Professional Documents
Culture Documents
a. cost considerations.
b. environment.
c. pricing objectives.
d. all of these are factors.
a. customers.
b. competitive market.
c. largest competitor.
d. selling company.
28. A company must price its product to cover its costs and earn a reasonable profit in
a. all cases.
b. its early years.
c. the long run.
d. the short run.
30. All of the following are correct statements about the target price except it
a. is the price the company believes would place it in the optimal position for its target
audience.
b. is used to determine a product's target cost.
c. is determined after the company has identified its market and does market research.
d. is determined after the company sets its desired profit amount.
31. Companies that sell products whose prices are set by market forces are called
a. price givers.
b. price leaders.
c. price takers.
d. price setters.
32. In which of the following situations would a company not set the prices of its products?
a. When the product is not easily differentiated from competing products
b. When the product is specially made for a customer
c. When there are few or no other producers capable of making a similar product
d. When the product can be effectively differentiated from others
35. A company that is a price taker would most likely use which of the following methods?
a. Time-and-material pricing
b. Target costing
c. Cost plus pricing, contribution approach
d. Cost plus pricing, absorption approach
36. Bond Co. is using the target cost approach on a new product. Information gathered so far
reveals:
a. $0.28
b. $0.50
c. $0.25
d. $0.53
37. Well Water Inc. wants to produce and sell a new flavored 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:
a. $0.24.
b. $0.40.
c. $0.16.
d. $0.60.
38. Larry Cable Inc. plans to introduce a new product and is using the target cost approach.
Projected sales revenue is $810,000 ($4.50 per unit) and target costs are $748,800. What is the
desired profit per unit?
a. $0.34
b. $2.08
c. $4.16
d. None of the above
39. Wasson Widget Company is contemplating the production and sale of a new widget. Projected
sales are $187,500 (or 75,000 units) and desired profit is $22,500. What is the target cost per
unit?
a. $2.50
b. $2.20
c. $2.80
d. $3.00
40. Boomer Boombox Inc. wants to produce and sell a new lightweight radio. Desired profit per unit
is $2.30. The expected unit sales price is $27.50 based on 10,000 units. What is the total target
cost?
a. $252,000
b. $275,000
c. $23,000
d. $298,000
a. manufacturing costs.
b. desired ROI.
c. selling and administrative costs.
d. total cost and desired ROI.
a. multiplying the ROI times the investment and dividing by the estimated volume.
b. multiplying the unit selling price by the ROI.
c. dividing the total cost by the estimated volume and multiplying by the ROI.
d. dividing the ROI by the estimated volume and subtracting the result from the unit
cost.
43. Bellingham Suit Co. has received a shipment of suits that cost $250 each. If the company uses
cost-plus pricing and applies a markup percentage of 60%, what is the sales price per suit?
a. $417
b. $400
c. $350
d. $625
Use the following information for questions 44–47.
Custom Shoes Co. has gathered the following information concerning one model of shoe:
Investment $2,125,000
ROI 30%
a. $50
b. $85
c. $210
d. $120
a. $85.00
b. $210.00
c. $127.50
d. $212.50
a. $177.50
b. $212.50
c. $142.50
d. $197.50
a. 150%
b. 255%
c. 850%
d. 182%
Lock Inc. has collected the following data concerning one of its products:
a. 20%.
b. 30%.
c. 35%.
d. 25%.
a. 26.09%.
b. 20.69%.
c. 25%.
d. 22.59%.
