Question 1

Target costing is a
A) Pricing method based on variable cost
B) Decision-making technique for deciding whether to produce a product
C) Pricing method based on total cost
D) Technique for costing inventory for financial statements

Accepted Answer

Target costing is a decision-making technique used to determine the cost at which a product must be produced to generate the desired profit margin at its anticipated selling price, rather than a direct pricing method or a technique for costing inventory.

Question 2

Which of the following statements is false?
A) When demand is inelastic, a price increase will have little effect on the number of units sold.
B) An increase in variable costs will increase the profit-maximizing selling price.
C) Penetration pricing is illegal.
D) Kaizen costing is a continuous improvement process that decreases waste and increases production efficiency.

Accepted Answer

Penetration pricing is not illegal; it is a legitimate pricing strategy used to gain market share by setting a low initial price.

Question 3

Kaizen costing I. Is a goal setting process
II. Involves continuous improvements
III. Can create high pressure for employees
A) I
B) II
C) I and III
D) I, II, and III

Accepted Answer

Kaizen costing is indeed a goal-setting process that involves continuous improvements in all areas of a company, including cost management. While it aims for efficiency and waste reduction, the continuous push for improvement can create high pressure for employees, making all three statements correct.

Question 4

Which of the following statements about life cycle costing is false?
A) It is long-term in nature
B) It is appropriate in situations where production costs are expected to increase over time
C) It is appropriate in situations where a product is initially expected to sell at a loss
D) It is appropriate in situations where the product's selling price is expected to decrease over time

Accepted Answer

Life cycle costing is not specifically appropriate for situations where production costs are expected to increase over time; rather, it considers the total cost of ownership over the product's life, including all phases from development to disposal.

Question 5

A company with a new product decides to set the initial price low so that customers will try the product. This is an example of
A) Price gouging
B) Predatory pricing
C) Penetration pricing
D) Price skimming

Accepted Answer

Penetration pricing is a strategy where a company sets a low initial price to attract customers and gain market share quickly.

Question 6

In the United States, dumping is I. Selling a product at a price that is below the market price
II. Not a legal problem for U.S. companies that have no foreign subsidiaries
III. Prosecuted by setting tariffs
A) I and II
B) I, II, and III
C) I and III
D) II and III

Accepted Answer

The answer of In the United States, dumping is I....

Question 7

Which of the following statements about target costing is false?
A) It is likely to increase product development time
B) It may be performed for a product that is eventually never produced
C) The product's selling price is determined after the target cost is computed
D) Value chain analysis is used to find the cost reductions necessary to meet the target cost

Accepted Answer

In target costing, the product's selling price is determined first based on market conditions, and then the target cost is computed by subtracting the desired profit margin from this selling price.

Question 8

Which of the following assigns product design costs over several years?
A) Life cycle costing
B) Target costing
C) Kaizen costing
D) Value costing

Accepted Answer

Life cycle costing assigns product design costs over the entire life cycle of the product, from development through to disposal, spreading costs over several years.

Question 9

Under U.S. laws, which of the following statements is the best example of the process known as dumping?
A) A U. S. company with excess inventory sells its product for a price below cost
B) A foreign company sells its products in the U.S. for less than the market value in the country where the products are manufactured.
C) A foreign company with excess inventory sells it in its home country for a price below the normal selling price
D) A company with a new product sells it in the U.S. for a price above the normal selling price

Accepted Answer

Dumping refers to a foreign company selling products in another country at a price lower than the market value in its home country, often to gain market share or eliminate competition.

Question 10

In cost-based pricing, which costs are appropriately included in the cost base?
A) Variable production costs only
B) Production costs only
C) All production and non-production costs
D) Any of the above may be used

Accepted Answer

The answer of In cost-based pricing, which costs are appropriately...

Question 11

Market-based pricing
A) Uses a traditional markup
B) Calculates price based on total cost
C) Considers demand and competitors' prices
D) Considers current costs and future costs in setting prices

Accepted Answer

Market-based pricing considers both the demand for the product and the prices of competitors in order to set a price that will be competitive and appealing to consumers while still making a profit.

Question 12

A company with a new product decides to set the initial price low so that the competition is destroyed. This is an example of
A) Price gouging
B) Predatory pricing
C) Penetration pricing
D) Price skimming

Accepted Answer

The answer of A company with a new product decides...

