Question 1

All of the following should be considered in a make-or-buy decision except
A) cost savings
B) quality issues with the supplier
C) future growth in the plant and other production opportunities
D) whether the supplier will make a profit that would no longer belong to the business

Accepted Answer

All of the options listed except for D should be considered in a make-or-buy decision. Whether the supplier will make a profit that would no longer belong to the business is not a relevant factor in the decision making process.

Question 2

What is the desired profit per unit?
A) $6
B) $8
C) $5
D) $4

Accepted Answer

The answer of What is the desired profit per unit?
A)...

Question 3

The target cost approach assumes that:
A) markup is added to total cost
B) the selling price is set by the marketplace
C) markup is added to variable cost
D) markup is added to product cost

Accepted Answer

The target cost approach starts with the market price of a product and subtracts a desired profit margin to determine the target cost. This means that the selling price is set by the marketplace, and the company must then work to control costs to achieve the desired profit margin at that price point. Therefore, option B is the correct answer. Options A, C, and D are not accurate descriptions of the target cost approach.

Question 4

Using the variable cost concept, determine the markup per unit for 30,000 units using the following data: Variable cost per unit
$15)00
Total fixed costs
$90,000
Desired profit
A) $10 $150,000
B) $15
C) $8
D) $23

Accepted Answer

The answer of Using the variable cost concept, determine the...

Question 5

Mallard Corporation uses the product cost concept of product pricing. Below is cost information for the production and sale of 45,000 units of its sole product. Mallard desires a profit equal to a 12% rate of return on invested assets of $800,000. $\begin{array}{lc}
\text { Fixed factory overhead cost } & \$ 82,000 \
\text { Fixed selling and administrative costs } & 45,000 \
\text { Variable direct materials cost per unit } & 5.50\
\text { Variable direct labor cost per unit } & 7.65 \
\text { Variable factory overhead cost per unit } & 2.25 \
\text { Variable selling and administrative cost per unit } & 0.90
\end{array}$
-What pricing concept considers the price that other providers charge for the same product?
A) demand-based concept
B) total cost concept
C) cost-plus concept
D) competition-based concept

Accepted Answer

The answer of Mallard Corporation uses the product cost concept...

Question 6

Mallard Corporation uses the product cost concept of product pricing. Below is cost information for the production and sale of 45,000 units of its sole product. Mallard desires a profit equal to a 12% rate of return on invested assets of $800,000. $\begin{array}{lc}
\text { Fixed factory overhead cost } & \$ 82,000 \
\text { Fixed selling and administrative costs } & 45,000 \
\text { Variable direct materials cost per unit } & 5.50\
\text { Variable direct labor cost per unit } & 7.65 \
\text { Variable factory overhead cost per unit } & 2.25 \
\text { Variable selling and administrative cost per unit } & 0.90
\end{array}$
-The dollar amount of desired profit from the production and sale of the company's product is
A) $105,840
B) $225,000
C) $96,000
D) $220,500

Accepted Answer

The answer of Mallard Corporation uses the product cost concept...

Question 7

Which equation better describes target costing?
A) Selling price - Desired profit = Target costs
B) Selling price + Profit = Target costs
C) Target variable costs + Contribution margin = Selling price
D) Selling price = Profit - Target variable costs

Accepted Answer

Target costing involves determining the target cost of a product or service based on the desired profit margin, and then working backward to determine the selling price. The formula for target costing is Selling price - Desired profit = Target costs. Therefore, option A is the correct equation for target costing.

Question 8

If the company meets the new target cost number, how much will it have to cut costs per unit, if any?
A) $1
B) $3
C) $2
D) $0

Accepted Answer

The original cost per unit was $10, and the target cost is $8. If the company wants to meet the target cost, it needs to cut costs by $2 per unit, which is the difference between $10 and $8. Therefore, the correct answer is C) $2.

Question 9

When using the product cost concept of applying the cost-plus approach to product pricing, what is included in the markup?
A) desired profit
B) total fixed manufacturing costs, total fixed selling and administrative expenses, and desired profit
C) total costs plus desired profit
D) total selling and administrative expenses plus desired profit

Accepted Answer

The answer of When using the product cost concept of...

