13.1 Objective 13.1: Chapter 13 Pricing Decisions and Cost Management

Cost Accounting: A Managerial Emphasis, 16e, Global Edition (Horngren)
Chapter 13 Pricing Decisions and Cost Management
13.1 Objective 13.1
1) As a general rule of economics, companies should only produce and sell units as long as ________.
A) there is customer demand for the product
B) there is a relatively small supply of the product when compared to past operating periods
C) the revenue from an additional unit exceeds the cost of producing it (‫)اإليرادات من وحدة إضافية تتجاوز تكلفة إنتاجها‬
D) there is a generous supply of low-cost direct materials
2) In setting prices for products and services, managers may attempt to charge what the customer is
willing to pay however, too high a price may ________.
A) deter a customer from purchasing a product and seek alternatives(‫)ردع العميل عن شراء منتج والبحث عن بدائل‬
B) increase demand and demand for the product
C) indicate supply is too plentiful
D) decrease a competitor's market share
3) Companies must always examine their pricing ________.

A) based on the supply of the product
B) based on the full cost of producing the product and price to make a profit
C) through the eyes of their customers and then manage costs to produce a profit
D) based on the GAAP cost of producing the product and then add a mark-up
4) Which of the following statements is true about the factors that affect pricing decisions?
A) Information about competitors' technologies is not useful for pricing decisions.
B) Information about a competitor in a perfect market affects pricing decisions.
C) Increase in price of a substitute product does not affect pricing decisions.
D) Managers must always be aware of the competition when pricing their products
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5) In a perfectly competitive market, which of the following is a primary factor influencing pricing
decisions?
A) cost of production
B) availability of raw materials in the market
C) information on competitor's cost structure
D) value customers place on product
6) Which of the following statements is true of the cost of producing a product?

A) It controls pricing in highly competitive markets.
B) It affects the willingness of a company to supply a product. (‫)يؤثر على رغبة الشركة في توفير منتج‬
C) It includes manufacturing costs, but not product design costs for pricing decisions.
D) It is not a factor to be taken into account while pricing a product.
7) In a noncompetitive environment, the key factor affecting pricing decisions is the ________.
A) customer's willingness to pay
B) price charged for alternative products
C) information on competitor's cost structure
D) minimum price acceptable to the firm
8) Which of the following statements is true of costs and pricing decisions?

A) Companies get profit from selling products only when they are the price makers.
B) Companies supply products as long as the price the customer is willing to pay for its products exceeds
the price that is charged by the competitor.
C) Companies supply products as long as there is a demand for the product in the market regardless of
the price at which the products are sold.
D) Companies supply products as long as the revenues from selling the additional units exceed the cost
of producing them.
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9) Three major influences on pricing decisions are ________.
A) competition, costs, and customers
B) competition, demand, and production efficiency
C) continuous improvement, customer satisfaction, and supply
D) variable costs, fixed costs, and mixed costs
10) Monopolists can charge prices without limitations as there is no competition for the product or service
the monopolist provides.
Answer: FALSE
Explanation: The higher the price a monopolist sets, the lower the demand because customers will either
seek substitute products or forgo buying the product and therefore although the monopolist has more
leeway to set higher prices there are limits
Diff: 2
Objective: 1
AACSB: Analytical thinking
11) A company operating in a perfectly competitive market has more leeway to set higher prices than a
firm that is a monopolist.
Answer: FALSE
Explanation: A monopolist has no competitors and has much more leeway to set high prices than a firm
operating in a perfectly competitive market.
Diff: 2
Objective: 1
12) For a company operating in a perfectly competitive market, cost information affects the pricing
decisions of the company.
Answer: FALSE
Explanation: For a company operating in a perfectly competitive market, cost information does not affect
the pricing decision of the company, it only helps managers decide the quantity of output to produce to
maximize operating income.
Diff: 3
Objective: 1
13) Fluctuations in exchange rates between different countries' currencies affect costs and pricing
decisions of a company.
Answer: TRUE
Diff: 2
Objective: 1
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14) In markets with little or no competition, the key factor affecting price is the cost of production to the
company.
Answer: FALSE
Explanation: In markets with little or no competition, the key factor affecting price is the customers'
willingness to pay, not costs or competitors.
Diff: 2
Objective: 1
15) The value customers place on a product and the prices charged for competing products affect demand
and the cost of producing and delivering the product affect supply.
Answer: TRUE
Diff: 2
Objective: 1
16) If U.S dollar strengthens against the Japanese Yen, Japanese producers selling goods in U.S markets
will have to increase the prices of products to recover the extra cost arising from currency fluctuation.
Answer: FALSE
Explanation: If U.S dollar strengthens against Japanese Yen, Japanese producers will be able to sell their
goods at a cheaper rate in the U.S markets as they will now receive more Yen for the same dollar amount
of sale and hence will be tempted to reduce prices.
Diff: 3
Objective: 1
17) Claudia Geer, controller, discusses the pricing of a new product with the sales manager, James Nolan.
What major influences must Claudia and James consider in pricing the new product? Discuss each
briefly.
Answer: The major influences are customers, competitors, and costs.
Customers: Managers must always examine pricing problems through the eyes of their customers. A price
increase may cause customers to reject a company's product and choose a competing or substitute
product.
Competitors: Competitors' reactions influence pricing decisions. At one extreme, a rival's prices and
products may force a business to lower its prices to be competitive. At the other extreme, a business
without a rival in a given situation can set higher prices. A business with knowledge of its rivals'
technology, plant capacity, and operating policies is able to estimate its rivals' costs, which is valuable
information in setting competitive prices.
Costs: Companies price products to exceed the costs of making them. The study of cost-behavior patterns
gives insight into the income that results from different combinations of price and output quantities sold
for a particular product.
Diff: 2
Objective: 1
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13.2 Objective 13.2
1) Which of the following examples would have as its purpose the allocation of costs to motivate
employees?
A) deciding on a selling g price for a product
B) encouraging sales representatives to emphasize high-margin products
C) to cost products a a "fair" price under a government contract
D) to cost inventories for reporting to external parties
Answer: B
Diff: 2
Objective: 2
2) Which of the following are true regarding long-run pricing decisions?

A) they result in maximizing return on investment
B) they include adjusting product mix in a competitive environment
C) the price needs to be sufficient enough to break-even
D) use prices that include a reasonable return on invested capital
Answer: D
Diff: 2
Objective: 2
3) Which of the following is true of long-run pricing?