Question 13

Which of the following concentrates on reducing costs at the design phase of a product?
A) Life cycle costing
B) Target costing
C) Kaizen costing
D) Value costing

Accepted Answer

Target costing focuses on reducing costs during the design phase by setting cost targets based on market conditions and desired profit margins.

Question 14

In the United States, predatory pricing occurs when
A) A foreign company dumps product in the United States at prices below the market value in the country where they were manufactured
B) Two organizations conspire to set prices
C) An organization prices products or services very low to drive out competition and increase market share
D) An organization sets a low price to introduce a new product

Accepted Answer

Predatory pricing involves setting prices very low with the intent to eliminate competition and gain a larger market share, which can be considered anti-competitive behavior.

Question 15

Which of the following is not likely to be a feature of target costing?
A) The selling price is taken as given
B) Product development time is decreased
C) Relationships with suppliers are reviewed
D) Product design changes are made to decrease production costs

Accepted Answer

Target costing does not inherently focus on decreasing product development time; it primarily focuses on setting a target cost by considering the market-driven selling price and desired profit margin, then designing the product to meet that cost.

Question 16

A company with a new product decides to set the initial price high because there are some customers who will pay this high price for a newly introduced product. This is an example of
A) Price gouging
B) Predatory pricing
C) Penetration pricing
D) Price skimming

Accepted Answer

Price skimming is a strategy where a company sets a high initial price for a new product to maximize profits from customers willing to pay more before gradually lowering the price.

Question 17

Just before the landfall of hurricane Ivan, a convenience store manager decided to raise the price on a bottle of water from $1 to $7. This is an example of
A) Price gouging
B) Predatory pricing
C) Penetration pricing
D) Price skimming

Accepted Answer

Price gouging refers to raising prices to an unfair level, especially during emergencies or disasters, as seen with the water price increase before the hurricane.

Question 18

The death spiral is I. Setting prices very low
II. Two organizations conspiring to set prices
III. A problem of prices based on average cost and declining sales
A) I
B) III
C) I and III
D) II and III

Accepted Answer

The death spiral refers to a phenomenon where prices based on average cost lead to declining sales, which in turn leads to a further increase in prices, resulting in a downward spiral. This is known as the death spiral because it ultimately leads to the failure of the business. It does not involve any conspiracy to set prices, which is illegal. Setting prices very low may lead to a loss of profits but it is not necessarily indicative of a death spiral.

Question 19

Which of the following concentrates on reducing costs at the production phase of a product?
A) Life cycle costing
B) Target costing
C) Kaizen costing
D) Value costing

Accepted Answer

Kaizen costing focuses on continuous improvement and cost reduction during the production phase of a product.

Question 20

Price elasticity of demand
A) Is a price based on total cost with a desired markup
B) Indicates the sensitivity of sales to changes in price
C) Is a price based on variable cost with a desired markup
D) Is a calculation that relates changes in costs to changes in volume of sales

Accepted Answer

Price elasticity of demand measures how much the demand for a good or service changes in response to a change in its price. It indicates the sensitivity of sales to changes in price.

Quiz 13: Joint Management of Revenues and Costs

Target costing is a

Which of the following statements is false?

Kaizen costing I. Is a goal setting process II. Involves continuous improvements III. Can create high pressure for employees

Which of the following statements about life cycle costing is false?

A company with a new product decides to set the initial price low so that customers will try the product. This is an example of

In the United States, dumping is I. Selling a product at a price that is below the market price II. Not a legal problem for U.S. companies that have no foreign subsidiaries III. Prosecuted by setting tariffs

Which of the following statements about target costing is false?

Which of the following assigns product design costs over several years?

Under U.S. laws, which of the following statements is the best example of the process known as dumping?

In cost-based pricing, which costs are appropriately included in the cost base?

Market-based pricing

A company with a new product decides to set the initial price low so that the competition is destroyed. This is an example of

Which of the following concentrates on reducing costs at the design phase of a product?

In the United States, predatory pricing occurs when

Which of the following is not likely to be a feature of target costing?

A company with a new product decides to set the initial price high because there are some customers who will pay this high price for a newly introduced product. This is an example of

Just before the landfall of hurricane Ivan, a convenience store manager decided to raise the price on a bottle of water from $1 to $7. This is an example of

The death spiral is I. Setting prices very low II. Two organizations conspiring to set prices III. A problem of prices based on average cost and declining sales

Which of the following concentrates on reducing costs at the production phase of a product?

Price elasticity of demand