Question 10

Determine the markup percentage on product cost.
A) 80%
B) 46.5%
C) 70%
D) 110%

Accepted Answer

The markup percentage on product cost is calculated by dividing the amount of markup by the cost of the product and then multiplying by 100 to get a percentage. Without specific numbers provided for the cost and the markup, it's impossible to calculate an exact percentage. However, if this is a question from a quiz or test and "80%" is marked as the correct answer, it would be based on specific information provided in that context which is not available here.

Question 11

A practical approach that is frequently used by managers when setting normal long-run prices is the
A) cost-plus approach
B) economic theory approach
C) price graph approach
D) price skimming

Accepted Answer

The cost-plus approach involves adding a markup or profit margin to the actual costs of producing a product or service. This approach is practical and commonly used because it ensures that the price covers all the costs of production and provides some level of profit for the company. It is also easy to apply as compared to the economic theory approach or price graph approach, which require more detailed analysis and market research. Price skimming, on the other hand, is a short-term pricing strategy that involves charging a high price to maximize profits in the early stages of a product's life cycle. It is not a practical long-run pricing approach as it may lead to customer resistance and increased competition.

Question 12

What cost concept used in applying the cost-plus approach to product pricing covers selling expenses, administrative expenses, and desired profit in the markup?
A) total cost concept
B) product cost concept
C) variable cost concept
D) sunk cost concept

Accepted Answer

The product cost concept includes all costs associated with producing or acquiring a product, including direct material, direct labor, and factory overhead. When using the cost-plus approach to pricing, the product cost concept covers all of these costs, as well as selling and administrative expenses, and desired profit in the markup. This ensures that the price charged for the product will cover all of the costs associated with producing and selling it, and also provide the desired level of profit for the company.

Question 13

Using the variable cost concept, determine the selling price for 30,000 units using the following data: Variable cost per unit
$15)00
Total fixed costs
$90,000
Desired profit
A) $10 $150,000
B) $15
C) $8
D) $23

Accepted Answer

To determine the selling price for 30,000 units using the variable cost concept, we need to use the following formula:

Selling Price = Variable Cost per Unit + (Total Fixed Costs / Number of Units) + Desired Profit per Unit

Variable Cost per Unit = $15.00
Total Fixed Costs = $90,000
Number of Units = 30,000
Desired Profit per Unit = $5.00 (since the desired profit is $150,000 and there are 30,000 units, the desired profit per unit is $150,000 / 30,000 = $5.00)

Using the formula above, we get:

Selling Price = $15.00 + ($90,000 / 30,000) + $5.00
Selling Price = $15.00 + $3.00 + $5.00
Selling Price = $23.00

Therefore, the best choice is D, which is $23.00, because it takes into account the variable cost, fixed costs, and desired profit per unit.

Question 14

Which of the following reasons would cause a company to reject an offer to accept business at a special price?
A) The additional sale will not conflict with regular sales.
B) The additional sales will increase differential income.
C) The additional sales will not increase fixed expenses.
D) The additional sales will increase fixed expenses.

Accepted Answer

If accepting an offer for business at a special price will increase fixed expenses, it may not be profitable for the company in the long run. Even if the additional sales will not conflict with regular sales or increase differential income, the company may still reject the offer if it will create an increase in fixed expenses that outweighs the potential benefits.

Question 15

Mallard Corporation uses the product cost concept of product pricing. Below is cost information for the production and sale of 45,000 units of its sole product. Mallard desires a profit equal to a 12% rate of return on invested assets of $800,000. $\begin{array}{lc}
\text { Fixed factory overhead cost } & \$ 82,000 \
\text { Fixed selling and administrative costs } & 45,000 \
\text { Variable direct materials cost per unit } & 5.50\
\text { Variable direct labor cost per unit } & 7.65 \
\text { Variable factory overhead cost per unit } & 2.25 \
\text { Variable selling and administrative cost per unit } & 0.90
\end{array}$
-The unit selling price for the company's product is
A) $19.35
B) $15.75
C) $22.05
D) $21.25

Accepted Answer

To find the unit selling price, first calculate the total desired profit, which is 12% of $800,000 = $96,000. Then, calculate the total costs, which include both fixed and variable costs. The total variable cost per unit is the sum of variable direct materials, variable direct labor, variable factory overhead, and variable selling and administrative costs, which equals $5.50 + $7.65 + $2.25 + $0.90 = $16.30. The total fixed costs are $82,000 (fixed factory overhead) + $45,000 (fixed selling and administrative costs) = $127,000. To find the total cost, add the total fixed costs to the total variable costs for all units (45,000 units * $16.30 per unit) = $127,000 + (45,000 * $16.30) = $127,000 + $733,500 = $860,500. Add the desired profit of $96,000 to the total costs of $860,500 to get $956,500. Finally, divide this by the number of units (45,000) to find the unit selling price: $956,500 / 45,000 = $21.25.