A) It is fixed at a level that recovers the variable cost of the company and a pre-determined profit
markup.
B) It is generally a function of the market factors and the cost involved in production is generally not a
consideration.
C) It is a strategic decision designed to build long-run relationships with customers based on stable and
predictable prices.
D) It is based only on internal requirements like cost and estimated rate of return as in the long run these
requirements are the driving factors of any organization.
Answer: C
Diff: 3
Objective: 2
4) For long-run pricing decisions, using stable prices has the advantage of ________.
A) minimizing the need to monitor competitor's prices frequently
B) reducing the need to change cost structures frequently
C) reducing competition
D) helping to build buyer-seller relationships
Answer: D
Diff: 1
Objective: 2
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5) Jack's Back Porch manufactures rustic furniture. The cost accounting system estimates manufacturing
costs to be $270 per table, consisting of 80% variable costs and 20% fixed costs. The company has surplus
capacity available. It is Jack's Back Porch's policy to add a 60% markup to full costs.
A large hotel chain is currently expanding and has decided to decorate all new hotels using the rustic
style. Jack's Back Porch is invited to submit a bid to the hotel chain. What per unit price will Jack's Back
Porch most likely bid on this long-term order?
A) $86.40 per unit
B) $162.00 per unit
C) $345.60 per unit
D) $432.00 per unit
Answer: D
Explanation: Most likely per unit bid = $270 + ($270 × 60%) = $432.00.
Diff: 2
Objective: 2
AACSB: Application of knowledge
6) Zolas' Heaters is approached by Ms. Leila, a new customer, to fulfill a large one-time-only special order
for a product similar to one offered to regular customers. Zolas' Heaters has excess capacity. The
following per unit data apply for sales to regular customers:
Direct materials $420

Direct manufacturing labor 100
Variable manufacturing support 70
Fixed manufacturing support 200
Total manufacturing costs 790
Markup (30% of total manufacturing costs) 237
Estimated selling price $1027
If Ms. Leila wanted a long-term commitment, and not a one-time-special order, for supplying this
product, calculate the most likely price to be quoted assuming the markup remains the same?
A) $790
B) $590
C) $520
D) $1027
Answer: D
Explanation: Most likely long-term price = $1027.
Diff: 2
Objective: 2
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7) Golden Generator Supply is approached by Mr. Stephen, a new customer, to fulfill a large one-time-
only special order for a product similar to one offered to regular customers. Golden Generator Supply has
excess capacity. The following per unit data apply for sales to regular customers:

Direct manufacturing labor 180
Variable manufacturing support 280
Fixed manufacturing support 140
Total manufacturing costs 790
Markup (10% of total manufacturing costs) 79
If Mr. Stephen wanted a long-term commitment, and not a one-time-only special order, for supplying this
product, calculate the most likely price to be quoted assuming the markup remains the same?
A) $650
B) $790
C) $869
D) $370
Answer: C
Explanation: Long-run pricing is a strategic decision designed to build long-run relationships with
customers based on stable and predictable prices. Therefore, the most likely long-term price = $869.
Diff: 2
Objective: 2
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8) Gracius Manufacturing is approached by a European customer to fulfill a one-time-only special order
for a product similar to one offered to domestic customers. Gracius Manufacturing has a policy of adding
a 20% markup to full costs and currently has excess capacity. The following per unit data apply for sales
to regular customers:
Variable costs:
Direct labor 30
Manufacturing overhead 10
Marketing costs 20
Fixed costs:
Marketing costs 30
Total costs 250
Markup (20% of total costs) 50
If the European customer wanted a long-term commitment, and not a one-time-only special order, for
supplying this product, calculate the most likely price to be quoted assuming the markup remains the
same?
A) $110
B) $250
C) $300
D) $190
Answer: C
customers based on stable and predictable prices. Therefore, the most likely long-term price = $300.
Diff: 2
Objective: 2
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9) Grounded Coffee Products manufactures coffee tables. Grounded Coffee Products has a policy of
adding a 20% markup to full costs and currently has excess capacity. The following information pertains
to the company's normal operations per month:
Output units 30,000 tables

Machine-hours 6000 hours
Direct manufacturing labor-hours 10,000 hours
Direct materials per unit $50
Direct manufacturing labor per hour $12.00
Variable manufacturing overhead costs $322,500
Fixed manufacturing overhead costs $1,200,000
Product and process design costs $600,000
Marketing and distribution costs $1,290,000
For long-run pricing of the coffee tables, what price will most likely be used by Grounded Coffee?
A) $64.75
B) $103.00
C) $167.75
D) $201.30
Answer: D
Explanation:
Direct materials $50 $50
Direct manufacturing labor ($12.00 × 10,000/30,000) 4
Variable manufacturing ($322,500/30,000) 10.75
Fixed manufacturing ($1,200,000/30,000) 40
Product and process design costs ($600,000/30,000) 20
Marketing and distribution ($1,290,000/30,000) 43.00
Full cost per unit 167.75
Markup (20%) 33.55
Estimated selling price $201.30
Diff: 3
Objective: 2
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10) Quick Connect manufactures high-tech cell phones. Quick Connect has a policy of adding a 20%
markup to full costs and currently has excess capacity. The following information pertains to the
company's normal operations per month:
Output units 1600 phones
Direct manufacturing labor-hours 1000 hours

Direct manufacturing labor per hour $6.40
Fixed manufacturing overhead costs $48,000
Marketing and distribution costs $65,600
For long-run pricing of the cell phones, what price will most likely be used by Quick Connect?
A) $32.75
B) $91.00
C) $123.75
D) $148.50
Answer: D
Explanation:
Direct materials $20 $20
Direct manufacturing labor ($6.40 × 1000/1600) 4
Variable manufacturing ($14,000/1600) 8.75
Fixed manufacturing ($48,000/1600) 30
Product and process design costs ($32,000/1600) 20
Marketing and distribution ($65,600/1600) 41.00
Full cost per unit 123.75
Markup (20%) 24.75
Diff: 3
Objective: 2
11) Which one of the following activities would most likely be considered a long-run pricing decision?
A) one-time-only special order pricing that would result in achieving the break-even point
B) product mix adjustments in a competitive market
C) setting prices to generate a reasonable rate of return on investment
D) changing prices in response to weak demand
Answer: C
Diff: 2
Objective: 2
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12) Which of the following statements about pricing is true?
A) pricing for products sold to the federal government can be priced to include all costs of the product
including marketing costs
B) companies that sell commodity-like items usually use the cost-plus approach to pricing
C) companies in competitive markets use the market approach to pricing
D) regulators will intervene in noncompetitive industries and markets but usually will not regulate
company pricing policies in competitive industries
Answer: C
Diff: 3
Objective: 2
13) Which of the following is regarded as a purpose of cost allocation?

