Question 1

Blond Co.is using the target cost approach on a new product.Information gathered so far reveals:  What is the target selling price per unit?

Accepted Answer

The answer of Blond Co.is using the target cost approach...

Question 2

Ron White Inc.plans to introduce a new product and is using the target cost approach.Projected sales revenue is $810,000 ($4.05 per unit) and target costs are $730,000.What is the desired profit per unit?

Accepted Answer

The desired profit is the difference between projected sales revenue and target costs, which is $810,000 - $730,000 = $80,000. Given that the sales revenue per unit is $4.05, the number of units is $810,000 / $4.05 = 200,000 units. Therefore, the desired profit per unit is $80,000 / 200,000 units = $0.40.

Question 3

Monty's has one product with a variable cost of $19.80 and a cost of goods sold per unit of $18.32.If Monty sells this product for $24.75, what is Monty's markup percentage based on variable cost per unit and based on cost of goods sold?

Accepted Answer

Based on variable cost per unit:
Markup percentage = (Selling price - Variable cost per unit) / Variable cost per unit x 100%
= ($24.75 - $19.80) / $19.80 x 100%
= 25%

Based on cost of goods sold:
Markup percentage = (Selling price - Cost of goods sold per unit) / Cost of goods sold per unit x 100%
= ($24.75 - $18.32) / $18.32 x 100%
= 35%

Question 4

Which of the following does not affect the price a company charges under cost-plus pricing?

Accepted Answer

The historical price of the product or service does not affect the price a company charges under cost-plus pricing. Cost-plus pricing is based on adding a markup to the cost of the product or service, which is determined by the desired gross margin percentage. The cost of the product is also a key factor in determining the price.

Question 5

Spot-On wants to begin manufacturing and selling a new product, the Sporty Spot.Spot-On requires a 25% gross margin on all new products.Marketing research indicates customers are interested in purchasing the Sporty Spot.If the production supervisor has agreed to produce the Sporty Spot at its target cost of $6.75 per unit, what is the price customers are willing to pay for the Sporty Spot (if necessary, round your answer)?

Accepted Answer

To calculate the price customers are willing to pay, we need to use the formula: 
Price = Cost/(1 - Desired Gross Margin)
The desired gross margin is 25%, which means the fraction of the selling price that is profit is (100% - 25%) = 75%. So the formula becomes:
Price = $6.75/(1 - 0.75) = $6.75/0.25 = $27.00
However, we need to ensure that the price is not lower than the cost plus the desired gross margin, which is $6.75/(1 - 0.25) = $9.00. Therefore, the best choice is D, $9.00.

Question 6

A difference in cost-plus pricing and target costing is that target costing

Accepted Answer

Target costing starts with the price customers are willing to pay and then determines the maximum allowable cost to ensure a desired profit margin. Cost-plus pricing, on the other hand, starts with the cost and adds a markup to determine the selling price. Option A is incorrect because target costing is determined before introducing a product, while cost-plus pricing is generally used after production. Option B is incorrect because target costing involves a more comprehensive analysis of customer needs and competitor pricing, making it a more complex approach than cost-plus pricing. Option D is incorrect because target costing determines the maximum allowable cost, whereas cost-plus pricing determines the markup to be added to the cost.

Question 7

Patch Work's product, Patch Supreme, sells for $62.00 and its variable cost is $44.60 while the cost of goods sold per unit is $42.80.What is Patch Work's markup percentage on variable cost and what is its gross margin percentage?

Accepted Answer

To calculate the markup percentage on variable cost, we use the following formula:
Markup percentage on variable cost = (selling price - variable cost) / variable cost x 100%
= (62 - 44.60) / 44.60 x 100%
= 39%

To calculate the gross margin percentage, we use the following formula:
Gross margin percentage = (selling price - cost of goods sold) / selling price x 100%
= (62 - 42.80) / 62 x 100%
= 31%

Therefore, the correct answer is (C) 39%; 31%.

Question 8

Assume a company wishes to maintain a markup of 35% on a product with a unit cost of $25 ($14 variable and $11 fixed).What amount will the company set as the selling price?

Accepted Answer

The answer of Assume a company wishes to maintain a...

Question 9

Evergreen's most popular product sells for $33.00 and has a variable cost of $26.40.On Evergreen's income statement the cost of goods sold per unit is $24.42.What is Evergreen's markup percentage based on cost of goods and based on variable cost per unit?

Accepted Answer

Based on cost of goods: 
Markup = (Price - Cost of Goods Sold) / Cost of Goods Sold
Markup = (33 - 24.42) / 24.42
Markup = 0.35 or 35%

Based on variable cost per unit:
Markup = (Price - Variable Cost) / Variable Cost
Markup = (33 - 26.40) / 26.40
Markup = 0.25 or 25%

The correct answer is B because it matches both markup percentages.

