Question 1

If a company uses a cost-plus approach to pricing, it will find:
A)there are several different definitions of cost and the higher the cost, the higher the markup percentage.
B)there are several different definitions of cost and the higher the cost, the lower the markup percentage.
C)there is one definition of cost, and no relationship between cost and the markup percentage used.
D)there is one definition of cost, and there is no markup percentage involved.
E)it is in violation of generally accepted accounting principles (GAAP).

Accepted Answer

In a cost-plus approach to pricing, the company determines the cost of producing a product and then adds a markup percentage to determine the selling price. However, there are different definitions of cost (e.g. variable cost, total cost, etc.), and the higher the cost, the lower the markup percentage must be to keep the price competitive. Otherwise, customers may choose cheaper alternatives. Therefore, choice B is the best option.

Question 2

In a typical business, the firm's overall demand would not be influenced by the combination of interactions of pricing policies and:
A)the company's reputation.
B)the quality of goods and services offered.
C)competing goods and services.
D)advertising and promotional campaigns.
E)internal control systems.

Accepted Answer

Internal control systems are not likely to have a direct impact on a firm's overall demand. While they are important for ensuring efficient operations and preventing fraud, they do not typically factor into a customer's decision to purchase goods or services from a particular company. On the other hand, factors such as pricing policies, reputation, quality, competing goods and services, and advertising/promotion can all have a significant impact on demand by influencing consumer behavior and perceptions.

Question 3

When determining the markup to be used in a cost-plus pricing formula, many companies base the markup on a target:
A)return on investment.
B)sales margin.
C)capital turnover.
D)earnings per share.
E)debt-to-equity ratio.

Accepted Answer

The most common target used for determining markup in cost-plus pricing is return on investment (ROI). This approach ensures that the company is earning a minimum acceptable return on the resources it has invested in the product or service being priced. By using ROI as a target, companies can avoid pricing products too low and not achieving a sufficient return, or pricing products too high and driving away customers.

Question 4

The difference between absorption manufacturing cost and total cost with respect to product pricing is caused by:
A)variable manufacturing cost.
B)applied fixed manufacturing cost.
C)variable selling and administrative cost.
D)allocated fixed selling and administrative cost.
E)variable selling and administrative cost and allocated fixed selling and administrative cost.

Accepted Answer

Absorption manufacturing cost includes only manufacturing costs (both variable and fixed), while total cost includes both manufacturing and non-manufacturing costs (selling and administrative). Therefore, the difference is due to the variable and allocated fixed selling and administrative costs.

Question 5

Which of the following choices correctly denotes the collective factors that can influence a company's pricing practices for goods and services?
A)Costs, and Customer Demand.
B)Costs.
C)Market Conditions, Costs, and Customer Demand.
D)Market Conditions, and Costs.
E)Market Conditions, and Customer Demand.

Accepted Answer

Market conditions, costs, and customer demand are all important factors that can influence a company's pricing practices. Market conditions refer to the state of the industry and competition, while costs include production, distribution, and other expenses. Customer demand reflects the willingness of consumers to pay a certain price for a product or service. Therefore, all three factors play a critical role in determining the optimal pricing strategy for a company.

Question 6

The following costs relate to JB Contraction Company: Variable manufacturing cost, $20; variable selling and administrative cost, $11; applied fixed manufacturing overhead, $12; and allocated fixed selling and administrative cost, $3. If JB uses absorption manufacturing-cost pricing formulas, the company's markup percentage would be computed on the basis of:
A)$15.
B)$20.
C)$31.
D)$32.
E)$46.

Accepted Answer

The answer of The following costs relate to JB Contraction...

Question 7

Heathrow employs cost-plus pricing formulas to derive selling prices for its various products. If the formulas are all used correctly, which of the following cost bases will result in the highest selling price?
A)Variable manufacturing cost.
B)Absorption manufacturing cost.
C)Total variable cost.
D)Total cost.
E)They could all result in the same selling price as long as their markup percentages are different.

Accepted Answer

The answer of Heathrow employs cost-plus pricing formulas to derive...

Question 8

Which of the following would least likely influence a company's pricing decisions
A)Manufacturing costs.
B)Competitors.
C)Customer demand.
D)Pricing laws.
E)Internal Controls.