A) It helps in identifying the potential customers for a product.
B) It provides the profit margin earned.
C) It helps in maintaining decorum among managers.
D) It provides information for economic decisions.
Answer: D
Diff: 2
Objective: 2
14) Which of the following is true of price bidding with the federal government?
A) the price can only cover direct costs
B) the price can only cover direct costs and marketing costs
C) the price is based on costs that include fully allocated manufacturing and design costs but not include
marketing costs
D) the price can include only fixed manufacturing costs and design costs but not include marketing costs
Answer: C
Diff: 2
Objective: 2
15) In a long-run, it is worthwhile to sell a product only if the selling price exceeds ________.
A) the total of all the direct costs of the product
B) the total manufacturing costs of the product
C) the total of the fixed costs of the value chain
D) full cost of the product and a markup that provides an adequate return on capital
Answer: D
Diff: 2
Objective: 2
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16) Jack's Back Porch manufactures rustic furniture. The cost accounting system estimates manufacturing
costs to be $300 per table, consisting of 60% variable costs and 40% fixed costs. The company has surplus
capacity available. It is Jack's Back Porch's policy to add a 70% markup to full costs.
Jack's Back Porch is invited to bid on a one-time-only special order to supply 150 rustic tables. What is the
lowest price Jack's Back Porch should bid on this special order?
A) $45,000
B) $18,000
C) $27,000
D) $76,500
Answer: C
Explanation: Lowest price = 150 × ($300 × 60%) = $27,000.
Diff: 2
Objective: 2
17) Cool Air Inc., manufactures single room sized air conditioners. The cost accounting system estimates
manufacturing costs to be $230 per air conditioner, consisting of 60% variable costs and 40% fixed costs.
The company has surplus capacity available. It is Cool Air Inc.'s policy to add a 30% markup to full costs.
Cool Air Inc., is invited to bid on a one-time-only special order to supply 110 air conditioners. What is the
lowest price Cool Air Inc. should bid on this special order?
A) $15,180
B) $25,300
C) $35,420
D) $32,890
Answer: A
Diff: 2
Objective: 2
18) Cool Air Inc., manufactures single room sized air conditioners. The cost accounting system estimates
manufacturing costs to be $250 per air conditioner, consisting of 80% variable costs and 20% fixed costs.
The company has surplus capacity available. It is Cool Air Inc.'s policy to add a 30% markup to full costs.
A medium sized motel chain is currently expanding and has decided to create more rooms and air
condition all of its rooms, which are currently not air conditioned. Cool Air Inc. is invited to submit a bid
to the motel chain. What per unit price will Cool Air Inc. most likely bid for this special order of 200
units? Assume that the price is being fixed for a long-term commitment.
A) $250.00 per unit
B) $200.00 per unit
C) $325.00 per unit
D) $300.00 per unit
Answer: C
Explanation: Most likely price = $250 + ($250 × 30%) = $325.00.
Diff: 2
Objective: 2
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19) Zolas' Heaters is approached by Ms. Leila, a new customer, to fulfill a large one-time-only special
order for a product similar to one offered to regular customers. Zolas' Heaters has excess capacity. The
following per unit data apply for sales to regular customers:
Direct materials $450.00

Direct manufacturing labor 160.00
Variable manufacturing support 100.00
Fixed manufacturing support 210.00
Total manufacturing costs 920.00
Markup (25% of total manufacturing costs) 230.00
For Zolas' Heaters, what is the minimum acceptable price of this one-time-only special order?
A) $710.00
B) $920.00
C) $610.00
D) $1150.00
Answer: A
Explanation: Price for special order = $450.00 + $160.00 + $100.00 = $710.00 .
Diff: 2
Objective: 2

For Golden Generator Supply, what is the minimum acceptable price of this one-time-only special order?
A) $1930.00
B) $2140.00
C) $2290.00
D) $2748.00
Answer: B
Explanation: Price for special order = $1800 + $130 + $210 = $2140.00.
Diff: 2
Objective: 2
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If Golden Generator Supply accepts the order at $2640, what is the amount contributed towards fixed
costs and profit on a sales order of 1600 units?
A) $384,000
B) $656,000
C) $1,232,000
D) $992,000
Answer: B
Explanation: Contribution per unit = $410 ($2640 - $2230). Total contribution = $656,000 ($410 × 1600).
Diff: 2
Objective: 2
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Variable costs:
Direct labor 30
Marketing costs 30
Fixed costs:
Marketing costs 10
Total costs 380
For Gracius Manufacturing, what is the minimum acceptable price of this one-time-only special order?
A) $120
B) $160
C) $190
D) $380
Answer: C
Explanation: Price for special order = $90 + $30 + $40 + $30 = $190.
Diff: 2
Objective: 2
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Variable costs:
Direct labor 30
Marketing costs 10
Fixed costs:
Marketing costs 40
Total costs 360
What is the full cost of the product per unit for Gracius Manufacturing?
A) $90
B) $140
C) $360
D) $432
Answer: C
Diff: 1
Objective: 2
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24) Grounded Coffee Products manufactures coffee tables. Grounded Coffee Products has a policy of
adding a 10% markup to full costs and currently has excess capacity. The following information pertains
to the company's normal operations per month:
Output units 20,000 tables

Direct manufacturing labor per hour $20
Fixed manufacturing overhead costs $1,500,000
Product and process design costs $1,400,000
Marketing and distribution costs $1,000,000
Grounded Coffee Products is approached by an overseas customer to fulfill a one-time-only special order
for 5000 units. All cost relationships remain the same except for a one-time setup charge of $60,000. No
additional design, marketing, or distribution costs will be incurred. What is the minimum acceptable bid
per unit on this one-time-only special order? (Round your final answer to the nearest cent.)
A) $184.00
B) $484.00
C) $172.00
D) $238.00
Answer: A
Explanation: Direct materials ($140 x 5000) $700,000
Direct manufacturing labor ((($20 x 14,000) / 20,000) x 5000) 70,000
Variable manufacturing overhead(($360,000 / 20,000) x 5000) 90,000
Setup charge 60,000
Minimum acceptable bid $920,000
Minimum acceptable bid per unit = $920,000 / 5000 units = 184.00

Diff: 3
Objective: 2
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25) Quick Connect manufactures high-tech cell phones. Quick Connect has a policy of adding a 25%
markup to full costs and currently has excess capacity. The following information pertains to the
Output units 1500 phones