50. A company using cost-plus pricing has an ROI of 24%, total sales of 12,000 units and a desired
ROI per unit of $30. What was the amount of investment?
a. $86,400
b. $1,500,000
c. $273,600
d. $473,685
Brislin Products has a new product going on the market next year. The following data are projections for
production and sales:
Investment $1,400,000
a. $4.55
b. $3.50
c. $2.30
d. $3.30
a. 84%
b. 15%
c. 40%
d. 30%
53. What would the markup percentage be if only 150,000 units were sold and Brislin still wanted to
earn the desired ROI?
a. 24.71%
b. 40.0%
c. 26.25%
d. 32.94%
54. When using cost-plus pricing, which amount per unit does not change when the expected
volume differs from the budgeted volume?
a. Variable cost
b. Fixed cost
c. Desired ROI
d. Target selling price
55. Why does the unit selling price increase when expected volume is lower than budgeted volume?
a. Variable costs and fixed costs have to be spread over fewer units.
b. Fixed costs and desired ROI have to be spread over fewer units.
c. Variable costs and desired ROI have to be spread over fewer units.
d. Fixed costs only have to be spread over fewer units.
57. In cost-plus pricing, the markup percentage is computed by dividing the desired ROI per unit by
the
a. fixed cost per unit.
b. total cost per unit.
c. total manufacturing cost per unit.
d. variable cost per unit.
59. The following per unit information is available for a new product of Red Ribbon Company:
Desired ROI $ 50
Fixed cost 80
a. 20%.
b. 25%.
c. 40%.
d. 60%.
60. Bryson Company has just developed a new product. The following data is available for this
product:
a. $124.
b. $100.
c. $84.
d. $64.
61. All of the following are correct statements about the cost-plus pricing approach except that it
a. is simple to compute.
b. considers customer demand.
c. includes only variable costs in the cost base.
d. will only work when the company sells the quantity it budgeted.
62. In the cost-plus pricing approach, the desired ROI per unit is computed by multiplying the ROI
percentage by
a. fixed costs.
b. total assets.
c. total costs.
d. variable costs.
Red Grass Company produces high definition television sets. The following information is
available for this product:
Fixed cost per unit $150
a. 120%.
b. 60%.
c. 40%.
d. 30%.
64. The target selling price for this television is
a. $330.
b. $600.
c. $630.
d. $780.
65. In time-and-material pricing, a material loading charge covers all of the following except
a. purchasing costs.
b. related overhead.
c. desired profit margin.
d. All of these are covered.
67. The labor charge per hour in time-and-material pricing includes all of the following except
68. The last step in determining the material loading charge percentage is to
69. In time-and-material pricing, the charge for a particular job is the sum of the labor charge and
the
a. materials charge.
b. material loading charge.
c. materials charge + desired profit.
d. materials charge + the material loading charge.
The following data is available for Wheels ‘N Spokes Repair Shop for 2008:
Overhead 45,000
Total $375,000
The desired profit margin is $30 per labor hour. The material loading charge is 40% of invoice
cost. It is estimated that 5,000 labor hours will be worked in 2008.
a. $75.
b. $84.
c. $96.
d. $105.
71. In January 2008, Wheels ‘N Spokes repairs a bicycle that uses parts of $120. Its material loading
charge on this repair would be
a. $48.
b. $72.
c. $120.
d. $168.
72. In March 2008, Wheels ‘N Spokes repairs a bicycle that takes two hours to repair and uses parts
of $180. The bill for this repair would be
a. $390.
b. $420.
c. $444.
d. $462.
73. Which of the following organizations would most likely not use time-and-material pricing?
Carlos Consulting Inc. provides financial consulting and has collected the following data for the next
year’s budgeted activity for a lead consultant.
a. 25%.
b. 40%.
c. 55%.
d. 15%.
76. A consulting job takes 20 hours of consulting time and $180 of supplies. The client’s bill would
be
a. $972.
b. $772.
c. $945.
d. $745.
Use the following information for questions 77–78.
Lonely Guy Repair Service recently performed repair services for a customer that totaled $400.
Somehow the bill was lost and the company accountant was trying to recreate the bill from memory.