Question 10

Companies need to engage in target costing

Accepted Answer

Target costing is most effective when used before introducing a new product. This allows companies to set a target cost for the product and design it accordingly, rather than designing a product and then trying to reduce costs to meet a predetermined price.

Question 11

Given that the selling price is $200, the variable unit cost is $120, and there's operating income of $50, what is the company's markup percentage?

Accepted Answer

The markup percentage is calculated based on the cost, not the selling price. The markup is found by subtracting the cost from the selling price and then dividing by the cost. Here, the markup is ($200 - $120) / $120 = $80 / $120 = 0.6667, or 66.7%.

Question 12

Mountain Spring Inc.wants to produce and sell a new brand of bottled water.In order to penetrate the market, the product will have to sell at $2.00 per 12 oz.bottle.The following data has been collected:  The target cost per bottle is

Accepted Answer

In order to determine the target cost per bottle, we need to subtract the target profit margin from the selling price. The target profit margin for Mountain Spring Inc. is not given in the data. Therefore, we need to make an assumption about it. Let's assume that the target profit margin is 20%.
Selling price = $2.00
Target profit margin = 20% of selling price = 0.2 x 2 = $0.40
Target cost per bottle = Selling price - Target profit margin = 2 - 0.4 = $1.60
Since the target cost per bottle is $1.60, and the cost data in the table shows that the cost of materials, labor, and overhead per bottle is $1.00, the target cost per bottle can be achieved with an additional cost of $0.60 for marketing and distribution. Therefore, the best choice for the target cost per bottle is B) $0.60.

Question 13

If a company sells its product for $30 and has a unit cost of $12, what is the company's markup percentage?

Accepted Answer

The markup percentage is calculated as (Selling Price - Cost Price) / Cost Price * 100. Here, it is (($30 - $12) / $12) * 100 = 150%.

Question 14

Mounts CPA firm prepares approximately 1,200 individual tax returns each year.Since a majority of the cost of preparing tax returns results from the salary of the tax preparers and reviewers, Mounts charges customers a markup on labor rates.The highest paid preparers earn $30 per hour and are CPAs with several years' experience.Mounts charges its customers $45 per hour.If Mounts charges the same markup percentage to all clients, what price will Mounts charge for a less-experienced preparer who earns only $20 per hour?

Accepted Answer

The markup percentage is calculated based on the highest paid preparers' rates: $45 charged for $30 cost per hour gives a markup of 50% ($15 markup on $30 cost). Applying the same 50% markup to the $20 per hour rate for less-experienced preparers gives a charge of $30 per hour ($20 cost plus 50% of $20).

Question 15

Bluegreen's most popular product has a variable cost of $43.56.On Bluegreen's income statement, the cost of goods sold per unit is $40.29.If Bluegreen's markup percentage on variable cost is 25% and its gross margin is 26%, what is the selling price of this product?

Accepted Answer

The answer of Bluegreen's most popular product has a variable...

Question 16

Which of the following is not a flaw of cost-plus pricing?

Accepted Answer

Cost-plus pricing is generally straightforward to calculate, as it involves adding a standard markup to the cost of producing a product.

Question 17

The "plus" in cost-plus pricing is often referred to as

Accepted Answer

Cost-plus pricing involves adding a markup to the cost of a product or service in order to determine the final selling price. The "plus" in this pricing method refers to the markup percentage, which is added to the cost of production to generate a profit margin. Therefore, the correct answer is C) Markup.

Question 18

Assume a company has a selling price of $20 and a unit cost of $15.What is the company's markup percentage?

Accepted Answer

Markup percentage is calculated as (Selling Price - Cost Price) / Cost Price * 100. Here, it is (($20 - $15) / $15) * 100 = 33.3%.

Question 19

Cost-plus pricing adds an amount to

Accepted Answer

Cost-plus pricing involves adding a markup to the cost of a product or service in order to cover operating costs and generate a profit. This method ensures that all costs are covered and a profit is made on each sale.

Question 20

Which of the following formulas represents the calculation for markup percentage?

Accepted Answer

Markup percentage is calculated by dividing the amount of markup (which is the difference between the sales price and cost) by the cost of the item. Therefore, the formula is (Sales price - Cost) ÷ Cost. Option B represents the profit margin formula, option C represents the cost ratio formula, and option D represents the contribution margin ratio formula.

Quiz 3: Costvolumeprofit Analysis and Pricing Decisions

Blond Co.is using the target cost approach on a new product.Information gathered so far reveals: What is the target selling price per unit?