Question 1

Setting appropriate prices is one of the simplest decisions that managers make on a day-to-day basis.

Accepted Answer

A) True 
 B)False  False

Question 2

Legal constraints and ethical considerations should be considered when developing a company's pricing policy.

Accepted Answer

A) True 
 B)False  True

Question 3

Management accountants are directly involved in designing products that meet target costs.

Accepted Answer

A) True 
 B)False  False

Question 4

One approach to the development of a transfer price is to use the market value if the item has an existing market at the time of transfer.

Accepted Answer

A) True 
 B)False

Question 5

A company should never attempt to increase its market share by reducing prices below cost.

Accepted Answer

A) True 
 B)False

Question 6

Transfer prices are often called artificial or created prices.

Accepted Answer

A) True 
 B)False

Question 7

The gross margin-based price is computed by adding total production costs per unit to the total production costs per unit times the gross margin markup percentage.

Accepted Answer

A) True 
 B)False

Question 8

Customers' needs should be given strong consideration before the final price is chosen.

Accepted Answer

A) True 
 B)False

Question 9

Committed costs are engineered into a product or service at the design stage of product development.

Accepted Answer

A) True 
 B)False

Question 10

The economic approach to pricing is based on macroeconomic theory.

Accepted Answer

A) True 
 B)False

Question 11

An internal issue to be considered when setting a price is

Accepted Answer

A) whether there is a sole source or heavy competition. 
B) total demand for the product or service. 
C) the quality of material and labor. 
D) the number of competing products or services. 
A) whether there is a sole source or heavy competition. 
B) total demand for the product or service. 
C) the quality of material and labor. 
D) the number of competing products or services.

Question 12

For service-oriented businesses,pricing is determined using cost-based approaches that add the cost of overhead to materials,parts,and labor via markup percentages.

Accepted Answer

A) True 
 B)False

Question 13

Return on assets pricing is based on the estimated number of units to be sold.

Accepted Answer

A) True 
 B)False

Question 14

Because a business should have as its primary objective the earning of a minimum rate of return on assets,the return on assets pricing method has a great deal of appeal and support.

Accepted Answer

A) True 
 B)False

Question 15

Setting internal transfer prices for products or services falls under the planning stage of the management process.

Accepted Answer

A) True 
 B)False

Question 16

Transfer pricing

Accepted Answer

A) is a concept readily accepted by managers of divisions,because it relies on concepts used in cost-based pricing methods. 
B) incorporates procedures that allow for ease in determining the amount of profit associated with each division of a decentralized company. 
C) involves determining the cost and profit if the output of one division is transferred to another division of the same company. 
D) is not used by many companies because it is difficult to eliminate intercompany profits. 
A) is a concept readily accepted by managers of divisions,because it relies on concepts used in cost-based pricing methods. 
B) incorporates procedures that allow for ease in determining the amount of profit associated with each division of a decentralized company. 
C) involves determining the cost and profit if the output of one division is transferred to another division of the same company. 
D) is not used by many companies because it is difficult to eliminate intercompany profits.

Question 17

Whitney Company treats each division as a profit center and expects a 20 percent profit on its total production costs.Division A produces a part that it sells externally for $19.00.It also supplies this part to other internal divisions.Its production cost for the part is $13.70.
-What should be the transfer price for the part using the negotiated-price approach,assuming a mid-point between the floor and ceiling is agreed upon?

Accepted Answer

A) $16.35 
B) $16.44 
C) $17.72 
D) $19.00 
A) $16.35 
B) $16.44 
C) $17.72 
D) $19.00

Question 18

When making the decision on a product's price,the manager must consider

Accepted Answer

A) all products at the same time. 
B) the minimum price that will produce a profit. 
C) only cost-based information. 
D) the product's total variable costs. 
A) all products at the same time. 
B) the minimum price that will produce a profit. 
C) only cost-based information. 
D) the product's total variable costs.

Question 19

Under microeconomic theory,total revenue will continue to increase,but the rate of increase will diminish as more and more units are sold.

Accepted Answer

A) True 
 B)False

Question 20

Determining if pricing strategies are producing desired results falls under which stage of the management process?

Accepted Answer

A) Planning 
B) Performing 
C) Evaluating 
D) Communicating 
A) Planning 
B) Performing 
C) Evaluating 
D) Communicating

Exam 25: Pricing Decisions, including Target Costing and Transfer Pricing

Setting appropriate prices is one of the simplest decisions that managers make on a day-to-day basis.

Legal constraints and ethical considerations should be considered when developing a company's pricing policy.

Management accountants are directly involved in designing products that meet target costs.

One approach to the development of a transfer price is to use the market value if the item has an existing market at the time of transfer.

A company should never attempt to increase its market share by reducing prices below cost.

Transfer prices are often called artificial or created prices.

The gross margin-based price is computed by adding total production costs per unit to the total production costs per unit times the gross margin markup percentage.

Customers' needs should be given strong consideration before the final price is chosen.

Committed costs are engineered into a product or service at the design stage of product development.

The economic approach to pricing is based on macroeconomic theory.

An internal issue to be considered when setting a price is

For service-oriented businesses,pricing is determined using cost-based approaches that add the cost of overhead to materials,parts,and labor via markup percentages.

Return on assets pricing is based on the estimated number of units to be sold.

Because a business should have as its primary objective the earning of a minimum rate of return on assets,the return on assets pricing method has a great deal of appeal and support.

Setting internal transfer prices for products or services falls under the planning stage of the management process.

Transfer pricing

When making the decision on a product's price,the manager must consider

Under microeconomic theory,total revenue will continue to increase,but the rate of increase will diminish as more and more units are sold.

Determining if pricing strategies are producing desired results falls under which stage of the management process?

Uses of Accounting Information and the Financial Statements

Measurement Concepts: Recording Business Transactions

Measuring Business Income: Adjusting the Accounts

Foundations of Financial Reporting and the Classified Balance Sheet

Accounting for Merchandising Operations

Inventories

Cash and Internal Control

Receivables

Long-Term Assets

Current Liabilities and Fair Value Accounting

Long-Term Liabilities

Stockholders Equity

The Statement of Cash Flows

Financial Statement Analysis

Managerial Accounting and Cost Concepts

Costing Systems: Job Order Costing

Costing Systems: Process Costing

Value-Based Systems: Activity-Based Costing and Lean Accounting

Cost-Volume-Profit Analysis

The Budgeting Process

Flexible Budgets and Performance Analysis

Standard Costing and Variance Analysis

Short-Run Decision Analysis

Capital Investment Analysis

Quality Management and Measurement

Accounting for Unincorporated Businesses

Accounting for Investments

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