Price takers are firms that control the price of the product they sell rather than having market forces control the price.
False
Jackson Manufacturing is introducing a new product with a unit selling price of $12.50. The product required an investment of $500,000, and the company requires a 20% ROI. Projected sales are 100,000 units. Compute the target cost per unit.
$11.50.
Target cost is computed as: $12.50 - [($500,000 � 20%) / 100,000]
Venture Inc. wants to introduce a new product with a unit selling price of $25. The product will require an investment of $1,000,000, and the company desires a 20% ROI. Projected sales are 50,000 units. Compute the target cost per unit.
$21.
Target cost is computed as: $25 - [($1,000,000 � 20%) / 50,000]
Target cost related to price and profit means that:
price and desired profit must be determined before costs.
Which of the following are factors that can affect pricing decisions?
All of these.
*Fixed and variable costs.
*Price sensitivity.
*Patent or copyright protection.
Target cost is computed by subtracting:
desired profit from market price.
Southern Firecracker Company provides the following information for the new product it recently introduced.
*Total unit cost $1.25
*Desired ROI per unit $.50
*Target selling price $1.75
What is Southern Firecracker Company's percentage markup on cost?
40%.
Markup on cost is determined by dividing the desired ROI per unit by the total cost per unit, or $.50/$1.25
Knox Company has a new product with a projected selling price of $6.00 each. It estimates that it could sell 100,000 units annually. Variable costs are expected to be $2.75. Knox anticipates a profit of $2.50 per unit. The target cost for the product is:
$3.50.
The target cost for the product is selling price less desired profit or $6.00 - $2.50
When a firm operates in a competitive market, it is important to emphasize cost minimization and control.
True
In a non-competitive market, prices are a function of the cost of the product or service.
True
Cost-plus pricing takes into consideration issues relating to demand for the product.
False.
Cost-plus pricing does NOT take into consideration issues relating to demand for the product.
Gastrique Company provides the following information for the new product it recently introduced.
*Total unit cost $125
*Desired ROI per unit $20
*Target selling price $145
What would be Gastrique Company's percentage markup on cost?
16%.
Markup on cost is determined by dividing the desired ROI per unit by the total cost per unit, or $20/$125
Chattanooga Company has examined the market for toy train locomotives. It believes there is a market niche in which it can sell locomotives at $60 each. It estimates that it could sell 10,000 of these locomotives annually. Variable costs to make a locomot
$47.50.
The target cost for the locomotive is selling price less desired profit or $60 - $12.50
Cost-plus pricing means that:
Selling price = Cost + (Markup percentage x Cost).
Savannah Company's most successful product has the following unit data: selling price $2.50, variable costs $1.50, and fixed costs $.50. What is the markup percentage?
25%
The markup percentage is [$2.50 - ($1.50 + $.50) / $2.00] or 25%
Assume the same information as question 35, except that the Plastics Division has excess capacity of 10,000 units for plastic moldings. What is the minimum transfer price that the Plastics Division should accept?
$30.
Since we assume the Plastics Division has excess capacity of 10,000 units, the minimum transfer price is equal to the VC per unit of $30.
The major difficulty with the market-based system for determining transfer prices is that
a well-defined market does not exist in many cases.
Which of the following is not an acceptable approach to determine a transfer price?
Arbitrary transfer price.
Which of the following statements concerning transfer prices between divisions located in countries with different tax rates is true?
The transfer price may lead to unfair evaluations of the division manager in the country with the higher tax rate.
When transfers between divisions located in countries with different tax rates take place, which of the following will be true?
The company will have an incentive to report less income in countries with high tax rates.
In absorption-cost pricing, which of the following are included in the markup?
Variable and fixed selling and administrative costs and desired ROI.
Under which cost approach to pricing must the markup include all fixed costs and the target ROI?
Variable-cost pricing.
Budgeting facilitates the coordination of activities within the business by correlating the goals of each segment with overall company objectives.
True
Which one of the following is not a benefit of budgeting?