This is what was remembered:
a. 20%
b. 25%
c. 35%
d. 40%
a. 13.0
b. 12.3
c. 11.5
d. 8.0
79. Lawrence Legal Services recently billed a customer $750. Labor hours were 6 and the cost of the
materials used was $150. If the company’s hourly labor rate was $75, what material loading
charge was used?
a. 40%
b. 50%
c. 100%
d. 80%
80. Dudly Drafting Services uses a 45% material loading charge and a labor rate of $40 per hour.
How much will be charged on a job that requires 3.5 hours of work and $80 of materials?
a. $256
b. $220
c. $176
d. $266
a. loading charge.
b. charge for receiving, handling, and storing materials.
c. portion of the materials clerk’s wages.
d. profit margin.
a. 4
b. 3
c. 2
d. 1
83. The last step in calculating the hourly rate to be charged in time-and-material pricing is to
Jaycee Auto Repair has the following budgeted costs for the next year:
Time Charges Material Charges
84. The labor rate to be used next year assuming 7,500 hours of repair time and a profit margin of
$15 per labor hour is
a. $22.
b. $31.
c. $33.
d. $37.
85. The material loading charge to be used next year assuming a 40% markup on material cost is
a. 65%.
b. 40%.
c. 80%.
d. 20%.
86. Jaycee estimates that the repairs to a Cadillac Escalade damaged in a rollover will take 45 hours
of labor and $3,500 in parts and materials. The total cost of the repairs is
a. $5,165.
b. $7,440.
c. $5,365.
d. $6,390.
87. The price used to record a sale between divisions within the same vertically integrated company
is called the
a. sales price.
b. integrated price.
c. transfer price.
d. bargain price.
The Selling Division’s unit sales price is $15 and its unit variable cost is $9. Its capacity is 10,000 units.
Fixed costs per unit are $4. Current outside sales are 8,000 units.
90. What is the Selling Division’s opportunity cost per unit from selling 2,000 units to the Purchasing
Division?
a. $6
b. $15
c. $2
d. $0
91. What is the Selling Division’s opportunity cost per unit from selling 3,000 units to the Purchasing
Division?
a. $6
b. $15
c. $2
d. $0
92. In the minimum transfer price formula, variable cost is defined as the variable cost of
93. Under the negotiated transfer pricing approach, the minimum transfer price is established by
the
a. purchasing division.
b. corporate headquarters management.
c. selling division.
d. corporate negotiator.
94. Under the negotiated transfer pricing approach, the maximum transfer price is established by
the
a. purchasing division.
b. corporate headquarters management.
c. selling division.
d. corporate negotiator.
95. Assume the Thread Division has excess capacity. The Garment Division wants the Thread
Division to furnish them additional spools of thread that could be made using the excess
capacity. In a negotiated transfer price, the Thread Division should accept as a minimum any
transfer price that exceeds the
97. When a sale occurs between divisions of the same company, which transfer pricing approach
may lead to the buying division overpricing its product?
The Lumber Division of Paul Bunyon Homes Inc. produces and sells lumber that can be sold to outside
customers or within the company to the Construction Division. The following data have been gathered
for the coming period:
Lumber Division:
If the Lumber Division sells to the Construction Division, $0.30 per board foot can be saved in shipping
costs.
98. If current outside sales are 130,000 board feet, what is the minimum transfer price that the
Lumber Division could accept?
a. $1.00
b. $1.10
c. $1.40
d. $2.00
99. If current outside sales are 150,000 board feet, what is the minimum transfer price that the
Lumber Division could accept?
a. $1.60
b. $1.30
c. $1.10
d. $1.70
100. If the Lumber Division has sufficient excess capacity to fulfill the Construction Division’s needs,
what will be the effect on the company’s overall contribution margin?
a. Decrease by $24,000
b. Decrease by $18,000
c. Increase by $30,000
d. Increase by $27,000
Use the following information for questions 101 and 102.