Accepted Answer

Internal controls refer to the company's system of checks and balances to ensure that its operations are legal, accurate, and ethical. While internal controls can affect a company's pricing decisions indirectly, they are unlikely to have a significant impact on pricing compared to factors like manufacturing costs, competitors, customer demand, and pricing laws.

Question 9

If the volume sold reacts strongly to changes in price, demand:
A)has no elasticity.
B)has negative elasticity.
C)is inelastic.
D)is elastic.
E)is unrealistic.

Accepted Answer

If the volume sold reacts strongly to changes in price, then demand is said to be elastic. This means that small changes in price lead to large changes in the quantity demanded.

Question 10

Prices are said to be inelastic under which of the following conditions?
A)Increase in price, and little impact on sales volume.
B)Increase in price, and a sizable increase in sales volume.
C)Increase in price, and a sizeable decrease in sales volume.
D)Decrease in price, and a sizeable increase in sales volume.
E)Decrease in price, and a sizeable decrease in sales volume.

Accepted Answer

Inelastic demand means that there is little change in the quantity demanded of a good or service even when its price changes. Hence, when the price of a product increases but the sales volume remains largely unaffected, it is an indication that the demand for the product is inelastic.

Question 11

Which of the following statements regarding price elasticity is false?
A)The concept of price elasticity is an extension of the economic pricing model.
B)Demand is elastic if a price change has a large negative impact on sales volume.
C)Demand is elastic if price changes have no impact on sales volume.
D)Measuring price elasticity is an important objective of market research.
E)Demand is relatively inelastic if price changes have little impact on sales quantity.

Accepted Answer

The statement "Demand is elastic if price changes have no impact on sales volume" is false. In fact, demand is considered inelastic if price changes have little impact on sales quantity, while demand is elastic if a price change has a large negative impact on sales volume.

Question 12

The curve that shows the relationship between the sales price and quantity sold is called the:
A)marginal revenue curve.
B)average cost curve.
C)profit curve.
D)demand curve.
E)revenue curve.

Accepted Answer

The curve that shows the relationship between sales price and quantity sold is the demand curve, which illustrates the quantity of a good or service that consumers are willing and able to buy at a variety of prices.

Question 13

Which of the following formulas represents the markup percentage on total cost?
A)Target profit ÷ Variable cost.
B)Target profit ÷ Annual volume.
C)(Target profit x Total cost per unit) ÷ Annual volume.
D)(Annual volume x Total cost per unit) ÷ Target profit.
E)Target profit ÷ (Annual volume x Total cost per unit).

Accepted Answer

The markup percentage on total cost is calculated by dividing the target profit by the total cost per unit and the annual volume. Thus, the formula represented in option E is the correct answer. The other options do not calculate the markup percentage on total cost.

Question 14

The following data pertain to Kluver Business Solutions Inc.: variable manufacturing cost $60; variable selling and administrative cost $30; applied fixed manufacturing cost $30; allocated fixed selling and administrative cost $12. What price will the company charge if the firm uses cost-plus pricing based on absorption manufacturing cost and a markup percentage of 80%?
A)$90.
B)$108.
C)$135.
D)$162.
E)$216.

Accepted Answer

The absorption manufacturing cost includes both variable and fixed manufacturing costs: $60 (variable) + $30 (fixed) = $90. With a markup of 80%, the price is $90 + (0.80 * $90) = $162.

Question 15

Patterson and Clay Companies both use cost-plus pricing formulas and arrived at a selling price of $1,000 for the same product. Patterson uses absorption manufacturing cost as the basis for computing its dollar markup whereas Clay uses total cost. Which of the following choices correctly denotes the company that would have (1) the higher cost basis for deriving its dollar markup and (2) the higher markup percentage respectively?
A)Patterson, Patterson.
B)Patterson, Clay.
C)Clay, Patterson.
D)Clay, Clay.
E)The companies would have the same cost basis and markup percentage.

Accepted Answer

Clay would have the higher cost basis because total cost includes both manufacturing and non-manufacturing costs, whereas absorption cost includes only manufacturing costs. Patterson would have the higher markup percentage because it needs to cover non-manufacturing costs and profit with a smaller cost base.