It provides assurance that the company will achieve its objectives.
Which one of the following is a primary benefit of budgeting?
It provides definite objectives for evaluating performance.
Which of the following is not a benefit of budgeting?
It enables disciplinary action to be taken at every level of responsibility.
A budget
is the primary method of communicating agreed-upon objectives throughout an organization.
Which of the following are correct statements about a budget?
All of these options are correct statements.
*It is a formal written statement of management's plans for a specified future time period.
*It becomes an important basis for evaluating performance.
*It promotes efficiency and serves as a deterrent to waste
The primary benefits of budgeting include all of the following except it
requires only top management to plan ahead and formalize goals.
The most common budget period is one month.
False.
The most common budget period is one year.
The chief accountant (controller) has responsibility for coordinating the preparation of the budget.
False.
The budget committee has responsibility for coordinating the preparation of the budget.
Which one of the following is necessary if a company expects its budget to be effective?
The company must have a sound organizational structure.
Which of the following is one of the factors that must be present if budgets are to be effective?
The company must have a sound organizational structure.
Time-and-material pricing is widely used in service industries.
True.
In time-and-material pricing, the labor charge includes all of the following except:
costs of receiving and handling.
Wilmington Company charges $50 per hour for labor and has a 35% material loading charge. A recent job required 25 hours and $1,000 of materials. Calculate the total cost of the job.
$2,600.
The total bill is ($50 � 25 hours) + ($1,000 � 1.35)
Budget reports are prepared:
all of these.
*daily.
*weekly.
*monthly.
A production manager in a manufacturing company would most likely receive a:
scrap report.
Budgetary control involves
all of these options are part of budgetary control.
*developing the budget.
*analyzing differences between actual and budget.
*taking corrective action.
A static budget report is appropriate for variable manufacturing costs.
False.
A static budget report is appropriate for fixed, not variable, manufacturing costs.
Ace Company monitors its managers' performance using a static budget. Which one of the following situations will provide the fairest evaluation for those managers?
When the company performs at the same activity level as the static budget level.
For which of the following costs is a static budget most appropriate?
Fixed overhead costs.
A static budget is
a projection of budget data at a single level of activity.
A static budget is useful in controlling costs when cost behavior is:
fixed.
A projection of budget data at one level of activity is a
static budget.
A static budget report is appropriate for
fixed manufacturing costs and fixed selling & administrative expenses.
A flexible budget projects budget data for one level of activity.
False.
A flexible budget projects budget data for various levels of activity.
The first step in developing a flexible budget is to identify the activity index and the relevant range of activity.
True.
Management by exception means that top management will investigate every budget difference.
False.
Management by exception means that top management will investigate only material budget differences.
What budgeted amounts appear on the flexible budget report?
Budgeted amounts for the actual activity level achieved.
Which one of the following is a step that management must perform when developing the flexible budget?
Identify the activity index and the relevant range of activity.
At zero direct labor hours in a flexible budget graph, the total budgeted cost line intersects the vertical axis at $30,000. At 10,000 direct labor hours, a horizontal line drawn from the total budgeted cost line intersects the vertical axis at $90,000. F
$30,000 fixed plus $6 per direct labor hour variable.
The intersection point of $90,000 is total budgeted costs, or budgeted fixed costs plus budgeted variable costs. Budgeted variable costs are $60,000 [$90,000 (Total costs) - $30,000 (Fixed costs)]. Bud
At 9,000 direct labor hours, the flexible budget for indirect materials is $27,000. If $28,000 of indirect materials costs are incurred at 9,200 direct labor hours, the flexible budget report should show the following difference for indirect materials
$400 unfavorable.
Budgeted indirect materials per direct labor hour (DLH) is $3 ($27,000/9,000). At an activity level of 9,200 direct labor hours, budgeted indirect materials are $27,600 (9,200 X $3 per DLH). Since actual indirect materials cost is $400 m
A projection of budget data for various levels of activity is a
flexible budget.