Duyen Inc., is launching a new product and has decided to sell its product below its average variable costs until it drives competitors out of market.

Question 16

Answer the following questions using the information below:
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 $250,000 in development costs.
• The direct costs of providing the service, which is all labor, averages $50 per hour.
• Other costs for this service are estimated at $300,000 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 $250 per client, with each job lasting an average of 40 hours. The current staff expects to bill 15,000 hours for each of the two years the program is in effect. Billing averages $90 per hour.
-What is the estimated life-cycle operating income for the first year?

Accepted Answer

A)  $206,250 
B)  $162,500 
C)  $(43,750) 
D)  $43,750 
A)  $206,250 
B)  $162,500 
C)  $(43,750) 
D)  $43,750

Question 17

Answer the following questions using the information below:
Silicon Technologies, currently sells 17" monitors for $270. It has costs of $210. 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. Silicon believes that the new price will cause sales to increase by 10%, even with a new competitor in the market. Silicon's sales are currently 5,000 monitors per year.
-What is the target cost if the target operating income is 25% of sales?

Accepted Answer

A)  $230.00 
B)  $207.00 
C)  $172.50 
D)  $115.00 
A)  $230.00 
B)  $207.00 
C)  $172.50 
D)  $115.00

Question 18

Value engineering entails improvements in product designs,and changes in materials specifications.

Accepted Answer

A) True 
 B)False

Question 19

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 20

An Indian company selling a product in the United States at a price below the market value of the product in India is an example of collusive pricing.

Accepted Answer

A) True 
 B)False

Which of the following is true of target costing?

Which of the following is an example of price discrimination?

Which of the following is true of reverse engineering?

Cost allocation encourages design of products that are simpler to manufacture and less costly to service.

Short-term pricing decisions ________.

When making pricing decisions managers should include fixed cost per unit in the cost because ________.

A non-value-added cost is a cost that,if eliminated,would reduce the actual or perceived value or utility (usefulness)customers experience from using the product or service.

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 ________.

Reverse engineering has the objective of reducing costs while still satisfying customer needs.

Which of the following scenarios is an example of predatory pricing?

Value engineering entails improvements in product designs,and changes in materials specifications.

A graph comparing locked-in costs with incurred costs will have ________.

An Indian company selling a product in the United States at a price below the market value of the product in India is an example of collusive pricing.

The Manager and Management Accounting

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 and Time

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 13: Pricing Decisions and Cost Management

Which of the following is true of target costing?

Which of the following is an example of price discrimination?

Which of the following is true of reverse engineering?

Cost allocation encourages design of products that are simpler to manufacture and less costly to service.

Short-term pricing decisions ________.

When making pricing decisions managers should include fixed cost per unit in the cost because ________.

A non-value-added cost is a cost that,if eliminated,would reduce the actual or perceived value or utility (usefulness)customers experience from using the product or service.

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 ________.

Reverse engineering has the objective of reducing costs while still satisfying customer needs.

Which of the following scenarios is an example of predatory pricing?

Value engineering entails improvements in product designs,and changes in materials specifications.

A graph comparing locked-in costs with incurred costs will have ________.

An Indian company selling a product in the United States at a price below the market value of the product in India is an example of collusive pricing.

The Manager and Management Accounting

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 and Time

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