Questions -

Q1) 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) cost of producing and delivering the product

D) All of these answers are correct.

Q2) Long-run pricing decisions:

A) have a time horizon of less than one year

B) include adjusting product mix in a competitive environment

C) and short-run pricing decisions generally have the same relevant costs

D) use prices that include a reasonable return on investment

Q3) Relevant costs for pricing a special order include:

A) existing fixed manufacturing overhead

B) nonmanufacturing costs that will not change even if the special order is accepted

C) additional setup costs for the special order

D) All of these answers are correct.

Q4) For long-run pricing decisions, using stable prices has the advantage of:

A) minimizing the need to monitor competitors' prices frequently

B) reducing the need to change cost structures frequently

C) reducing competition

D) helping to build buyer-seller relationships

Q5) For pricing decisions, full product costs:

A) include all costs that are traceable to the product

B) include all manufacturing and selling costs

C) include all direct costs plus an appropriate allocation of the indirect costs of all business functions

D) allow for the highest possible product prices

Q6) Northwoods manufactures 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 Northwoods' policy to add a 50% markup to full costs. Northwoods is invited to bid on a one-time-only special order to supply 200 rustic tables. What is the lowest price Northwoods should bid on this special order?

A) $21,600

B) $7,200

C) $12,000

D) $14,400

Q7) A large hotel chain is currently expanding and has decided to decorate all new hotels. Northwoods is invited to submit a bid to the hotel chain. What per unit price will Northwoods MOST likely bid on this long-term order?

A) $72 per unit

B) $108 per unit

C) $180 per unit

D) $120 per unit

Q8) Target pricing:

A) is used for short-term pricing decisions

B) is one form of cost-based pricing

C) estimates are based on customers' perceived value of the product

D) relevant costs are all variable costs

Q9) The department usually in the best position to identify customers' needs is the:

A) production department

B) sales and marketing department

C) design department

D) distribution department

Q10) 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

Q11) Value-added costs:

A) are costs that a customer is unwilling to pay for

B) include maintenance and repairs of the manufacturing equipment

C) are reduced through improved efficiencies

D) if eliminated, increase profitability

Q12) 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 questions 13 through 16 using the information below:

After conducting a market research study, Schultz 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 $60. The annual target sales volume for interior doors is 20,000. Schultz has target operating income of 20% of sales.

Q13) What are target sales revenues?

A) $960,000

B) $2,000,000

C) $1,200,000

D) None of these answers is correct.

Q14) What is the target operating income?

A) $240,000

B) $300,000

C) $192,000

D) $180,000

Q15) What is the target cost?

A) $900,000

B) $960,000

C) $1,260,000

D) $1,008,000

Q16) What is the target cost for each interior door?

A) $48

B) $58

C) $60

D) $45

Q17) Direct material costs are locked in when they are:

A) designed

B) assembled

C) sold

D) delivered

Q18) For most products, the majority of costs are incurred during the ________ business function of the value chain.

A) design

B) manufacturing

C) customer-service

D) marketing

Q19) ________ focuses on reducing costs during the manufacturing stage.

A) Target costing

B) Kaizen costing

C) Cost-plus pricing

D) Life-cycle costing

Q20) The cost-plus pricing approach is generally in the form:

A) Cost base + Markup component = Prospective selling price

B) Prospective selling price - Cost base = Markup component

C) Cost base + Gross margin = Prospective selling price

D) Variable cost + Fixed cost + Contribution margin = Prospective selling price

Q21) Life-cycle costing is the name given to:

A) a method of cost planning to reduce manufacturing costs to targeted levels

B) the process of examining each component of a product to determine whether its cost can be reduced

C) the process of managing all costs along the value chain

D) a system that focuses on reducing costs during the manufacturing cycle

Q22) When demand for a product is inelastic and prices are increased, usually demand will:

A) increase, and operating profits will increase

B) remain the same, and operating profits will increase

C) decrease, and operating profits will decrease

D) remain the same, and operating profits will decrease

Q23) Costs are a major factor:

A) when demand is price-inelastic

B) when demand is price-elastic

C) when the opportunity for price discrimination exists

D) for peak-load pricing

Q24) 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

Q25) ________ starts with estimated product costs and next adds desired operating income.

A) Cost-plus pricing

B) Target costing

C) Kaizen costing

D) Life-cycle budgeting

Q26) ________ is the fundamental rethinking and redesign of business processes to achieve improvements in critical measures of performance such as cost, quality, service, speed, and customer satisfaction.

A) Strategy

B) Customer perspective

C) Learning and growth perspective

D) Reengineering

Q27) Which of the following is NOT true of a good balanced scorecard?

A) It tells the story of a company's strategy by articulating a sequence of cause-and-effect relationships.

B) It helps to communicate corporate strategy to all members of the organization.

C) It identifies all measures, whether significant or small, that help to implement strategy.

D) It uses nonfinancial measures to serve as leading indicators of future financial performance.

Q28) Managers need to evaluate the success of a strategy by:

A) evaluating budget-to-actual variances

B) doing a cost-benefit analysis

C) linking the sources of operating-income increases to the strategy

D) evaluating the level of bonus compensation

Q29) Which component of strategy measures the changes in operating income attributed solely to an increase in the quantity of output between Year 1 and Year 2?

A) the growth component

B) the price-recovery component

C) the productivity component

D) the cost leadership component

Q30) Which component of strategy measures the change in operating income attributable solely to changes in a company's profit margins between Year 1 and Year 2?

A) the growth component

B) the price-recovery component

C) the productivity component

D) the cost leadership component

Q31) Which component of strategy measures the reduction in costs attributable to a reduction in the quantity of inputs used in Year 2 relative to the quantity of inputs that would have been used in Year 1 to produce the Year 2 output?

A) the growth component

B) the price-recovery component

C) the productivity component

D) the cost leadership component

Q32) Discretionary costs:

A) result from a cause-and-effect relationship between the output and the input

B) include advertising and executive training costs

C) can be variable or fixed in the short run

D) pertain to processes that are detailed

Q33) Rightsizing is another term for:

A) growth management

B) downsizing

C) price recovery analysis

D) cost recovery analysis

Q34) ________ is an organization's ability to achieve low costs relative to competitors through productivity and efficiency improvements, elimination of waste, and tight cost control.

A) Strategy

B) Product differentiation

C) Cost leadership

D) Reengineering

Q35) ________ translates an organization's mission and strategy into a comprehensive set of performance measures that provide the framework for implementing its strategy.

A) Productivity component

B) Product differentiation

C) Cost leadership

D) Balanced scorecard