Tuttle Motorcycles Inc. manufactures and sells high-priced motorcycles. The Engine Division produces
and sells engines to other motorcycle companies and internally to the Production Division. It has been
decided that the Engine Division will sell 20,000 units to the Production Division at $700 a unit. The
Engine Division, currently operating at capacity, has a unit sales price of $1,700 and unit variable costs
and fixed costs of $700 and $500, respectively. The Production Division is currently paying $1,600 per
unit to an outside supplier. $60 per unit can be saved on internal sales from reduced selling expenses.
101. What is the minimum transfer price that the Engine Division should accept?
a. $1,640
b. $1,700
c. $1,600
d. $1,000
102. What is the increase/decrease in overall company profits if this transfer takes place?
a. Decrease $800,000
b. Increase $1,680,000
c. Decrease $2,000,000
d. Increase $18,000,000
The Can Division of Fruit Products Inc. manufactures and sells tin cans externally for $0.50 per can. Its
unit variable costs and unit fixed costs are $0.20 and $0.07, respectively. The Packaging Division wants
to purchase 50,000 cans at $0.27 a can. Selling internally will save $0.02 a can.
103. Assuming the Can Division has sufficient capacity, what is the minimum transfer price it should
accept?
a. $0.20
b. $0.27
c. $0.18
d. $0.25
104. Assuming the Can Division is already operating at full capacity, what is the minimum transfer
price it should accept?
a. $0.48
b. $0.55
c. $0.24
d. $0.28
The Dairy Division of Famous Foods, Inc. produces and sells milk to outside customers. The operation
has the capacity to produce 250,000 gallons of milk a year. Last year’s operating results were as follows:
105. Assume the Yogurt Division wants to purchase 30,000 gallons of milk from the Dairy Division.
The minimum price that will increase the Dairy Division’s profit is
106. Assume the Dairy Division is operating at capacity. If the Yogurt Division wants to purchase
30,000 gallons of milk from the Dairy Division, what is the minimum price that will allow the
Dairy Division to maintain its current net income?
107. Negotiated transfer pricing is not always used because of each of the following reasons except
that
108. All of the following are approaches for determining a transfer price except the
a. cost-based approach.
b. market-based approach.
c. negotiated approach.
d. time-and-material approach.
109. When a cost-based transfer price is used, the transfer price may be based on any of the
following except
a. fixed cost.
b. full cost.
c. variable cost.
d. All of these may be used.
110. All of the following are correct statements about the cost-based transfer price approach except
that it
111. The general formula for the minimum transfer price is: minimum transfer price equals
113. In the formula for the minimum transfer price, opportunity cost is the __________ of the goods
sold externally.
a. variable cost
b. total cost
c. selling price
d. contribution margin
114. The transfer price approach that conceptually should work the best is the
a. cost-based approach.
b. market-based approach.
c. negotiated price approach.
d. time-and-material pricing approach.
115. The transfer price approach that is often considered the best approach because it generally
provides the proper economic incentives is the
a. cost-based approach.
b. market-based approach.
c. negotiated price approach.
d. time-and-material pricing approach.
116. All of the following are correct statements about the market-based approach except that it
a. assumes that the transfer price should be based on the most objective inputs
possible.
b. provides a fairer allocation of the company's contribution margin to each division.
c. produces a higher company contribution margin than the cost-based approach.
d. ensures that each division manager is properly motivated and rewarded.
a. the selling division has available capacity and is willing to accept less than the
market price.
b. an outside market for the goods does not exist.
c. no market price is available.
d. any of these situations exist.
118. Assuming the selling division has available capacity, a negotiated transfer price should be within
the range of
119. The transfer price approach that will result in the largest contribution margin to the buying
division is the
a. cost-based approach.
b. market-based approach.
c. negotiated price approach.
d. time-and-material pricing approach.
120. The maximum transfer price from the buying division's standpoint is the
The Wood Division of Fir Products, Inc. manufactures rubber moldings and sells them externally
for $110. Its variable cost is $50 per unit, and its fixed cost per unit is $14. Fir's president wants
the Wood Division to transfer 5,000 units to another company division at a price of $64.