Direct manufacturing labor-hours 1200 hours

Quick Connect Products is approached by an overseas customer to fulfill a one-time-only special order
for 150 units. All cost relationships remain the same except for a one-time setup charge of $2025. No
additional design, marketing, or distribution costs will be incurred. What is the minimum acceptable bid
per unit on this one-time-only special order?
A) $30.20
B) $173.20
C) $186.70
D) $188.50
Answer: C
Explanation: Direct materials per unit $23.00
Direct manufacturing labor cost per unit (1200 / 1500) × $9 7.20
Variable manufacturing overhead cost per unit (214,500 / 1500) 143.00
Setup charges per unit ($2025/150) 13.50
Minimum acceptable bid per unit $186.70
Diff: 3
Objective: 2
26) Which of the following explains the cost-plus approach to pricing decisions?
A) arriving at a price for the product based on the competitive pricing prevalent in the market
B) arriving at a price based on the perceived value to a customer given the cost of design and added
features
C) arriving at a price based on the demand and supply trends in the market
D) arriving at a price that earns a target return on investment
Answer: D
Diff: 1
Objective: 2
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27) Cost allocation is not required to cost inventories for reporting to external parties.
Answer: FALSE
Explanation: Cost allocation helps in costing inventories for both internal and external users.
Diff: 3
Objective: 2
28) An example of why a manager would perform cost allocations for economic decisions would be to
cost inventories for reporting to the tax authorities.
Answer: FALSE
Explanation: An example would be to use cost allocations to decide on the selling price for a product or a
service. Another example would be to decide whether to add a new product or service.
Diff: 2
Objective: 2
29) One purpose of cost allocations is to justify costs to establish a "fair" price, often required by law and
government contracts.
Answer: TRUE
Diff: 3
Objective: 2
30) Two different approaches to pricing decisions are market based and cost-plus.
Answer: TRUE
Diff: 3
Objective: 2
31) Long-run pricing is an operational decision and not a strategic decision as perceived by many.
Answer: FALSE
customers.
Diff: 3
Objective: 2
32) In long-run pricing, decisions should consider all manufacturing and non-manufacturing costs but
should consider all future direct and indirect costs as irrelevant.
Answer: FALSE
Explanation: Long-run costs include all future direct and indirect costs.
Diff: 3
Objective: 2
33) Cost allocation data could be a valuable input to encourage design of products that are simpler to
manufacture and less costly to service.
Answer: TRUE
Diff: 2
Objective: 2
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34) Companies operating in competitive markets generally use the cost-plus approach to price products.
Answer: FALSE
Explanation: Companies in competitive markets generally use the market based approach to price
products.
Diff: 2
Objective: 2
35) Companies operating in competitive markets should ideally use cost-plus approach to pricing.
Answer: FALSE
Explanation: Companies operating in competitive markets should ideally use market-plus approach to
pricing.
Diff: 2
Objective: 2
36) Greentree Incorporated manufactures rustic furniture. The cost accounting system estimates
manufacturing costs to be $120 per table, consisting of 60% variable costs and 40% fixed costs. The
company has surplus capacity available. It is Greentree's policy to add a 30% markup to full costs.
a. Greentree Incorporated is invited to bid on an order to supply 100 rustic tables. What is the lowest
price Greentree should bid on this one-time-only special order?
b. A large hotel chain is currently expanding and has decided to decorate all new hotels using the rustic
style. Greentree Incorporated is invited to submit a bid to the hotel chain. What is the lowest price per
unit Greentree should bid on this long-term order?
Answer:
a. The lowest price on the one-time special order = $120 × .60 × 100 tables = $7,200.
In other words, Greentreeʹs bid should allow for recovery of its variable costs at a minimum.
b. The lowest price on the long-term hotel chain order is = $120 + (30% × $120) = $156.
In other words, on this long-term order, Greentree should target obtaining a price which achieves
their policy of adding a 30% markup to full costs.
Diff: 2
Objective: 2
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37) Longball Company manufactures basketball backboards. The following information pertains to the
Output units 15,000 boards

Machine-hours 4,000 hours

Required:
a. For long-run pricing, what is the full-cost base per unit?
b. Longball Company is approached by an overseas city to fulfill a one-time-only special order for 1,000
units. All cost relationships remain the same except for an additional one-time setup charge of $40,000.
No additional design, marketing, or distribution costs will be incurred. What is the minimum acceptable
bid per unit on this one-time-only special order?
Answer:
a. Direct materials $100.00
Direct manufacturing labor ($12 × 5,000)/15,000 4.00
Variable manufacturing ($150,000/15,000) 10.00
Fixed manufacturing ($300,000/15,000) 20.00
Marketing and distribution ($250,000/15,000) 16.67
Research and development ($200,000/15,000) 13.33
Total $164.00
b. Direct materials $100.00

Variable manufacturing 10.00
Setup ($40,000 / 1,000) 40.00
Total $154.00
Diff: 2
Objective: 2
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38) Explain the differences between short-run pricing decisions and long-run pricing decisions.
Answer: Short-run pricing decisions typically have a time horizon of less than a year and include such
decisions such as (a) pricing a one-time-only special order with no long-run implications and (b)
adjusting product mix and output volume in a competitive market place. Two key differences affect
pricing for the long-run versus the short-run.
1. Fixed costs are often irrelevant for the short-run and are generally relevant in the long-run because they
can be altered in the long-run.
2. Profit Margins in the long-run pricing decisions are often set to earn a reasonable return on investment.
Short-run pricing decisions is more opportunistic. Prices are decreased when demand is weak and
increased when demand is strong.
Diff: 2
Objective: 2
13.3 Objective 13.3
1) Which of the following is true of target pricing?

A) it is used for short-term pricing decisions.
B) it is one form of cost-based pricing.
C) a price is an estimate of customers' perceived value of the product.
D) a price is calculated by adding a markup component to the cost base.
Answer: C
Diff: 2
Objective: 3
2) Which of the following is true of value engineering?

A) It is the process of building a new product by first determining the selling price of the product.
B) It is the process by which a company analyzes its own process to reduce cost.
C) It is the process by which a systematic evaluation of all aspects of the value chain, with the objective of
reducing costs and achieving a predetermined quality level.
D) It is the process by which the competitor's products are disassembled and analyzed.
Answer: C
Diff: 2
Objective: 3
3) Short-run prices should at least recover ________.