Question 16

The following data pertain to Wolter Incorporated: $\begin{array} { l r } 
\text { Variable manufacturing cost } & \$ 70 \
\text { Variable selling and administrative cost } & 20 \
\text { Applied fixed manufacturing cost } & 20 \
\text { Allocated fixed selling and administrative cost } & 4
\end{array}$ What price will the company charge if the firm uses cost-plus pricing based on total cost and a markup percentage of 50%?
A)$114.
B)$126.
C)$136.
D)$159.
E)$171.

Accepted Answer

The answer of The following data pertain to Wolter Incorporated:...

Question 17

Which of the following represents the cost-plus pricing formula?
A)Price = Cost ÷ Markup percentage.
B)Price = Cost + (Markup percentage x Cost).
C)Price = Cost + Markup percentage.
D)Price = Cost + (Markup percentage + Cost).
E)Price = Markup percentage x Cost.

Accepted Answer

The cost-plus pricing formula is calculated as Cost + (Markup percentage x Cost). This means that the cost of the product is added with a markup percentage, which gives the selling price. The other options are not correct as they do not represent the cost-plus pricing formula.

Question 18

The Gluten Free Company, which manufactures gluten free snack foods, is ready to introduce a new line of breakfast bars. The following data is available: $\begin{array} { | l | r | } 
\hline \text { Variable manufacturing cost } & \$ 240 \
\hline \text { Variable selling and administrative cost } & 20 \
\hline \text { Applied fixed manufacturing cost } & 80 \
\hline \text { Allocated fixed selling and administrative cost } & 65 \
\hline
\end{array}$ What price will the company charge if the firm uses cost-plus pricing based on variable manufacturing cost and a markup percentage of 200%?
A)$240.
B)$355.
C)$720.
D)$740.
E)$780.

Accepted Answer

The answer of The Gluten Free Company, which manufactures gluten...

Question 19

Under which of the following conditions are prices said to be elastic?
A)Increase in price, and little impact on sales volume.
B)Increase in price, and a sizable increase in sales volume.
C)Increase in price, and a sizeable decrease in sales volume.
D)Decrease in price, and no increase in sales volume.
E)Decrease in price, and a sizeable decrease in sales volume.

Accepted Answer

When prices are said to be elastic, a small change in price leads to a significant change in the quantity demanded by the customers. Therefore, an increase in price that results in a sizeable decrease in sales volume would indicate the elasticity of prices.

Question 20

Which of the following is not a major influence on pricing decisions?
A)Planning and control policies of the firm.
B)Customer demand.
C)Costs.
D)Competitors.
E)Political, legal, and image-related issues.

Accepted Answer

Planning and control policies of the firm are not a major influence on pricing decisions. While these policies may shape the overall strategy and objectives of the firm, they do not have a direct impact on the pricing decisions that are made. Customer demand, costs, competitors, and political/legal/image-related issues are all factors that can have a significant impact on pricing decisions.

Quiz 13: Target Costing and Cost Analysis for Pricing Decisions

If a company uses a cost-plus approach to pricing, it will find:

In a typical business, the firm's overall demand would not be influenced by the combination of interactions of pricing policies and:

When determining the markup to be used in a cost-plus pricing formula, many companies base the markup on a target:

The difference between absorption manufacturing cost and total cost with respect to product pricing is caused by:

Which of the following choices correctly denotes the collective factors that can influence a company's pricing practices for goods and services?

Heathrow employs cost-plus pricing formulas to derive selling prices for its various products. If the formulas are all used correctly, which of the following cost bases will result in the highest selling price?

Which of the following would least likely influence a company's pricing decisions

If the volume sold reacts strongly to changes in price, demand:

Prices are said to be inelastic under which of the following conditions?

Which of the following statements regarding price elasticity is false?

The curve that shows the relationship between the sales price and quantity sold is called the:

Which of the following formulas represents the markup percentage on total cost?

Which of the following represents the cost-plus pricing formula?

Under which of the following conditions are prices said to be elastic?

Which of the following is not a major influence on pricing decisions?