Question 1

Reverse engineering has the objective of reducing costs while still satisfying customer needs.

Accepted Answer

Value engineering has the objective of reducing costs while still satisfying customer needs. Reverse engineering is a means of obtaining information about a companies competitors by disassembling and analyzing the competitor products to determine the design, materials, and technology used.

Question 2

Locked-in costs are costs that have been incurred.

Accepted Answer

Locked-in costs are costs that a company is committed to incur in the future due to decisions made in the past, but they have not yet been incurred.

Question 3

Value engineering is a time-and-motion system that can result in: improvements in product designs, changes in material specifications, or modifications in process methods.

Accepted Answer

Value engineering is not a time-and-motion system. It is a systematic and organized approach to improving the value of a product or service by identifying and eliminating unnecessary costs.

Question 4

Hitz Video Rental is evaluating rental prices.Historical data show that Friday and Saturday have twice the rentals of other days of the week.The following information pertains to the store's normal operations per week:
   Required:
What is the unit cost when establishing a long-run price for rentals?

Accepted Answer

The answer of Hitz Video Rental is evaluating rental prices.Historical...

Question 5

Financial reporting systems emphasize cost incurrence by recognizing and recording costs only when a resource is sacrificed or consumed.

Accepted Answer

Financial reporting systems follow the principle of cost incurrence, which means costs are recognized and recorded only when a resource is sacrificed or consumed in the generation of revenue. This is in line with the accrual basis of accounting, which aims to match revenues and expenses in the same accounting period. Therefore, the statement is true.

Question 6

Target pricing includes: (1)developing a needed product, (2)choosing a target price, (3)deriving a target cost per unit, and (4)performing cost analysis.

Accepted Answer

Target pricing involves these four steps, which include developing a product that meets a need, selecting a target price based on market demand, calculating the target cost per unit, and analyzing costs to ensure profitability.

Question 7

Which of the following is TRUE of alternative long-run pricing approaches?

Accepted Answer

In a competitive market, it is more logical to use a market-based approach because the price is determined by supply and demand forces. A market-based approach considers the reactions of customers and competitors, whereas a cost-based approach only considers production costs. Cost-plus pricing, which is a type of cost-based approach, sets the markup based on production costs and ignores market forces when determining the selling price.

Question 8

Explain the differences between short-run pricing decisions and long-run pricing decisions.

Accepted Answer

The answer of Explain the differences between short-run pricing decisions...

Question 9

The strategy in which companies systematically evaluate all aspects of the value-chain business functions with the objective of reducing costs to meet customers' needs is referred to as

Accepted Answer

Value engineering is a systematic approach that evaluates all aspects of the value chain business functions to reduce costs while meeting customers' needs. Full costing is a method of costing that considers both variable and fixed costs in determining the cost of a product or service. Designed-in costs are costs that are intentionally designed into a product or service. Value analysis is a systematic assessment of the elements that contribute to the cost of a product or service. Cost incurrence is the process of incurring costs during the production of goods or services. Therefore, option B is the best answer.

Question 10

The Maize Eagles are evaluating ticket prices for its basketball games.Studies show that Friday and Saturday night games average more than twice the fans of games on other days.The following information pertains to the stadium's normal operations per season:
  The stadium is open for 5 operating hours on each day a game is played.All employees work by the hour except for the administrators.A maximum of one game is played per day and each fan has only one ticket per game.Required:
What is the unit cost when establishing a long-run price for ball games assuming all tickets are priced the same?

Accepted Answer

The answer of The Maize Eagles are evaluating ticket prices...

Question 11

Taylor Stadium is evaluating ticket prices for its baseball games.Studies have shown that Monday and Tuesday ball games average less than half the fans of games on other days.The following information pertains to the stadium's normal operations per season.  The stadium is open for 5 hours on each day a game is played.The stadium is available for some type of use 300 days a year.All employees work by the hour except for the administrators.In addition, only one game is played per day and each fan would have only one ticket per game.Required:
What is the unit cost when establishing a long-run price for ball games assuming all tickets are priced the same?

Accepted Answer

The answer of Taylor Stadium is evaluating ticket prices for...

Question 12

Valley West Amusement Park is evaluating its ticket prices.It is open during the summer months for 15 weeks.The following information pertains to last year's tourist season.Costs are expected to remain the same for this year.  Required:
What is the unit cost when establishing a long-run price for tour tickets?

Accepted Answer

The answer of Valley West Amusement Park is evaluating its...

Question 13

Long-run pricing is a strategic decision designed to build long-run relationships with customers in competitive markets.

Accepted Answer

The answer of Long-run pricing is a strategic decision designed...

Question 14

Eliminating non-value added activities by reducing their cost drivers, is referred to as

Accepted Answer

Eliminating non-value added activities by reducing their cost drivers is referred to as value engineering. This involves analyzing processes and activities to identify areas of waste and inefficiency and finding ways to streamline or eliminate them, ultimately reducing costs and improving overall value. Value-added pricing and activity-based pricing are pricing strategies, while cost incurrence costing focuses on recording and reporting costs, and price engineering involves adjusting prices to meet market demands.

Question 15

For long-run pricing decisions, using stable prices has the advantage of

Accepted Answer

Stable prices help build trust and reliability in buyer-seller relationships, as customers appreciate predictability and consistency in pricing.

Question 16

For setting long-term prices a company should use full product costs.Full product costs for pricing purposes

Accepted Answer

Full product costs for pricing purposes should include all direct costs (such as materials and labor) plus an appropriate allocation of the indirect costs of all business functions (such as overhead expenses). This will give the company a clear understanding of the true cost of producing and selling a product, allowing them to set prices that will cover all costs and generate profits over the long-term. Options A, B, and D are incorrect because they do not include all costs. Option C is incorrect because it excludes fixed overhead costs, which are an important part of the total cost of producing a product.

Question 17

A company uses a long-run time horizon to price its product, an electronic component used in aircraft.To produce a normal production run for a year of 100,000 units direct materials are $90,000; direct labour is $180,000; and, rent on leased equipment is $106,000 per year.Currently re-work is running at 4% of production, after testing.The company has the capacity to test 10 units per hour.Manufacturing Overhead has two cost drivers: testing (cost driver is testing hours at $2.50 per hour); and, rework (cost driver is units reworked at $80 per unit re-worked).Calculate current total manufacturing costs for 100,000 units.

Accepted Answer

The answer of A company uses a long-run time horizon...

Question 18

When are a product's direct materials cost most likely to be locked in?

Accepted Answer

The direct materials cost is most likely locked in when the product is designed because the design determines the type and quantity of materials needed, which influences the cost.

Question 19

Knowledge of long-run product costs helps guide decisions about entering or remaining in the market for a given product when in a highly competitive price-setting situation.

Accepted Answer

Knowing the long-run product costs can assist in making informed decisions about market entry or maintaining market presence in highly competitive pricing scenarios.

Question 20

In a graph with cumulative costs per unit as the Y-axis, with two curves, one being the cumulative costs locked-in, and a second curve showing the cumulative costs per unit incurred in different business functions, which of the following is TRUE?

Accepted Answer

The answer of In a graph with cumulative costs per...

Quiz 12: Pricing Decisions, Product Profitability Decisions, and Cost Management