A) full cost of producing a product
B) fixed manufacturing overhead
C) variable cost of producing a product
D) variable and fixed manufacturing overhead
Answer: C
Diff: 3
Objective: 2
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4) Relevant costs for target pricing are ________.
A) variable manufacturing costs
B) variable manufacturing and variable nonmanufacturing costs
C) all fixed costs
D) all future costs, both variable and fixed
Answer: D
Diff: 2
Objective: 3
5) Place the following steps for the implementation of target costing in order:
A = Derive a target cost

B = Develop a target price
C = Perform value engineering
D = Determine target operating income
A) B D A C
B) B A D C
C) A D B C
D) A B C D
Answer: B
Diff: 2
Objective: 3
6) Which of the following is an objective of value engineering?

A) to reduce cost by eliminating all value-added activities
B) to streamline and add non-value added activities
C) to reduce the total cost of the product
D) to understand competitors' product design
Answer: C
Diff: 3
Objective: 3
7) Managers need to understand customers because ________.

A) they are the key in influencing the board decisions and help in formulating policies with the suppliers
B) they guide the managers to formulate pricing policies
C) they are more knowledgeable as they easy access to price and other information online
D) they influence the costing decisions of the product
Answer: C
Diff: 2
Objective: 3
23
8) Which of the following identifies an estimated price customers are willing to pay and then computes
the cost to be achieved to earn the desired profit.
A) Cost-plus pricing
B) Target costing
C) Kaizen costing
D) Peak-load costing
Answer: B
Diff: 1
Objective: 3
9) Which of the following is true of target costing?

A) the target cost is the target price minus the target operating income per unit
B) the target cost includes all past costs to produce the product
C) input from suppliers and distributors are not relevant.
D) a key goal is to minimize value added activities of a product.
Answer: A
Diff: 3
Objective: 3
10) In relation to target costing, which of the following best describes target cost per unit?
A) It is the targeted cost of producing one unit to achieve the current year's budgeted profit.
B) It is the estimated long-run cost of a product that enables the company to achieve its target operating
income.
C) It is the cost that can be achieved by ensuring that the company produced its products at maximum
efficiency.
D) It is the budgeted cost that the company estimates in producing a unit in the current budget period.
Answer: B
Diff: 3
Objective: 3
11) When target costing and target pricing are used together ________.
A) the target cost is established first, then the target price
B) the target cost is the estimated long-run cost that enables a product or service to achieve a desired
profit
C) the focus of target pricing is to undercut the competition
D) target costs are generally higher than current costs
Answer: B
Diff: 3
Objective: 3
24
12) The product strategy in which companies first determine the price at which they can sell a new
product and then design a product that can be produced at a low enough cost to provide adequate
operating income is referred to as ________.
A) cost-plus pricing
B) target costing
C) kaizen costing
D) full costing
Answer: B
Diff: 1
Objective: 3
13) After conducting a market research study, Magnificent Manufacturing decided to produce a new
interior door to complement its exterior door line. It is estimated that the new interior door can be sold at
a target price of $270. The annual target sales volume for interior doors is 29,000. Magnificent has target
operating income of 40% of sales.
What are target sales revenues?

A) $3,132,000
B) $4,698,000
C) $7,830,000
D) $10,962,000
Answer: C
Explanation: Target sales revenue = $270 × 29,000 = $7,830,000.
Diff: 1
Objective: 3
What is the target operating income?

A) $2,800,000
B) $4,200,000
C) $7,000,000
D) $9,800,000
Answer: A
Explanation: Estimated sales revenue = $250 × 28,000 units = $7,000,000.
Target operating income = $7,000,000 × 40% = $2,800,000.
Diff: 2
Objective: 3
25
What is the target cost?

A) $6,048,000
B) $5,040,000
C) $4,032,000
D) $1,008,000
Answer: C
Target cost = $5,040,000 - $1,008,000 = $4,032,000.
Diff: 2
Objective: 3
What is the target cost for each interior door?

A) $364
B) $260
C) $156
D) $104
Answer: C
Target cost = $5,200,000 - $2,080,000 = $3,120,000.
Target cost per unit = $3,120,000 / 20,000 units = $156 .
Diff: 2
Objective: 3
26
17) Sales of Granite City Products Inc. have been on a steady decline for the last 12 months. A market
research study conducted revealed that the product of Granite City Products Inc. can be sold only for
$440 as opposed to the current market price charged of $540 per unit. Granite City Products Inc. has
decided to revise its sales price to $440. The annual sales target volume of the product after price revision
is 260 units. Granite City Products Inc. wants to earn 30% on its sales amount.
What are the target sales revenues?

A) $148,720
B) $114,400
C) $80,080
D) $42,120
Answer: B
Explanation: The target sales revenues is $114,400 ($440 × 260).
Diff: 2
Objective: 3
What is the target operating income?

A) $82,320
B) $35,280
C) $117,600
D) $152,880
Answer: B
The target operating income is $35,280 ($117,600 × 30%).
Diff: 2
Objective: 3
27
What is the total target cost?

A) $140,000
B) $60,000
C) $100,000
D) $40,000
Answer: B
The target cost is $60,000 ($100,000 - $40,000).
Diff: 2
Objective: 3
What is the target cost per unit?

