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Exam 13: Pricing Decisions and Cost Management

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Question 81

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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

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Question 82

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Which of the following best describes customer life-cycle costs?

A) costs incurred by the selling company to satisfy the customer.
B) costs to the customers for buying and using a product.
C) same as the selling life-cycle prices.
D) replacement costs of using a product or service.

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Question 83

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Short-run prices should at least recover ________.

Samuels Company is considering pricing its 10,000-gallon petroleum tanks using either variable manufacturing or full product costs as the base. The variable cost base provides a prospective price of $6,000 and the full cost base provides a prospective price of $6,100. Which of the following explains the difference in the two prices?

What are the undesirable effects of value engineering and target costing? How can these be reduced?

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 $240. The annual target sales volume for interior doors is 21,000. Magnificent has target operating income of 20% of sales. What is the target cost?

In a perfectly competitive market, which of the following is a primary factor influencing pricing decisions?

Velim Electronics manufactures electric shavers and is considering decreasing the price by $3 a unit for the coming year. With a $3 price decrease, the unit demand is expected to increase by 25%, and a high volume materials discount is expected to decrease the variable costs per unit by $2 per unit. Would you recommend the $3 price decrease?

What is the primary reason a firm would adopt target costing?

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 ________.

Rework is an example of a value-added cost.

Which of the following is the best description of price discrimination?

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 $260. The annual target sales volume for interior doors is 20,000. Magnificent has target operating income of 40% of sales. What is the target cost for each interior door?

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?

Value engineering entails improvements in product designs, and changes in materials specifications.

In case of pricing for special orders, managers include all future costs, variable costs, and costs that are fixed in the short run.

Monopolists can charge prices without limitations as there is no competition for the product or service the monopolist provides.

Life-cycle budgeting estimates the costs and revenues attributed to a product from its initial R&D through production of a prototype product.

A hotel in Orlando, Florida, experiences peak periods and slower times. How should prices be adjusted during peak periods? During slow times? Why?

Wilde Corporation budgeted the following costs for the production of its one and only product for the next fiscal year: Wilde has an annual target operating income of $920,000. The markup percentage for setting prices as a percentage of total manufacturing costs is ________.