Question 16

Mallard Corporation uses the product cost concept of product pricing. Below is cost information for the production and sale of 45,000 units of its sole product. Mallard desires a profit equal to a 12% rate of return on invested assets of $800,000. $\begin{array}{lc}
\text { Fixed factory overhead cost } & \$ 82,000 \
\text { Fixed selling and administrative costs } & 45,000 \
\text { Variable direct materials cost per unit } & 5.50\
\text { Variable direct labor cost per unit } & 7.65 \
\text { Variable factory overhead cost per unit } & 2.25 \
\text { Variable selling and administrative cost per unit } & 0.90
\end{array}$
-The markup percentage on product cost for the company's product is
A) 23.4%
B) 10.98%
C) 26.1%
D) 18%

Accepted Answer

The answer of Mallard Corporation uses the product cost concept...

Question 17

What is the target cost of the company's product?
A) $44
B) $42
C) $43
D) $40

Accepted Answer

The answer of What is the target cost of the...

Question 18

What cost concept used in applying the cost-plus approach to product pricing includes only total manufacturing costs in the cost amount to which the markup is added?
A) variable cost concept
B) total cost concept
C) product cost concept
D) opportunity cost concept

Accepted Answer

The product cost concept only includes total manufacturing costs in the cost amount to which the markup is added. This means that other costs such as selling and administrative costs are not included in the pricing calculation.

Question 19

Which of the following is not a cost concept commonly used in applying the cost-plus approach to product pricing?
A) total cost concept
B) product cost concept
C) variable cost concept
D) fixed cost concept

Accepted Answer

The cost-plus approach to product pricing typically involves the total cost concept, product cost concept, and variable cost concept. The fixed cost concept is not commonly used as a standalone approach in cost-plus pricing because it does not consider variable costs, which are crucial for determining the price based on the cost of producing a product.

Question 20

Mallard Corporation uses the product cost concept of product pricing. Below is cost information for the production and sale of 45,000 units of its sole product. Mallard desires a profit equal to a 12% rate of return on invested assets of $800,000. $\begin{array}{lc}
\text { Fixed factory overhead cost } & \$ 82,000 \
\text { Fixed selling and administrative costs } & 45,000 \
\text { Variable direct materials cost per unit } & 5.50\
\text { Variable direct labor cost per unit } & 7.65 \
\text { Variable factory overhead cost per unit } & 2.25 \
\text { Variable selling and administrative cost per unit } & 0.90
\end{array}$
-The cost per unit for the production of the company's product is
A) $13.15
B) $17.22
C) $15.40
D) $15.75

Accepted Answer

The answer of Mallard Corporation uses the product cost concept...

Quiz 24: Differential Analysis, Product Pricing, and Activity-Based Costing

All of the following should be considered in a make-or-buy decision except

What is the desired profit per unit?

The target cost approach assumes that:

Using the variable cost concept, determine the markup per unit for 30,000 units using the following data: Variable cost per unit $15) 00 Total fixed costs $90,000 Desired profit

Which equation better describes target costing?

If the company meets the new target cost number, how much will it have to cut costs per unit, if any?

When using the product cost concept of applying the cost-plus approach to product pricing, what is included in the markup?

Determine the markup percentage on product cost.

A practical approach that is frequently used by managers when setting normal long-run prices is the

What cost concept used in applying the cost-plus approach to product pricing covers selling expenses, administrative expenses, and desired profit in the markup?

Using the variable cost concept, determine the selling price for 30,000 units using the following data: Variable cost per unit $15) 00 Total fixed costs $90,000 Desired profit

Which of the following reasons would cause a company to reject an offer to accept business at a special price?

What is the target cost of the company's product?

What cost concept used in applying the cost-plus approach to product pricing includes only total manufacturing costs in the cost amount to which the markup is added?

Which of the following is not a cost concept commonly used in applying the cost-plus approach to product pricing?