A) $625.00
B) $336.00
C) $480.00
D) $145.00
Answer: B
The target cost is $94,080 ($134,400 - $40,320).
The target cost per unit is $94,080 / 280 = $336.00
Diff: 2
Objective: 3
28
21) Block Island TV currently sells large televisions for $380. It has costs of $290. A competitor is bringing
a new large television to market that will sell for $310. Management believes it must lower the price to
$310 to compete in the market for large televisions. Marketing believes that the new price will cause sales
to increase by 10%, even with a new competitor in the market. Block Island TV sales are currently 110,000
televisions per year.
What is the target cost per unit if target operating income is 35% of sales?
A) $108.50
B) $133.00
C) $201.50
D) $247.00
Answer: C
Explanation: $310 - ($310 × 0.35) = $201.50
Diff: 2
Objective: 3
What is the change in operating income if marketing is correct and only the sales price is changed?
A) $6,600,000
B) $3,000,000
C) $(6,600,000)
D) ($2,400,000)
Answer: D
Explanation: (165,000 x (360 - 320)) - (150,000 x (380- 320)) = $(2,400,000)
Diff: 3
Objective: 3
29
What is the target cost if the company wants to maintain its same income level, and marketing is correct
(rounded to the nearest cent)?
A) $224.00
B) $238.18
C) $230.00
D) $290.00
Answer: B
Explanation: Increase in sales: 120,000 x (1 + 10%) = 132,000
Current income = 120,000 × ($380 - $290) = $10,800,000
Target cost y: $10,800,000 = (132,000 × $320) - 132,000y
y = $31,440,000/132,000 = $238.18
Diff: 3
Objective: 3
24) Twenty Technologies, currently sells 17" monitors for $280. It has costs of $220. A competitor is
bringing a new 17" monitor to market that will sell for $230. Management believes it must lower the price
to $230 to compete in the market for 17" monitors. Twenty Technologies believes that the new price will
cause sales to increase by 10%, even with a new competitor in the market. Twenty Technologies' sales are
currently 5100 monitors per year.
What is the target cost if the target operating income is 25% of sales?
A) $230.00
B) $210.00
C) $172.50
D) $165.00
Answer: C
Explanation: Increase in sales: 5100x (1 + 10%) = 5610
Operating income = $57.50 ($230 × 0.25)
The target cost = $172.50 ($230 - $57.50).
Diff: 2
Objective: 3
30
25) Twenty Technologies, currently sells 17" monitors for $270. It has costs of $230. A competitor is
bringing a new 17" monitor to market that will sell for $245. Management believes it must lower the price
to $245 to compete in the market for 17" monitors. Twenty Technologies believes that the new price will
cause sales to increase by 10%, even with a new competitor in the market. Twenty Technologies's sales
are currently 5200 monitors per year.
What is the change in operating income if marketing manager is correct and only the sales price is
changed?
A) $130,000
B) $122,200
C) ($122,200)
D) ($130,000)
Answer: C
Explanation: Increase in sales: 5200 x (1 + 10%) = 5720
Operating income with selling price of $270 = 208,000 (5200 × ($270 - $230).
Operating income with new selling price of $230 = $85,800 (5720 × ($245 - $230). Therefore, Silicon's
operating income will reduce by $122,200 ($208,000 - $85,800).
Diff: 3
Objective: 3
26) All of the following are typical results of value engineering except:
A) assembling and analyzing competitor's product.
B) setting the target cost and then designing the product.
C) changes in material specifications to reduce costs
D) modifications in process methods
Answer: A
Diff: 3
Objective: 3
27) When the firm uses the target-costing approach to pricing, the target cost per unit is the difference
between the per unit target price and the per unit target ________.
A) contribution margin
B) operating income
C) cost of goods sold
D) gross margin
Answer: B
Diff: 2
Objective: 3
31
28) Xtech Games Inc. has a new video game cassette for the upcoming holiday season. It is trying to
determine the target cost for the game if the selling price per unit will be set at $70, the going price for
video games, and the firm wants to earn a target operating income of 30% of sales. What will be the target
cost per unit for the new game?
A) $70
B) $49
C) $30
D) $21
Answer: B
Explanation: The target operating income is $21 i.e. 30% of $70. Therefore, the target cost per unit will be
$49 ($70 - $21 ).
Diff: 2
Objective: 3
29) Bouchard Company manufactures a product that currently has a full cost of $700. Its target operating
income per unit is $80 and management's budgets assume that same target operating income per unit for
the foreseeable future. To stay competitive, Bouchard management believes it must cut its price by 25%.
What will be its new target cost?
A) $700
B) $505.00
C) $585.00
D) $80
Answer: B
Explanation: The price now is $780 ($700 + $80). A 25% drop would bring the price down to
The new price of $585.00 less the target profit of $80 per unit would equal $505.00.
Diff: 2
Objective: 3
30) Bouchard Company manufactures a product that currently has a full cost of $700. Its target operating
income per unit is $50 and management's budgets assume that same target operating income per unit for
the foreseeable future. To stay competitive, Bouchard management believes it must cut its price by 15%.
What will be its new target price?
A) $700
B) $587.50
C) $637.50
D) $50
Answer: C
Diff: 2
Objective: 3
32
31) In case of pricing for special orders, managers include all future costs, variable costs, and costs that
are fixed in the short run.
Answer: FALSE
Explanation: In case of pricing for special orders, managers consider only those costs that change in the
short run.
Diff: 2
Objective: 3
32) Reverse engineering has the objective of reducing costs while still satisfying customer needs.
Answer: FALSE
Explanation: 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.
Diff: 1
Objective: 3
33) Rework is an example of a value-added cost.

Answer: FALSE
Explanation: Rework is an example of a nonvalue-added cost.
Diff: 1
Objective: 3
34) A value-added cost is a cost that, if eliminated,would increase the actual or perceived value or utility
(usefulness) customers experience from using the product or service.
Answer: FALSE
Explanation: A value-added cost is a cost that, if eliminated,would reduce the actual or perceived value
or utility (usefulness) customers experience from using the product or service.
Diff: 2
Objective: 3
35) Value engineering seeks to reduce value-added costs as well as nonvalue-added costs.
Answer: TRUE
Diff: 3
Objective: 3
36) Value engineering entails improvements in product designs, and changes in materials specifications.
Answer: TRUE
Diff: 2
Objective: 3
33
37) Market research can be an effective tool in understanding the features customers value.
Answer: TRUE
Diff: 3
Objective: 3
38) Target cost per unit is arrived at by adding the target operating income to the target price of the
product.
Answer: FALSE
Explanation: Target cost per unit is the target price minus target operating income per unit.
Diff: 2
Objective: 3
39) Reverse engineering can be used to analyze competitors' products to determine product designs and
materials and to understand the technologies competitors use.
Answer: TRUE
Diff: 1
Objective: 3
40) Whether the firm uses the market-based approach or the cost-based approach for pricing decisions,
the market forces must be considered.
Answer: TRUE
Diff: 2
Objective: 3
41) Developing a product that satisfies the need of the potential customers is the first step in
implementing target pricing and target costing.
Answer: TRUE
Diff: 1
Objective: 3
34
42) Fairhaven Composite Poles manufactures fishing poles that have a price of $125.00. It has costs of $90.
A competitor is introducing a new fishing pole that will sell for $115.00. Management believes it must
lower the price to $110.00 to compete in the highly cost-conscious fishing pole market. Marketing
department believes that the new price will allow Carbon to maintain the current sales level of 200,000
poles per year.
Required:
a. What is the target cost for the new price if target operating income is 25% of sales?
b. What is the change in operating income for the year if only the selling price is changed and costs
remain the same?
c. What is the target cost per unit if the selling price is reduced to $110.00 and the company wants to
maintain its same income level?
Answer:
a. Target cost = $115 - ($115 × 25%) = $86.25.
b. Change in operating income = [200,000 × ($125 -$90)] - [200,000 × ($115 - 90)] = − $2,000,000.
c. Current operating income = [200,000 × (125 - 90)] = $7,000,000

