Question 1

A transfer price is the price at which goods are exchanged among company divisions.

Accepted Answer

A) True 
 B)False

Question 2

Beyond the sales level that achieves maximum profits,total costs rise at a faster rate than total revenue.

Accepted Answer

A) True 
 B)False

Question 3

A company will choose a cost-based pricing method based on the degree of trust it has in the cost base.

Accepted Answer

A) True 
 B)False

Question 4

A selling division with adequate capacity to fulfill the demand of the buying division should sell to the buying division at any price that recovers incremental costs.

Accepted Answer

A) True 
 B)False

Question 5

An external issue to be considered when setting a price is

Accepted Answer

A) the quality of competing products or services. 
B) the quality of materials and labor. 
C) a price geared toward a minimum return on investment. 
D) the total costs of the product or service. 
A) the quality of competing products or services. 
B) the quality of materials and labor. 
C) a price geared toward a minimum return on investment. 
D) the total costs of the product or service.

Question 6

Which of the following is not a step in the target costing approach to pricing?

Accepted Answer

A) Define the desired profit to be made on that product. 
B) Dictate which products should not be produced. 
C) Compute a target cost for the product by subtracting the desired profit from the competitive market price. 
D) Identify the price at which a product will be competitive in the marketplace. 
A) Define the desired profit to be made on that product. 
B) Dictate which products should not be produced. 
C) Compute a target cost for the product by subtracting the desired profit from the competitive market price. 
D) Identify the price at which a product will be competitive in the marketplace.

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.
-What should be the transfer price for the part using the cost-plus approach?

Accepted Answer

A) $16.35 
B) $16.44 
C) $19.00 
D) $22.80 
A) $16.35 
B) $16.44 
C) $19.00 
D) $22.80

Question 8

Development of a transfer price involves

Accepted Answer

A) legal agreements. 
B) increases in insurance premiums. 
C) redistribution. 
D) negotiation. 
A) legal agreements. 
B) increases in insurance premiums. 
C) redistribution. 
D) negotiation.

Question 9

Target costing identifies a competitive price and then adds the desired profit to determine a target cost.

Accepted Answer

A) True 
 B)False

Question 10

A company's pricing policy objectives may include maintaining a minimum rate of return on investment.

Accepted Answer

A) True 
 B)False

Question 11

The weakness of a cost-plus transfer price is that cost recovery is guaranteed to the selling division,which may lead to failure to detect inefficient operating conditions and excessive cost incurrence.

Accepted Answer

A) True 
 B)False

Question 12

The state of Ohio has passed a law requiring that every automobile be inspected at least once a year for pollution control.Anson Enterprises is considering entering into this type of business.After extensive studies,Mark Anson has developed the following set of projected annual data on which to make his decision:  
 Anson believes that his company will inspect 100,000 automobiles per year.The company earns an average of 18.75 percent return on its assets.
-The price to be charged for inspecting each automobile using the return on assets pricing method would be calculated as

Accepted Answer

A) ($913,000.00 $\div$ 100,000)+ {($913,000.00 $\div$100,000)× [($90,000 + $290,000) $\div$ $913,000.00]}. 
B) ($1,203,000.00 $\div$ 100,000)+ [($1,203,000.00 $\div$ 100,000)× ($90,000 $\div$ $1,203,000.00)]. 
C) ($1,203,000.00 $\div$ 100,000)+ [($500,000 $\div$ 100,000)× 0.1875]. 
D) none of these options. 
A) ($913,000.00 $\div$ 100,000)+ {($913,000.00 $\div$100,000)× [($90,000 + $290,000) $\div$ $913,000.00]}. 
B) ($1,203,000.00 $\div$ 100,000)+ [($1,203,000.00 $\div$ 100,000)× ($90,000 $\div$ $1,203,000.00)]. 
C) ($1,203,000.00 $\div$ 100,000)+ [($500,000 $\div$ 100,000)× 0.1875]. 
D) none of these options.

Question 13

In gross margin pricing,the markup percentage is based on total production costs.

Accepted Answer

A) True 
 B)False

Question 14

An internal issue to be considered when setting a price is

Accepted Answer

A) whether there is a sole source or heavy competition. 
B) the life of the product or service. 
C) a price geared toward a minimum return on investment. 
D) whether there is seasonal demand or continual demand. 
A) whether there is a sole source or heavy competition. 
B) the life of the product or service. 
C) a price geared toward a minimum return on investment. 
D) whether there is seasonal demand or continual demand.

Question 15

When using a cost-based approach,once the cost of a good or service has been determined,additional factors need not be considered in establishing a selling price.

Accepted Answer

A) True 
 B)False

Question 16

A target price is an estimate of a price for a product or service that potential customers will be willing to pay.

Accepted Answer

A) True 
 B)False

Question 17

Royal Bath,Inc.is considering the production of a new bathroom vent system.The Marketing Department has determined that there would be demand for the product at or below a selling price of $175 per unit.Anticipated unit costs are as follows:
  Royal uses the following activity-based costs:
   The company's desired profit is 25 percent over total production and shipping costs.
Calculate the target cost for this product and determine whether or not it should be produced.

Accepted Answer

@#IMG-DLM&The vent system should be prod

Question 18

The design engineer's preliminary estimate of a product's design,production,and distribution costs is $1,163 per unit.Market research shows potential customers are willing to pay up to $1,512 for the product.If the desired profit is 30 percent of target cost,should the company make the product?

Accepted Answer

A) No,the market price only allows for a 23% 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 23% 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 19

If engineers determine that a product can't be produced at or less than its target cost,then production of the product should not be undertaken.

Accepted Answer

A) True 
 B)False

Question 20

Return on assets pricing has the same objective as gross margin pricing for the price determination process.

Accepted Answer

A) True 
 B)False

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

A transfer price is the price at which goods are exchanged among company divisions.

Beyond the sales level that achieves maximum profits,total costs rise at a faster rate than total revenue.

A company will choose a cost-based pricing method based on the degree of trust it has in the cost base.

A selling division with adequate capacity to fulfill the demand of the buying division should sell to the buying division at any price that recovers incremental costs.

An external issue to be considered when setting a price is

Which of the following is not a step in the target costing approach to pricing?

Development of a transfer price involves

Target costing identifies a competitive price and then adds the desired profit to determine a target cost.

A company's pricing policy objectives may include maintaining a minimum rate of return on investment.

The weakness of a cost-plus transfer price is that cost recovery is guaranteed to the selling division,which may lead to failure to detect inefficient operating conditions and excessive cost incurrence.

In gross margin pricing,the markup percentage is based on total production costs.

An internal issue to be considered when setting a price is

When using a cost-based approach,once the cost of a good or service has been determined,additional factors need not be considered in establishing a selling price.

A target price is an estimate of a price for a product or service that potential customers will be willing to pay.

The design engineer's preliminary estimate of a product's design,production,and distribution costs is $1,163 per unit.Market research shows potential customers are willing to pay up to $1,512 for the product.If the desired profit is 30 percent of target cost,should the company make the product?

If engineers determine that a product can't be produced at or less than its target cost,then production of the product should not be undertaken.

Return on assets pricing has the same objective as gross margin pricing for the price determination 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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