121. Assuming the Wood Division has available capacity of 5,000 units, the minimum transfer price it
should accept is
a. $14.
b. $50.
c. $64.
d. $110.
122. Assuming the Wood Division does not have any available capacity, the minimum transfer price it
should accept is
a. $14.
b. $50.
c. $64.
d. $110.
123. If the Food Division is currently operating at full capacity, what is the minimum transfer price the
Food Division should accept?
a. $20
b. $70
c. $90
d. $140
124. If the Food Division has 10,000 units available capacity, what is the minimum transfer price the
Food Division should accept?
a. $20
b. $70
c. $90
d. $140
125. All of the following are correct statements about transfers between divisions located in
countries with different tax rates except that
a. differences in tax rates across countries complicate the determination of the appro-
priate transfer price.
b. many companies prefer to report more income in countries with low tax rates.
c. companies must pay income tax in the country where income is generated.
d. a decreasing number of transfers are between divisions located in different countries.
126. Transfers between divisions located in countries with different tax rates
a
127. Which of the following is consistent with generally accepted accounting principles?
a. Absorption-cost approach
b. Contribution approach
c. Variable-cost approach
d. Both absorption-cost and contribution approach
a
128. Under the absorption-cost approach, all of the following are included in the cost base except
a. direct materials.
b. fixed manufacturing overhead.
c. selling and administrative costs.
d. variable manufacturing overhead.
a
129. The first step in the absorption-cost approach is to compute the
a
130. The markup percentage in the absorption-cost approach is computed by dividing the sum of the
desired ROI per unit and
a
131. In the absorption-cost approach, the markup percentage covers the
a. desired ROI only.
b. desired ROI and selling and administrative expenses.
c. desired ROI and fixed costs.
d. selling and administrative expenses only.
a
132. The absorption-cost approach is used by most companies for all of the following reasons except
that
a
133. Under the variable-cost approach, the cost base includes all of the following except
a
134. In the variable-cost approach, the markup percentage covers the
a
135. The markup percentage denominator in the variable-cost approach is the
a
136. The reasons for using the variable-cost approach include all of the following except this
approach
a
137. Maggie Co. has variable manufacturing costs per unit of $40, and fixed manufacturing cost per
unit is $30. Variable selling and administrative costs per unit are $8, while fixed selling and
administrative costs per unit are $12. Maggie desires an ROI of $15 per unit. If Maggie Co. uses
the absorption-cost approach, what is its markup percentage?
a. 8.33%
b. 50%
c. 16.67%
d. 25%
a
138. Maggie Co. has variable manufacturing costs per unit of $40, and fixed manufacturing cost per
unit is $20. Variable selling and administrative costs per unit are $10, while fixed selling and
administrative costs per unit are $4. Maggie desires an ROI of $16 per unit. If Maggie Co. uses
the variable-cost approach, what is its markup percentage?
a. 50%
b. 80%
c. 30%
d. 100%
Use the following information for questions 139–144.
Fixed overhead 15
a
139. The cost base using the absorption-cost approach is
a. $30.
b. $35.
c. $65.
d. $45.
a
140. The markup percentage using the absorption-cost approach is
a. 80%.
b. 102%.
c. 131%.
d. 90%.
a
141. The target selling price using the absorption-cost approach is
a. $117.
b. $81.
c. $54.
d. $123.50.
a
142. The cost base using the variable-cost approach is
a. $30.
b. $35.
c. $65.
d. $45.
a
143. The markup percentage using the variable-cost approach is
a. 80%.
b. 102%.
c. 131%.
d. 90%.
a
144. The target selling price using the variable-cost approach is
a. $103.95.
b. $69.30.
c. $70.70.
d. $80.85.
a
145. Alfredo Co. has collected the following per unit data:
The markup percentage is 120%. What is the target selling price under the variable-cost
approach?
a. $54.20
b. $46.80
c. $39.60
d. $87.60