Question 1

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.  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...

Question 2

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

Accepted Answer

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

Question 3

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 includes only the total manufacturing costs in the "cost" amount to which the markup is added. This approach is useful when determining the minimum price at which a product should be sold to cover all direct manufacturing costs and provide a reasonable profit margin. The variable cost concept includes only variable costs, while the total cost concept includes both variable and fixed costs. The opportunity cost concept considers the cost of forgoing the next best alternative, rather than focusing solely on manufacturing costs.

Question 4

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 5

Magpie Corporation uses the total cost concept of product pricing. Below is cost information for the production and sale of 60,000 units of its sole product. Magpie desires a profit equal to a 25% rate of return on invested assets of $700,000.  The cost per unit for the production and sale of the company's product is:
A) $12.11
B) $12.88
C) $15
D) $13.50

Accepted Answer

The answer of Magpie Corporation uses the total cost concept...

Question 6

Magpie Corporation uses the total cost concept of product pricing. Below is cost information for the production and sale of 60,000 units of its sole product. Magpie desires a profit equal to a 25% rate of return on invested assets of $700,000.  The dollar amount of desired profit from the production and sale of the company's product is:
A) $175,000
B) $67,200
C) $73,500
D) $96,000

Accepted Answer

The answer of Magpie Corporation uses the total cost concept...

Question 7

Magpie Corporation uses the total cost concept of product pricing. Below is cost information for the production and sale of 60,000 units of its sole product. Magpie desires a profit equal to a 25% rate of return on invested assets of $700,000.  The unit selling price for the company's product is:
A) $15.00
B) $13.82
C) $15.80
D) $14.76

Accepted Answer

To calculate the unit selling price using the total cost concept, we need to add the desired profit to the total cost per unit and then divide the total by the number of units produced.

Total cost per unit:
Direct materials: $3.50
Direct labor: $2.00
Manufacturing overhead: $1.80
Selling and administrative expenses: $0.70
Total cost per unit: $8.00

Invested assets: $700,000
Desired rate of return: 25%
Desired profit: $175,000 (25% of $700,000)

Total cost per unit + Desired profit per unit:
$8.00 + ($175,000 / 60,000) = $11.92

Unit selling price:
Total cost per unit + Desired profit per unit:
$11.92 x 1.32 (to account for a 25% profit) = $15.74 (rounded to nearest cent)

Therefore, the unit selling price should be rounded up to $15.80. Choice C) is the correct answer.

Question 8

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.  The unit selling price for the company's product is:
A) $19.35
B) $15.75
C) $22.05
D) $21.26

Accepted Answer

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

Question 9

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 fixed cost concept is not typically used on its own in cost-plus pricing; instead, total, product, and variable cost concepts are more commonly applied.

Question 10

What cost concept used in applying the cost-plus approach to product pricing includes only desired profit in the "markup"?
A) Product cost concept
B) Variable cost concept
C) Sunk cost concept
D) Total cost concept

Accepted Answer

The answer of What cost concept used in applying the...

Question 11

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

Accepted Answer

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

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 is used in the cost-plus approach to product pricing, which includes selling expenses, administrative expenses, and desired profit in the markup. This approach adds up all the costs involved in producing and selling the product and then adds a markup to arrive at the final price. The product cost concept takes into account all the direct and indirect costs associated with producing the product.

Question 13

A practical approach which 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 to the cost of producing a product or service in order to determine the selling price. This approach is frequently used by managers as it takes into account the costs of production, such as labor, materials, and overhead, while also allowing for a reasonable profit margin. The economic theory approach is more focused on market demand and supply, while the price graph approach and price skimming are not as commonly used for setting normal long-run prices.

Question 14

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 other options (cost savings, quality issues, and future growth opportunities) should be considered in a make or buy decision. However, whether the supplier will no longer make a profit that would belong to the business is not relevant to this decision. The focus should be on what is best for the business in terms of cost, quality, and future growth.

Question 15

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 the additional sales will increase fixed expenses, it may not be worth it for the company to accept business at a special price as it could ultimately decrease their profitability.

Question 16

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 involves determining the maximum cost that can be incurred in producing a product while still being able to sell it at a competitive market price. Therefore, the selling price is set by the marketplace, and the cost is determined based on the desired profit margin. Choices A, C, and D involve adding a markup to the cost, which is not the approach used in target costing.

Question 17

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.  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 18

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.  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 19

Magpie Corporation uses the total cost concept of product pricing. Below is cost information for the production and sale of 60,000 units of its sole product. Magpie desires a profit equal to a 25% rate of return on invested assets of $700,000.  The markup percentage on total cost for the company's product is:
A) 21.0%
B) 22.7%
C) 15.8%
D) 24.0%

Accepted Answer

To calculate the markup percentage on total cost, we need to determine the total cost per unit first.

Total cost per unit = Total production cost / Number of units produced
Total production cost = Direct materials + Direct labor + Manufacturing overhead
Direct materials = $45,000
Direct labor = $80,000
Manufacturing overhead = $325,000
Total production cost = $45000 + $80,000 + $325,000 = $450,000
Total cost per unit = $450,000 / 60,000 = $7.50

Next, we need to determine the desired profit Magpie Corporation wishes to earn, which is a 25% rate of return on invested assets of $700,000.

Desired profit = 25% x $700,000 = $175,000

Finally, we can calculate the markup percentage on total cost using the following formula:

Markup percentage on total cost = (Desired profit / Total cost) x 100%
Markup percentage on total cost = ($175,000 / ($450,000 + $175,000)) x 100%
Markup percentage on total cost = 22.7%

Therefore, the answer is B) 22.7%.

Question 20

Contractors who sell to government agencies would be most likely to use which of the following cost concepts in pricing their products?
A) Variable cost
B) Product cost
C) Total cost
D) Fixed cost

Accepted Answer

Government contracts often require contractors to use total cost, which includes all costs (fixed, variable, and overhead) to ensure transparency and compliance with regulations.

Quiz 25: Differential Analysis and Product Pricing

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

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?

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

Magpie Corporation uses the total cost concept of product pricing. Below is cost information for the production and sale of 60,000 units of its sole product. Magpie desires a profit equal to a 25% rate of return on invested assets of $700,000. The unit selling price for the company's product is:

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

What cost concept used in applying the cost-plus approach to product pricing includes only desired profit in the "markup"?

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

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 practical approach which is frequently used by managers when setting normal long-run prices is the:

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

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

The target cost approach assumes that:

Contractors who sell to government agencies would be most likely to use which of the following cost concepts in pricing their products?