Question 1

The gross margin pricing method computes unit selling price based on production costs rather than total costs.

Accepted Answer

A) True 
 B)False

Question 2

The design engineer's preliminary estimate of a product's design,production,and distribution costs is $1,550 per unit.Market research shows potential customers are willing to pay up to $1,989 for the product.If the desired profit is 40 percent of target cost,should the company make the product?

Accepted Answer

A) No,the market price only allows for a 28% profit at this cost. 
B) Yes,with only slight modifications to cost. 
C) Yes,the desired costs and profit are right on target. 
D) Yes,the market price will allow for a profit that exceeds the target. 
A) No,the market price only allows for a 28% profit at this cost. 
B) Yes,with only slight modifications to cost. 
C) Yes,the desired costs and profit are right on target. 
D) Yes,the market price will allow for a profit that exceeds the target.

Question 3

For the return on assets pricing method,desired earnings are computed by dividing asset costs by projected units to be produced and then multiplying by the desired rate of return on assets.

Accepted Answer

A) True 
 B)False

Question 4

Fixed costs that change for activity outside the relevant range would include

Accepted Answer

A) depreciation. 
B) electricity costs. 
C) production supplies costs. 
D) raw materials costs. 
A) depreciation. 
B) electricity costs. 
C) production supplies costs. 
D) raw materials costs.

Question 5

Which of the following is not a cost-based pricing method?

Accepted Answer

A) Target costing 
B) Time and materials pricing 
C) Return on assets pricing 
D) Gross margin pricing 
A) Target costing 
B) Time and materials pricing 
C) Return on assets pricing 
D) Gross margin pricing

Question 6

Development of a transfer price involves

Accepted Answer

A) the use of the highest external market price so that the transferring division is very profitable. 
B) determination of an appropriate profit markup. 
C) computation of the selling and delivery costs of the item being transferred. 
D) the use of a team of lawyers representing the outside interests of the company. 
A) the use of the highest external market price so that the transferring division is very profitable. 
B) determination of an appropriate profit markup. 
C) computation of the selling and delivery costs of the item being transferred. 
D) the use of a team of lawyers representing the outside interests of the company.

Question 7

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.
-Using a negotiated-price approach,what is the negotiation ceiling?

Accepted Answer

A) $16.44 
B) $17.72 
C) $19.00 
D) $22.80 
A) $16.44 
B) $17.72 
C) $19.00 
D) $22.80

Question 8

The pricing method that is used primarily by service businesses is

Accepted Answer

A) return on assets pricing. 
B) gross margin pricing. 
C) target cost pricing. 
D) time and materials pricing. 
A) return on assets pricing. 
B) gross margin pricing. 
C) target cost pricing. 
D) time and materials pricing.

Question 9

The markup percentage includes the gross margin in the computation of the selling price.

Accepted Answer

A) True 
 B)False

Question 10

For the return on assets pricing method,the desired rate of return on assets per unit is added to the total costs and expenses per unit to determine the selling price.

Accepted Answer

A) True 
 B)False

Question 11

Transfer prices are used for internal decisions and performance evaluation purposes and are not made known to the outside world.

Accepted Answer

A) True 
 B)False

Question 12

The pricing method that establishes selling prices based on a specified rate of return on the assets employed in the operation is

Accepted Answer

A) target cost pricing. 
B) return on assets pricing. 
C) time and materials pricing. 
D) gross margin pricing. 
A) target cost pricing. 
B) return on assets pricing. 
C) time and materials pricing. 
D) gross margin pricing.

Question 13

Market research shows potential customers will buy a particular product at a selling price of $1,590.If the desired profit is 30 percent of target cost,the company should make the product if the cost does not exceed

Accepted Answer

A) $477. 
B) $1,113. 
C) $1,223. 
D) $1,253. 
A) $477. 
B) $1,113. 
C) $1,223. 
D) $1,253.

Question 14

When using traditional,cost-based pricing,the pricing decision is made after products have been put into production.

Accepted Answer

A) True 
 B)False

Question 15

Identifying the minimum price the company can sustain falls under the evaluating stage of the management process.

Accepted Answer

A) True 
 B)False

Question 16

The pricing method that establishes selling prices based on a stipulated rate above total production costs is

Accepted Answer

A) return on assets pricing. 
B) target cost pricing. 
C) gross margin pricing. 
D) time and materials pricing. 
A) return on assets pricing. 
B) target cost pricing. 
C) gross margin pricing. 
D) time and materials pricing.

Question 17

What are the four pricing rules managers must follow to stay in business?

Accepted Answer

For an organization to stay in business,

Question 18

An external issue to be considered when setting a price is

Accepted Answer

A) the quality of materials and labor. 
B) total demand for the product or service. 
C) usage of scarce resources. 
D) the variable costs of the product or service. 
A) the quality of materials and labor. 
B) total demand for the product or service. 
C) usage of scarce resources. 
D) the variable costs of the product or service.

Question 19

In a competitive market,prices can be reduced to gain market share by displacing the sales of competing companies.

Accepted Answer

A) True 
 B)False

Question 20

Gross margin pricing establishes selling prices at an amount that is a stipulated rate above variable production costs.

Accepted Answer

A) True 
 B)False

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

The gross margin pricing method computes unit selling price based on production costs rather than total costs.

The design engineer's preliminary estimate of a product's design,production,and distribution costs is $1,550 per unit.Market research shows potential customers are willing to pay up to $1,989 for the product.If the desired profit is 40 percent of target cost,should the company make the product?

For the return on assets pricing method,desired earnings are computed by dividing asset costs by projected units to be produced and then multiplying by the desired rate of return on assets.

Fixed costs that change for activity outside the relevant range would include

Which of the following is not a cost-based pricing method?

Development of a transfer price involves

The pricing method that is used primarily by service businesses is

The markup percentage includes the gross margin in the computation of the selling price.

For the return on assets pricing method,the desired rate of return on assets per unit is added to the total costs and expenses per unit to determine the selling price.

Transfer prices are used for internal decisions and performance evaluation purposes and are not made known to the outside world.

The pricing method that establishes selling prices based on a specified rate of return on the assets employed in the operation is

Market research shows potential customers will buy a particular product at a selling price of $1,590.If the desired profit is 30 percent of target cost,the company should make the product if the cost does not exceed

When using traditional,cost-based pricing,the pricing decision is made after products have been put into production.

Identifying the minimum price the company can sustain falls under the evaluating stage of the management process.

The pricing method that establishes selling prices based on a stipulated rate above total production costs is

What are the four pricing rules managers must follow to stay in business?

An external issue to be considered when setting a price is

In a competitive market,prices can be reduced to gain market share by displacing the sales of competing companies.

Gross margin pricing establishes selling prices at an amount that is a stipulated rate above variable production costs.

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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