Question 1

Prices are most directly related to costs in industries where revenue is based on cost reimbursement.

Accepted Answer

In industries where revenue is based on cost reimbursement, such as government contracting or healthcare, prices are directly related to costs as the companies must recover their costs in order to generate revenue.

Question 2

In managerial accounting,variable cost is a reasonable approximation of marginal cost in many situations.

Accepted Answer

Variable cost is a cost that varies with changes in the level of output or sales revenue, and it is often a reasonable approximation of marginal cost, which is the additional cost incurred or avoided by producing one more unit of output or selling one more unit of product. Therefore, in many situations, using variable cost as an approximation of marginal cost can provide useful information for decision-making and cost analysis purposes in managerial accounting. However, it is important to note that this approximation may not always hold true, especially if there are significant fixed or sunk costs that need to be considered.

Question 3

Full cost means the total of all variable manufacturing costs and all fixed manufacturing costs.

Accepted Answer

The answer of Full cost means the total of all...

Question 4

Which factor does NOT influence pricing decisions?

Accepted Answer

The color of company vehicles is not a relevant factor in determining pricing decisions. Legal requirements, competitors' actions, and customer demands are important considerations in pricing decisions as they can impact the profitability and market share of a company.

Question 5

Prices based on variable costs represent a contribution approach to pricing.

Accepted Answer

Prices based on variable costs take into account only the incremental cost of producing one additional unit, and therefore reflect a contribution approach to pricing.

Question 6

Pricing is not discriminatory if it reflects a cost differential incurred in providing the good or service.

Accepted Answer

Pricing can be different based on the cost differential incurred in providing the good or service, such as different prices for economy and business class seats on a flight. This is not considered discriminatory as it is based on a reasonable cost difference. However, if pricing is based on characteristics such as race, gender, or religion, it would be discriminatory.

Question 7

The total of all manufacturing costs plus the total of all selling and administrative costs is equal to ________.

Accepted Answer

The total of all manufacturing costs plus the total of all selling and administrative costs is commonly known as full cost. Marginal cost refers to the cost of producing one additional unit, target cost is the estimated cost needed to manufacture a product at a desired profit margin, and contribution cost refers to the difference between total revenue and variable costs.

Question 8

Markup is the amount by which cost exceeds price.

Accepted Answer

Markup is the amount by which price exceeds cost, not the other way around.

Question 9

Overcapacity is some countries often causes aggressive pricing policies,particularly for a company's imported goods.

Accepted Answer

The answer of Overcapacity is some countries often causes aggressive...

Question 10

Predatory pricing occurs when a firm sets ________.

Accepted Answer

Predatory pricing occurs when a firm sets prices so low that competitors are driven out of the market, ultimately creating a monopolistic situation where they can then raise prices unchallenged.

Question 11

Discriminatory pricing occurs when a firm sets ________.

Accepted Answer

Discriminatory pricing is the practice of charging different prices to different customers for the same product or service. This can lead to certain customers paying more than others based on factors such as their willingness to pay, geographic location or demographics. Choices A, B, and D do not define discriminatory pricing.

Question 12

Full cost or fully allocated cost means the total of all manufacturing costs.

Accepted Answer

Full cost or fully allocated cost includes both manufacturing costs and non-manufacturing costs, such as administrative and selling expenses.

Question 13

According to courts in the United States,pricing is predatory only if companies set prices below their average total cost and actually lose money in order to drive their competitors out of business.

Accepted Answer

Pricing can be considered predatory even if companies set prices above their average total cost, if they are using their market power to harm competition. Additionally, companies may engage in predatory pricing even if they are not explicitly losing money, as they may be using other tactics such as leveraging their market power in one market to gain an advantage in another market.

Question 14

In the short run,the sales price of a good or service must be high enough to cover all costs.

Accepted Answer

In the short run, the sales price must cover variable costs, but it may not cover all fixed costs.

Question 15

Discriminatory pricing is the act of charging different prices to different customers for the same product or service.

Accepted Answer

Discriminatory pricing refers to the act of charging different prices to different customers for the same product or service based on various factors such as demographics, location, purchasing power, etc. It is usually intended to maximize profits by charging the highest price to customers willing to pay more while also attracting price-sensitive customers with lower prices.

Question 16

Which is NOT a popular markup formula for pricing?

Accepted Answer

Pricing based solely on total selling and administrative costs is not a popular method among businesses. Popular methods include pricing based on total manufacturing costs, variable manufacturing costs, or a combination of manufacturing and selling/administrative costs.

Question 17

In the short run,the minimum selling price should be equal to ________.

Accepted Answer

In the short run, a business should set the minimum selling price equal to all variable costs of producing, selling, and distributing the good or service, so as to at least cover these costs and avoid losses. Fixed costs are sunk costs in the short run and should not be factored into the pricing decision. Manufacturing costs might not include all the costs of selling and distributing the product.

Question 18

In imperfect competition,a firm must increase the sales price to generate additional sales.

Accepted Answer

In imperfect competition, a firm may not have to increase the sales price to generate additional sales as there may be other factors affecting demand such as branding, advertising, or product differentiation. However, in some cases, a firm may indeed have to increase the sales price to generate additional sales due to limited competition or market power.

Question 19

Managers may use different markup rates for different categories of costs.

Accepted Answer

Markup rates may vary depending on the category of costs. For example, a manager may use a higher markup rate for direct costs like materials and a lower markup rate for indirect costs like overhead expenses.

Question 20

In imperfect competition,marginal revenue usually increases as volume increases.

Accepted Answer

In imperfect competition, firms have some control over the price, and as such, they face a downward-sloping demand curve. As the firm increases its volume, it may have to lower the price to attract additional customers, leading to a lower marginal revenue. In some cases, marginal revenue may increase initially, but it will eventually decrease as the firm approaches its capacity limit.

Quiz 5: Relevant Information for Decision Making With a Focus