Estimated sales revenue = 200,000 × $115 = 23,000,000
Target cost per unit = [($23,000,000 - $7,000,000) / 200,000] = $80.
Diff: 2
Objective: 3
35
43) Julian Pharma manufactures hospital beds. Its most popular model, Deluxe, sells for $5,000. It has
variable costs totaling $2,650 and fixed costs of $1,200 per unit, based on an average production run of
5,000 units. It normally has four production runs a year, with $400,000 in setup costs each time. Plant
capacity can handle up to six runs a year for a total of 30,000 beds.
A competitor is introducing a new hospital bed similar to Deluxe that will sell for $3,800. Management
believes it must lower the price to compete. The marketing department believes that the new price will
increase sales by 25% a year. The plant manager thinks that production can increase by 25% with the
same level of fixed costs. The company currently sells all the Deluxe beds it can produce.
Required:
a. What is the annual operating income from Deluxe at the current price of $5,000?
b. What is the annual operating income from Deluxe if the price is reduced to $3,800 and sales in units
increase by 25%?
c. What is the target cost per unit for the new price if target operating income is 30% of sales?
Answer: a. Sales (20,000 × $5,000) 100,000,000
Costs:
Variable costs ($2,650 × 20,000) 53,000,000
Fixed costs ($1,200 × 20,000) 24,000,000
Setup costs ($400,000 × 4) 1,600,000 78,600,000
Annual operating income 21,400,000
b.
Current Sales (5,000 × 4) 20,000
Increased sales [20,000 × (1+.25)] 25,000
Sales (25,000 × $3,800) 95,000,000

Costs:
Variable costs ($2,650 × 25,000) 66,250,000
Fixed costs (same as before) 24,000,000
Setup costs ($400,000 × 5) 2,000,000 92,250,000
Annual operating income 2,750,000
c.
New selling price $3,800
Target profit $1,140
Target cost per unit $2,660
Diff: 2
Objective: 3
36
44) Marcon Tech Corp., currently sells radios for $7,000. It has costs of $5,400. A competitor is bringing a
new radio to market that will sell for $6,850. Management believes it must lower the price to $6,850 to
compete in the market for radios. The marketing department believes that the new price will cause sales
to increase by 10%, even with a new competitor in the market. Marcon's sales are currently 1,000 radios
per year.
Required:
a. What is the target cost for the new target price if target operating income is 20% of sales?
b. What is the change in operating income if marketing department is correct and only the sales price is
changed?
c. What is the target cost if the company wants to maintain its same income level, and marketing
department is correct in its estimation?
Answer:
a.
Target cost = $6,850 - ($6,850 × 0.20) = $5,480.
b.
Old operating income [1,000 × ($7,000 - $5,400)] $1,600,000.00
New operating income[(1,000 × 1.10) ×($6,850 - $5,400] 1,595,000
Change in operating income ($5,000)
c.
Current income = 1,000 × ($7,000 - $5,400) = $1,600,000
Target cost y: $1,600,000 = (1,100 × $6,850) - 1,100y
y = $5,935,000/1,100
y = $4395.45
Diff: 3
Objective: 3
37
45) Sail Safe currently sells motor boats for $60,000. It has costs of $46,500. A competitor is bringing a new
motor boat to the market that will sell for $55,000. Management believes it must lower the price to $55,000
to compete in the market for motor boats. The marketing department believes that the new price will
cause sales to increase by 12.5%, even with a new competitor in the market. Sail Safe's sales are currently
2,000 motor boats per year. 3
Required:
a. What is the target cost for the new target price if target operating income is 20% of sales?
b. What is the change in operating income if marketing department is correct and only the sales price is
changed?
c. What is the target cost if the company wants to maintain its same income level, and marketing
department is correct?
Answer: a. Target cost = $55,000 - ($55,000 × 0.20) = $44,000
b.
Old operating income [2,000 × ($60,000 - $46,500] $27,000,000.00
New operating income [(2,000 × 1.125) × ($55,000 - $46,500)] $19,125,000.00
Change in operating income ($7,875,000.00)
c.
Current income = 2,000 × ($60,000 - $46,500) = $27,000,000
Target cost y: $27,000,000 = (2,250 × $55,000) - 2250y
y = $96,750,000/2,250
y = $43,000
Diff: 3
Objective: 3
46) What are the five steps that are followed while implementing target pricing and target costing?
Answer: The following five steps are generally followed in implementing target pricing and target
costing:
1) Develop a product that satisfies the needs of potential customers.
2) Choose a target price.
3) Derive a target cost per unit by subtracting target operating income per unit from the target price.
4) Perform cost analysis.
5) Perform value engineering to achieve target cost.
Diff: 2
Objective: 3
47) What is the primary reason a firm would adopt target costing?
Answer: The primary reason a firm would adopt target costing is to reduce costs. Its unique approach is
to design costs out of products during the design stage in the product life cycle. Many firms are adopting
this approach when they cannot reduce costs further using traditional costing methods, which focus on
cost reductions in manufacturing.
Diff: 2
Objective: 3
38
13.4 Objective 13.4
1) Which of the following is a cost that, if eliminated, would reduce the actual or perceived value or
utility (usefulness) customers experience from using the product or service?
A) Non-value-added cost
B) Discretionary cost
C) Value-added cost
D) Committed cost
Answer: C
Diff: 2
Objective: 4
2) At what point are direct material costs per unit "locked in"?
A) designed
B) assembled
C) sold
D) delivered
Answer: A
Diff: 2
Objective: 4
3) When materials and supplies are used in a production facility to assemble and finish a product that
will be sold to customers, the usage of the materials and supplies is described as:
A) Cost incurrence
B) Locked-in cost
C) Opportunity cost
D) Designed-in cost
Answer: A
Diff: 3
Objective: 4
4) Making design decisions is an example of managing costs:

A) during planning phase; before they are incurred but are "locked in"
B) during the production phase; when they are incurred
C) after the production phase; after they are locked in
D) after they are committed to during the budgeting phase
Answer: A
Diff: 2
Objective: 4
39
5) Which of the following is not a step of value-engineering?
A) Understanding customer requirements and value-added and non-value added costs
B) Set a price using the market approach
C) Anticipating how costs are locked in before they are incurred
D) Using cross-functional teams to redesign products and process to reduce costs while meeting customer
needs
Answer: B
Diff: 3
Objective: 4
6) Which f the following methods focuses on reducing costs during the manufacturing stage?
A) Target costing
B) Kaizen costing
C) Cost-plus pricing
D) Life-cycle costing
Answer: B
Diff: 1
Objective: 4
7) Which of the following is an example of value added cost?

