Question 1

An example of a pricing objective is to

Accepted Answer

A) ignore long-term pricing strategies in favor of short-term profits. 
B) increase market share irrespective of the cost of a product. 
C) maintain a price that is always under that of the competition. 
D) maintain a minimum rate of return. 
A) ignore long-term pricing strategies in favor of short-term profits. 
B) increase market share irrespective of the cost of a product. 
C) maintain a price that is always under that of the competition. 
D) maintain a minimum rate of return.

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

Economic theory indicates that as a product is marketed,price reductions will have to be made to sell additional units.

Accepted Answer

A) True 
 B)False

Question 4

Organizations will not invest in making a product or providing a service unless it will provide a minimum return.

Accepted Answer

A) True 
 B)False

Question 5

A common problem associated with transfer pricing occurs when

Accepted Answer

A) a division purchases inputs for processing from an outside source at a price higher than the internal transfer price. 
B) the gross margin pricing method is used to compute the price. 
C) a division sells its excess output to an external customer. 
D) managers do not agree with the transfer prices of the inputs provided to them or of the outputs of their own division. 
A) a division purchases inputs for processing from an outside source at a price higher than the internal transfer price. 
B) the gross margin pricing method is used to compute the price. 
C) a division sells its excess output to an external customer. 
D) managers do not agree with the transfer prices of the inputs provided to them or of the outputs of their own division.

Question 6

A major advantage of the target costing approach to pricing is that target costing

Accepted Answer

A) allows a company to analyze the potential profit of a product before spending money to produce the product. 
B) is not dependent on customers' quality-versus-price decisions. 
C) identifies unproductive assets. 
D) anticipates the product's profitability midway through its life cycle. 
A) allows a company to analyze the potential profit of a product before spending money to produce the product. 
B) is not dependent on customers' quality-versus-price decisions. 
C) identifies unproductive assets. 
D) anticipates the product's profitability midway through its life cycle.

Question 7

Pricing of services

Accepted Answer

A) requires the same approach as pricing of products. 
B) uses a markup percentage to add the cost of overhead to the direct costs of labor,materials,and parts. 
C) always requires three pricing computations,one for materials,one for parts,and one for labor. 
D) is less accurate than pricing of products. 
A) requires the same approach as pricing of products. 
B) uses a markup percentage to add the cost of overhead to the direct costs of labor,materials,and parts. 
C) always requires three pricing computations,one for materials,one for parts,and one for labor. 
D) is less accurate than pricing of products.

Question 8

Market research shows potential customers will buy a particular product at a selling price of $2,590.If the desired profit is 40 percent of target cost,the company should make the product if the cost does not exceed

Accepted Answer

A) $1,036. 
B) $1,554. 
C) $1,850. 
D) $1,992. 
A) $1,036. 
B) $1,554. 
C) $1,850. 
D) $1,992.

Question 9

A pricing method based on product cost is

Accepted Answer

A) cost of goods sold pricing. 
B) net income pricing. 
C) gross margin pricing. 
D) inventory pricing. 
A) cost of goods sold pricing. 
B) net income pricing. 
C) gross margin pricing. 
D) inventory pricing.

Question 10

Gross margin is the difference between sales and the total production costs of those sales.

Accepted Answer

A) True 
 B)False

Question 11

A manager may deviate from the four pricing rules if a specific short-term objective is being targeted.

Accepted Answer

A) True 
 B)False

Question 12

An example of a pricing objective is to

Accepted Answer

A) have prices that top the market. 
B) maintain or gain market share. 
C) maximize losses. 
D) minimize quality and cost. 
A) have prices that top the market. 
B) maintain or gain market share. 
C) maximize losses. 
D) minimize quality and cost.

Question 13

A negotiated transfer price will be between the negotiation floor (selling division's variable cost)and the negotiation ceiling (the market price).

Accepted Answer

A) True 
 B)False

Question 14

Tyler,Inc.is in the process of developing a transfer price for a part produced by Department A and used by other departments in manufacturing various products.Unit costs for the part are as follows:
  
Department B can purchase the part from an outside supplier at $29.50 per unit.
a.Develop the cost-plus transfer price for the part.
b.What should be the transfer price? Support your answer.

Accepted Answer

a.
@#IMG-DLM&
b.The transfer price shoul

Question 15

A negotiated transfer price

Accepted Answer

A) is one that is bargained for between the managers of the buying and selling divisions. 
B) would not be based on a product market price that has been reduced through bargaining by division managers. 
C) could never be used in an agreement based on standard costs and a profit margin. 
D) is usually developed by lawyers following defined legal procedures. 
A) is one that is bargained for between the managers of the buying and selling divisions. 
B) would not be based on a product market price that has been reduced through bargaining by division managers. 
C) could never be used in an agreement based on standard costs and a profit margin. 
D) is usually developed by lawyers following defined legal procedures.

Question 16

The return on assets pricing method

Accepted Answer

A) has very little appeal and support. 
B) has a primary objective of earning a minimum rate of return on assets. 
C) is a crude approach to pricing and should be used as a last resort. 
D) replaces the desired rate of return used in cost-based pricing methods with a desired profit objective. 
A) has very little appeal and support. 
B) has a primary objective of earning a minimum rate of return on assets. 
C) is a crude approach to pricing and should be used as a last resort. 
D) replaces the desired rate of return used in cost-based pricing methods with a desired profit objective.

Question 17

A negotiated transfer price is often used for internal pricing.

Accepted Answer

A) True 
 B)False

Question 18

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 market-price 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 19

Negotiation between managers is not appropriate in determining a transfer price.

Accepted Answer

A) True 
 B)False

Question 20

A good starting point for any pricing method is to develop a price based on the cost of producing the good or service.

Accepted Answer

A) True 
 B)False

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

An example of a pricing objective is to

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

Economic theory indicates that as a product is marketed,price reductions will have to be made to sell additional units.

Organizations will not invest in making a product or providing a service unless it will provide a minimum return.

A common problem associated with transfer pricing occurs when

A major advantage of the target costing approach to pricing is that target costing

Pricing of services

Market research shows potential customers will buy a particular product at a selling price of $2,590.If the desired profit is 40 percent of target cost,the company should make the product if the cost does not exceed

A pricing method based on product cost is

Gross margin is the difference between sales and the total production costs of those sales.

A manager may deviate from the four pricing rules if a specific short-term objective is being targeted.

An example of a pricing objective is to

A negotiated transfer price will be between the negotiation floor (selling division's variable cost)and the negotiation ceiling (the market price).

A negotiated transfer price

The return on assets pricing method

A negotiated transfer price is often used for internal pricing.

Negotiation between managers is not appropriate in determining a transfer price.

A good starting point for any pricing method is to develop a price based on the cost of producing the good or service.

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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