Question 1

Which equation better describes target costing?

Accepted Answer

Target costing is a method of determining the maximum cost to be incurred on a product, based on the price at which it will be sold and the desired profit margin. The formula for target costing is Selling Price - Desired Profit = Target Costs, which indicates that the goal is to determine the target cost by subtracting the desired profit margin from the selling price.

Question 2

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

Accepted Answer

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

Question 3

Nachos Co.can further process Product J to produce Product D.Product J is currently selling for $12 per pound and costs $9 per pound to produce.Product D would sell for $20 per pound and would require an additional cost of $5 per pound to produce.What is the differential cost of producing Product D?

Accepted Answer

The differential cost is the additional cost incurred to process Product J into Product D, which is $5 per pound.

Question 4

A business is considering a cash outlay of $500,000 for the purchase of land,which it could lease for $40,000 per year.If alternative investments are available that yield a 21% return,the opportunity cost of the purchase of the land is

Accepted Answer

The opportunity cost is the return foregone by not investing in the alternative option. If the business can earn a 21% return on alternative investments, the opportunity cost of investing $500,000 in the land instead is 21% of $500,000, which is $105,000.

Question 5

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

Accepted Answer

The product cost concept includes all costs directly incurred in producing a product, including selling and administrative expenses, and desired profit, which are added on as a markup to arrive at the final price. This approach ensures that all costs are covered and profit is earned on each unit sold. Total cost concept would include all costs, whether directly or indirectly related to production, variable cost concept would only consider variable costs, and sunk cost concept refers to costs that have already been incurred and cannot be recovered.

Question 6

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

Accepted Answer

The cost-plus approach is a common method used by managers to set long-run prices. This approach involves adding a markup to the production cost of a product to determine its selling price. This markup helps ensure that the company covers its costs and makes a reasonable profit. This approach is practical and straightforward and is often used in industries where pricing is relatively stable.

Question 7

The markup percentage for the company's product is

Accepted Answer

To find the markup percentage, we need to use the formula:

Markup Percentage = (Profit / Cost) x 100%

We know that the selling price is $11.99 and the cost is $9.54. Therefore, the profit is:

Profit = Selling Price - Cost
Profit = $11.99 - $9.54
Profit = $2.45

Now we can plug in the values:

Markup Percentage = (Profit / Cost) x 100%
Markup Percentage = ($2.45 / $9.54) x 100%
Markup Percentage = 25.70%

Rounding to one decimal place, we get a markup percentage of 25.4%. Therefore, the answer is B.

Question 8

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

Accepted Answer

The answer of Which of the following is NOT a...

Question 9

A business is operating at 90% of capacity and is currently purchasing a part used in its manufacturing operations for $15 per unit.The unit cost for the business to make the part is $20,including fixed costs,and $12,not including fixed costs.If 30,000 units of the part are normally purchased during the year but could be manufactured using unused capacity,what would be the amount of differential cost increase or decrease from making the part rather than purchasing it?

Accepted Answer

The answer of A business is operating at 90% of...

Question 10

Sanchez Company is considering replacing equipment that originally cost $300,000 and that has $280,000 accumulated depreciation to date.A new machine will cost $450,000.What is the sunk cost in this situation?

Accepted Answer

The answer of Sanchez Company is considering replacing equipment that...

Question 11

The condensed income statement for a business for the past year is as follows:

Management is considering the discontinuance of the manufacture and sale of Product T at the beginning of the current year.The discontinuance would have no effect on the total fixed costs and expenses or on the sales of Product U.What is the amount of change in net income for the current year that will result from the discontinuance of Product T?

Accepted Answer

The answer of The condensed income statement for a business...

Question 12

The unit selling price for the company's product is

Accepted Answer

The unit selling price can be calculated by dividing the total sales revenue by the number of units sold:
Unit selling price = Total sales revenue / Number of units
From the given information, we have:
Total sales revenue = $241,272
Number of units = 12,048
Therefore, 
Unit selling price = $241,272 / 12,048 = $20.06
Hence, the best choice is option C, as it matches the calculated unit selling price.

Question 13

Granger Co.can further process Product B to produce Product C.Product B is currently selling for $55 per pound and costs $42 per pound to produce.Product C would sell for
$82 per pound and would require an additional cost of $13 per pound to produce.What is
The differential revenue of producing and selling Product C?

Accepted Answer

The answer of Granger Co.can further process Product B to...

Question 14

A business received an offer from an exporter for 10,000 units of product at $13.50 per unit.The acceptance of the offer will not affect normal production or domestic sales prices.
The following data are available:

What is the amount of the gain or loss from acceptance of the offer?

Accepted Answer

To determine the gain or loss from acceptance of the offer, we need to compare the total cost of producing and selling 10,000 units domestically with the revenue gained from exporting them.

From the table, we can see that the total variable cost per unit is $8.50 and the fixed cost is $90,000. Therefore, the total cost of producing and selling 10,000 units domestically is:

Total Cost = (10,000 units x $8.50/unit) + $90,000 = $175,000

If the business accepts the offer, the revenue gained from exporting 10,000 units at $13.50 per unit is:

Revenue = 10,000 units x $13.50/unit = $135,000

The gain or loss from accepting the offer is:

Gain/Loss = Revenue - Total Cost = $135,000 - $175,000 = -$40,000

Since the result is negative, the business will incur a loss of $40,000 if it accepts the offer. The correct answer is C, $15,000 gain, is not a reasonable or possible result.

Question 15

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

Accepted Answer

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

Question 16

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

Accepted Answer

The total cost concept includes all costs associated with manufacturing a product plus any selling and administrative expenses. This amount is then marked up by the desired profit margin to arrive at the final price. Choice A is incorrect because selling and administrative expenses are already included in the total cost amount. Choice B is incorrect because it includes fixed costs only, whereas variable costs must also be factored in. Choice D only includes variable costs, which may not provide a complete picture of the total cost of manufacturing a product.

Question 17

Bythel 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.Bythel desires
a profit equal to a 10.8% rate of return on invested assets of $900,000.
 
-The dollar amount of desired profit from the production and sale of the company's product is

Accepted Answer

The desired profit is calculated as the difference between the selling price and the cost of goods sold. The selling price is $160,000 and the cost of goods sold is $62,800. Therefore, the desired profit is $160,000 - $62,800 = $97,200.

Question 18

What pricing method may be used if there are several providers in the same market and there is sufficient demand for your product?

Accepted Answer

Competition-based pricing method is the best choice when there are several providers in the same market and there is sufficient demand for your product. Under this method, you determine your price based on the prices of your competitors. This ensures that your price is competitive and in line with the prevailing market rates.

Question 19

Target costing is arrived at by

Accepted Answer

The answer of Target costing is arrived at by
...

Question 20

What pricing method is used if all costs are considered and a fair markup is added to determine the selling price?

Accepted Answer

The answer of What pricing method is used if all...

Quiz 12: Differential Analysis and Product Pricing