A) cost of machine breakdown
B) cost of defective products
C) rework costs
D) direct machining costs
Answer: D
Diff: 3
Objective: 4
8) In some industries, such as legal and consulting, most costs are locked in ________.
A) when they are incurred
B) during the design stage
C) during the customer-service stage
D) during the marketing stage
Answer: A
Diff: 2
Objective: 4
9) Which of the following costs can be classified into both value-added and non-value-added costs?
A) production control costs
B) machine breakdown costs
C) rework costs
D) direct material costs
Answer: A
Diff: 2
Objective: 4
40
10) A graph comparing locked-in costs with incurred costs will have ________.
A) locked-in costs rising much faster initially, but dropping to zero after the product is manufactured
B) the two cost lines running parallel until the end of the process, when they join
C) locked-in costs rising much faster initially than the incurred cost, but joining the incurred cost line at
the completion of the value-chain functions
D) no differences unless the product is manufactured inefficiently
Answer: C
Diff: 2
Objective: 4
11) Which of the following is true of locked-in costs?

A) Locked-in costs are the same as sunk costs.
B) Locked-in costs are always fixed costs.
C) Locked-in costs are incurred costs.
D) Locked-in costs are also called designed-in costs.
Answer: D
Diff: 2
Objective: 4
12) Costing systems measure ________.

A) locked in costs
B) sunk costs
C) cost incurrence
D) out of pocked costs
Answer: C
Diff: 3
Objective: 4
13) A locked-in cost is a(n) ________.

A) opportunity cost that is fixed in the short run
B) cost that can be changed in the short run
C) cost that has not yet been incurred, but based on decisions that have already been made, will be
incurred in the future
D) cost that has been incurred, but based on decisions that have already been made, will be not incurred
in the future
Answer: C
Diff: 2
Objective: 4
14) Value engineering cannot decrease value-added costs.

Answer: FALSE
Explanation: Value engineering decreases both value-added costs and non-value-added costs.
Diff: 3
Objective: 4
41
15) All costs are locked in at the design stage itself.
Answer: FALSE
Explanation: Companies focus on design decisions to reduce costs before costs get locked in. However,
not all costs are locked in at the design stage.
Diff: 2
Objective: 4
16) A non-value-added cost is a cost that, if eliminated, would reduce the actual or perceived value or
utility (usefulness) customers experience from using the product or service.
Answer: FALSE
Explanation: A non-value-added cost is a cost that, if eliminated, would not reduce the actual or
perceived value or utility customers gain from using the product or service.
Diff: 2
Objective: 4
17) A re-design of a product so that it requires fewer components to decrease ordering, receiving, testing,
and inspection costs is an example of value-engineering.
Answer: TRUE
Diff: 2
Objective: 4
18) Value engineering can have undesirable effects if the product remains in development for a long time
as the reengineering team repeatedly evaluates alternative designs.
Answer: TRUE
Explanation: Companies seek to minimize non-value-added costs because they do not provide benefits to
customers.
Diff: 1
Objective: 4
19) Supervision costs can have both value-added and non-value-added components.
Answer: TRUE
Diff: 1
Objective: 4
42
20) What are the undesirable effects of value engineering and target costing? How can these be reduced?
Answer: Unless managed properly, value engineering and target costing can have the following
undesirable effects:
(1) Employees may feel frustrated if they fail to attain target costs.
(2) The cross-functional team may add too many features just to accommodate the different wishes of
team members.
(3) A product may be in development for a long time as the team repeatedly evaluates alternative
designs.
(4) Organizational conflicts may develop as the burden of cutting costs falls unequally on different
business functions in the company's value chain, for example, more on manufacturing than on marketing.
To avoid these pitfalls, target-costing efforts should always

(1) encourage employee participation and celebrate small improvements toward achieving the target cost,
(2) focus on the customer,
(3) pay attention to schedules, and
(4) set cost-cutting targets for all value-chain functions to encourage a culture of teamwork and
cooperation.
Diff: 3
Objective: 4
21) Explain the difference between locked in costs and costs incurred. Which of these types of costs does a
traditional accounting system emphasize? At which stage of the value chain are most costs locked-in? At
which stage of the value chain are most costs incurred? What implication does this have for good cost
management?
Answer: Locked-in costs are costs that have not been incurred yet, but based on decisions that have
already been made, will be incurred in the future. Traditional accounting systems focus upon incurred
costs, or costs as they happen. Most costs are actually locked-in at the design stage. but they are not
incurred until the manufacturing stage. Good cost management depends, therefore, on a great deal of
attention given to costs at the design stage since it may not be possible to influence costs at the
manufacturing stage because the costs are locked-in at that time.
Diff: 2
Objective: 4
43

13.1 Objective 13.1: Chapter 13 Pricing Decisions and Cost Management

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13.1 Objective 13.1: Chapter 13 Pricing Decisions and Cost Management

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Cost Accounting: A Managerial Emphasis, 16e, Global Edition (Horngren)

Chapter 13 Pricing Decisions and Cost Management

13.1 Objective 13.1

3) Companies must always examine their pricing ________.

6) Which of the following statements is true of the cost of producing a product?

8) Which of the following statements is true of costs and pricing decisions?

2) Which of the following are true regarding long-run pricing decisions?

3) Which of the following is true of long-run pricing?

Direct materials $420

Direct materials $190

Output units 30,000 tables

Direct materials per unit $20

13) Which of the following is regarded as a purpose of cost allocation?

Direct materials $450.00

Direct materials $1800.00

Direct materials $1900.00

Output units 20,000 tables

Minimum acceptable bid per unit = $920,000 / 5000 units = 184.00

Output units 1500 phones

Direct materials per unit $23

Output units 15,000 boards

Direct manufacturing labor per hour $12

b. Direct materials $100.00

13.3 Objective 13.3

1) Which of the following is true of target pricing?

2) Which of the following is true of value engineering?

3) Short-run prices should at least recover ________.

A = Derive a target cost

6) Which of the following is an objective of value engineering?

7) Managers need to understand customers because ________.

9) Which of the following is true of target costing?

What are target sales revenues?

What is the target operating income?

What is the target cost?

What is the target cost for each interior door?

What are the target sales revenues?

What is the target operating income?

What is the total target cost?

What is the target cost per unit?

33) Rework is an example of a value-added cost.

c. Current operating income = [200,000 × (125 - 90)] = $7,000,000

Sales (25,000 × $3,800) 95,000,000

4) Making design decisions is an example of managing costs:

7) Which of the following is an example of value added cost?

11) Which of the following is true of locked-in costs?

12) Costing systems measure ________.

13) A locked-in cost is a(n) ________.

14) Value engineering cannot decrease value-added costs.

To avoid these pitfalls, target-costing efforts should always

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