ACC CH.8 Wiley – Flashcards

Of the following, which is not generally the type of product sold by a price taker? A : Corn. B : Coal. C : A designer dress. D :

Gibson Instruments is planning to produce and market a new line of guitars. The current market price for similar guitars is $1,200, and Gibson would like to make a 30% profit on cost. What should Gibson's target cost be? A : $840.00 B : $725.00 C : $1,014.96 D : $923.08

3 Mattel is planning to produce a new line of action figures that correspond to a soon-to-be-released movie. They know that sales of action figures will dramatically increase while the movie is in theaters and again when the DVD is released, but sales will likely diminish after a few months. When planning the pricing of their action figures, this short run on action figures is an example of what type of pricing factor? A : demand B : pricing objectives C : cost consideration D : environment

4 If the demand for a product increases, how does this affect product pricing if the number of available products remains the same? A : The price of the product will double. B : The price of the product will be unaffected. C : The price of the product will likely increase. D : The price of the product will likely decrease.

5 What is the difference between a price taker and a price setter? A : The company sets the price for products from a price taker, and stockholders set the price for products from a price setter. B : Stockholders set the price for products from a price taker, and the company sets the price for products from a price setter. C : Stockholders set the price for products from a price taker, and the market sets the price for products from a price setter. D : The market sets the price for products from a price taker, and the company sets the price for products from a price setter.

6Which one of the following represents the cost-plus pricing formula? A : Target selling price = Cost + (Markup percentage ÷ Cost) B : Target selling price = Cost + (Markup percentage X Cost) C : Target selling price = Cost - (Markup percentage ÷ Cost) D : Target selling price = Cost - (Markup percentage X Cost)

7The following information is provided for Martin Company for the new product it recently introduced: What would be Martin Company's percentage markup on cost? A : 30% B : 23% C : 70% D : 130%

Of the following, which is not considered a limitation of cost-plus pricing? A : The model does not guarantee that customers will pay the price computed. B : Sales volume plays a large role in determining per unit costs. C : The model does not give consideration to the demand side. D : It is difficult to compute.

9.What is the main difference between full-cost pricing and variable-cost pricing? A : Full-cost pricing accounts for both fixed and variable costs, and variable-cost pricing only accounts for variable costs. B : Full-cost pricing only accounts for fixed costs, and variable-cost pricing only accounts for variable costs. C : Full-cost pricing computes the price based on the maximum number of units sold, and variable-cost pricing computes the price based on the minimum number of units sold. D : Full-cost pricing accounts for both production and administration expenses, and variable-cost pricing only accounts for administration expenses.

10. If a company changes from full-cost pricing to variable-cost pricing but retains the same markup percentage, their net income will likely A : increase. B : be negative. C : decrease. D : stay the same.

A cleaning service has the following total costs: If the company expects to have 8,000 total labor hours and would like a profit margin of $6.00 per hour, what rate should the company charge clients per hour (round your answer if necessary)? A : $36.35 B : $32.70 C : $24.78 D : $38.70

12. A manufacturing company had the following material costs: If the company wants a profit margin of 15% on their materials, what should their material loading percentage be? A : 20.26% B : 19.94% C : 38.47% D : 35.26%

Unique & Antique Furniture has been hired to create a custom dining room table and chairs. The estimate states that the company charges $45.00 per hour for labor, with an estimated time of 35 hours of labor required. Parts and materials will cost $860, and the material loading charge is 38.5%. What is the total price that the customer will be charged? A : $1,191.10 B : $3,372.48 C : $2,766.10 D : $1,575.00

14. Which of the following is a variation on cost-plus pricing? A : Transfer pricing B : Time-and-material pricing C : Target costing D : Absorption costing

16. When the selling division has no excess capacity, under negotiated transfer pricing, how should the minimum transfer price by the selling division be calculated? A : Contribution margin per unit. B : Variable cost per unit. C : Variable cost per unit less its lost contribution margin per unit. D : Variable cost per unit plus its lost contribution margin per unit.

Which transfer pricing method is known to have the disadvantage of leading to a loss of profitability for the company and unfair evaluations of division performance? A : Cost-based transfer prices. B : Negotiated transfer prices. C : Market-based transfer prices. D : Time and material transfer prices.

18. The Epic Company sells suit jackets and buttons. The button division can produce 200,000 buttons per year and sells 160,000 buttons externally for $.30 each. The buttons produce a contribution margin of $.16 per button. The suit jacket division needs 40,000 buttons this year and currently pays $.18 per button to purchase the buttons externally. Should the button division sell the buttons to the suit division, why or why not? A : Yes, Epic Company will save $.12 per button. B : Yes, Epic Company will save $.02 per button. C : No, because Epic Company will be better off if the button division sells only externally. D : Yes, the Epic Company will save $.04 per button.

Romero Bakery has two divisions. One division makes bagels, and the other division is a restaurant that sells bagel sandwiches. The bagel division makes one bagel for a variable cost of $1.35 but sells the bagel to customers for $1.95. The restaurant division can make sandwiches for $1.25 plus the cost of the bagel and sells sandwiches for $4.49. The restaurant can purchase bagels from a different company for $1.80 per bagel. If the company wants to use a cost-based transfer price to sell bagels from the bagel division to the restaurant division, what will the total contribution margin per unit be? A : $1.89 B : $3.24 C : $3.14 D : $1.29

Jamison Textiles has two divisions. One division makes bolts of cloth, and the other division makes t-shirts. The cloth division makes two square yards of cloth for $0.27 but sells the cloth to customers for $0.45. The t-shirt division can make t-shirts for $0.59 plus the cost of 2 square yards of cloth and sells t-shirts for $6.00. The company can purchase cloth from a different company for $0.43 per two square yards. If the company wants to use a negotiated transfer price to sell cloth from the cloth division to the t-shirt division, what should the minimum and maximum transfer costs be? Assume the cloth division has excess capacity. A : Minimum = $0.45, Maximum = $0.59 B : Minimum = $0.27, Maximum = $0.43 C : Minimum = $0.27, Maximum = $0.59 D : Minimum = $0.43, Maximum = $0.45