Question 1

When a supplier dictates the minimum price at which a product or service is to be resold by a buyer to the retail or wholesale market, the supplier is said to be practicing the restricted practice of resale price maintenance.

Accepted Answer

Resale price maintenance occurs when a supplier dictates the minimum price at which a product or service is to be resold by a buyer to the retail or wholesale market, thereby restricting competition and maintaining higher prices.

Question 2

If a firm uses a traditional volume-based product costing system low-volume and complex products are likely to be overcosted.

Accepted Answer

In a traditional volume-based product costing system, it's typically the high-volume, simple products that are overcosted, while low-volume, complex products are undercosted. This is because traditional costing tends to allocate overhead costs based on volume measures (like labor hours or machine hours), not taking into account the additional complexity and non-volume related activities that might cause certain products to consume more overhead resources.

Question 3

The marginal revenue─marginal cost paradigm, is valid for all forms of economic market including the oligopolistic market.

Accepted Answer

In oligopolistic markets, firms often consider the reactions of their competitors when making pricing and output decisions, which can deviate from the simple marginal revenue equals marginal cost rule that applies in perfectly competitive markets.

Question 4

When decisions are being made about unprofitable products, one of the options available to managers is to retain the loss-making product particularly if it forms a part of a range of products that the firm wishes to sell.

Accepted Answer

Retaining a loss-making product may sometimes be a part of a strategic decision to maintain a range of products and strengthen brand identity.

Question 5

Price elasticity is the term used to describe the impact of price changes on sales volume.

Accepted Answer

Price elasticity measures how sensitive customers are to changes in price. It examines the relationship between a change in price and the resulting change in the quantity demanded by consumers. Therefore, price elasticity is indeed the term used to describe the impact of price changes on sales volume.

Question 6

Cost-plus pricing formulas can only be used with full cost models.

Accepted Answer

Cost-plus pricing can be applied using either full cost (which includes fixed and variable costs) or variable cost models, not exclusively full cost models.

Question 7

Linear programming is a tool used to determine an optimal solution given a number of constraints, by identifying linear relationships between decision variables.

Accepted Answer

Linear programming uses linear relationships between decision variables to find an optimal solution while taking into account various constraints.

Question 8

The material charges formula includes a charge for the costs incurred in the handling and storage of materials.

Accepted Answer

The material charges formula takes into account not only the cost of the materials themselves but also the costs associated with handling and storing those materials. This includes expenses such as labor, equipment, and space rental.

Question 9

When it comes to pricing decisions, the cost of the product or service is the lower limit of the price, where as the legal, political and ethical issues set the upper level of the price.

Accepted Answer

The cost of the product or service typically sets the lower limit of the price, but the upper limit is usually determined by market demand and competition, not legal, political, or ethical issues.

Question 10

When pricing new products, one strategy that can be used is price skimming where the initial product price is set low and in doing this management hope the product will be widely accepted in the long term.

Accepted Answer

Price skimming involves setting the initial product price high and then gradually lowering it as demand wanes. This strategy is often used for new and innovative products with high demand and limited competition.

Question 11

Close attention should be paid to customer and competitor behaviour when managers are making both pricing and product mix decisions.

Accepted Answer

Close attention to customer and competitor behaviour is crucial for making informed decisions on pricing and product mix as it helps in understanding market trends, consumer preferences, and competitive landscape.

Question 12

The management accountant's role in product mix decisions is to provide adequate information to allow linear programming to be utilised in the decision.

Accepted Answer

The management accountant's role in product mix decisions is to provide relevant financial and non-financial information to support the decision-making process. Linear programming is a mathematical modeling technique used to optimize resource allocation and can be used in product mix decisions, but it is not the accountant's sole responsibility to utilize it.

Question 13

Capacity has no real impact on bids submitted by firms in a competitive bidding scenario.

Accepted Answer

Capacity can have a significant impact on bids submitted by firms in a competitive bidding scenario. Firms with higher capacity may be able to offer lower prices due to economies of scale, while firms with lower capacity may need to charge more to cover their fixed costs. Additionally, a firm with excess capacity may be willing to bid lower in order to fill capacity and generate revenue.

Quiz 20: Pricing and Product Mix Decisions