Test Bank for Managerial Accounting, Seventh Edition

Test Bank for Managerial Accounting, Seventh Edition 26. Factors that can affect pricing decisions include all of the following except a. cost considerations. b. environment. c. pricing objectives. d. All of these are factors. Ans: d, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Marketing/Client Focus, AICPA FN: Decision Modeling, AICPA PC: Project Management, IMA: Business Economics 27. In most cases, prices are set by the a. customers. b. competitive market. c. largest competitor. d. selling company. Ans: b, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Marketing/Client Focus, AICPA FN: Decision Modeling, AICPA PC: Project Management, IMA: Business Economics 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. Ans: c, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Marketing/Client Focus, AICPA FN: Decision Modeling, AICPA PC: Project Management, IMA: Business Economics 29. Prices are set by the competitive market when a. the product is specially made for a customer. b. there are no other producers capable of manufacturing a similar item. c. a company can effectively differentiate its product from others. d. a product is not easily distinguished from competing products. Ans: d, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Marketing/Client Focus, AICPA FN: Decision Modeling, AICPA PC: Project Management, IMA: Business Economics 30. All of the following are factors that can affect pricing decisions except a. cost considerations. b. demand. c. environment. d. All of these are factors. Ans: d, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Marketing/Client Focus, AICPA FN: Decision Modeling, AICPA PC: Project Management, IMA: Business Economics 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. Ans: c, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Marketing/Client Focus, AICPA FN: Decision Modeling, AICPA PC: Project Management, IMA: Business Economics 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 Ans: a, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Marketing/Client Focus, AICPA FN: Decision Modeling, AICPA PC: Project Management, IMA: Business Economics 33. The calculation to determine target cost is a. variable manufacturing costs + fixed manufacturing costs. b. sales price – (variable manufacturing costs + fixed manufacturing costs). c. variable manufacturing costs + selling and administrative variable costs. d. sales price – desired profit. Ans: d, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Marketing/Client Focus, AICPA FN: Measurement, AICPA PC: Project Management, IMA: Cost Management 34. Target cost is comprised of a. variable and fixed manufacturing costs only. b. variable manufacturing and selling and administrative costs only. c. total manufacturing and selling and administrative costs. d. fixed manufacturing and selling and administrative costs only. Ans: c, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Marketing/Client Focus, AICPA FN: Measurement, AICPA PC: Project Management, IMA: Cost Management 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 Ans: b, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Marketing/Client Focus, AICPA FN: Decision Modeling, AICPA PC: Project Management, IMA: Business Economics 8 - 4 Test Bank for Managerial Accounting, Seventh Edition 36. Bond Co. is using the target cost approach on a new product. Information gathered so far reveals: Expected annual sales 400,000 units Desired profit per unit $0.35 Target cost $168,000 What is the target selling price per unit? a. $0.42 b. $0.70 c. $0.35 d. $0.77 Ans: d, LO: 1, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Marketing/Client Focus, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics 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: Annual sales 50,000 bottles Projected selling and administrative costs $8,000 Desired profit $70,000 The target cost per bottle is a. $0.44. b. $0.60. c. $0.16. d. $0.40. Ans: b, LO: 1, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Marketing/Client Focus, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics 38. Larry Cable Inc. plans to introduce a new product and is using the target cost approach. Projected sales revenue is $810,000 ($4.05 per unit) and target costs are $730,000. What is the desired profit per unit? a. $0.40 b. $2.03 c. $3.65 d. None of the above Ans: a, LO: 1, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Marketing/Client Focus, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics 39. Wasson Widget Company is contemplating the production and sale of a new widget. Projected sales are $300,000 (or 75,000 units) and desired profit is $36,000. What is the target cost per unit? a. $4.00 b. $3.52 c. $4.48 d. $4.80 Ans: b, LO: 1, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Marketing/Client Focus, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Cost Management 40. Boomer Boombox Inc. wants to produce and sell a new lightweight radio. Desired profit per unit is $1.84. The expected unit sales price is $22 based on 10,000 units. What is the total target cost? a. $201,600 b. $220,000 c. $18,400 d. $238,400 Ans: a, LO: 1, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Marketing/Client Focus, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Cost Management 41. In cost-plus pricing, the markup consists of a. manufacturing costs. b. desired ROI. c. selling and administrative costs. d. total cost and desired ROI. Ans: b, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Marketing/Client Focus, AICPA FN: Measurement, AICPA PC: Project Management, IMA: Business Economics 42. The desired ROI per unit is calculated by a. multiplying the ROI by 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. Ans: a, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Marketing/Client Focus, AICPA FN: Measurement, AICPA PC: Project Management, IMA: Performance Measurement 43. Bellingham Suit Co. has received a shipment of suits that cost $200 each. If the company uses cost-plus pricing and applies a markup percentage BRIEF EXERCISES Home Appliances Co. wants to introduce a new digital display, laser driven iron to the market. The estimated unit sales price is $85. The required investment is $3,500,000. Unit sales are expected to be 300,000 and the minimum required rate of return on all investments is 15%. Instructions Compute the target cost per iron. Ans: N/A, LO: 1, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Marketing/Client Focus, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Cost Management Solution 146 (5 min) Sales (300,000 × $85) $25,500,000 Less desired ROI ($3,500,000 × 15%) 525,000 Target cost 24,975,000 Number of irons ÷ 300,000 Target cost per iron $ 83.25 BE 147 Talia Corp. produces digital cameras. For each camera produced, direct materials are $20, direct labor is $16, variable manufacturing overhead is $12, fixed manufacturing overhead is $28, variable selling and administrative expenses are $10, and fixed selling and administrative expenses are $24. Instructions Compute the target selling price assuming a 40% markup on total per unit cost. Ans: N/A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Marketing/Client Focus, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics Solution 147 (5 min) Direct materials .......................................................... $20 Direct labor................................................................. 16 Variable manufacturing overhead.............................. 12 Fixedmanufacturingoverhead.................................. 28 Variable selling and administrative expenses ........... 10 Fixed selling and administrative expenses................ 24 Total unit cost....................................................... $110 Total unit cost + (Markup percentage × Total unit cost) = Target selling price $110 + (40% × $110) = $154 BE 148 Tina Company expects to produce 100,000 products in the coming year and has invested $20,000,000 in the equipment needed to produce the products. Tina requires a return on investment of 10%. Instructions What is Tina’s ROI per unit? Ans: N/A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Marketing/Client Focus, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Performance Measurement Solution 148 (3 min) ROI per unit = (Total investment  Desired ROI percentage) = ($20,000,000  10%) = $20 Number of units 100,000 BE 149 NayTag produces washing machines and dryers. The following per unit information is available for washing machines: direct materials, $72; direct labor, $48; variable manufacturing overhead, $36; fixed manufacturing overhead, $84; variable selling and administrative expenses, $24; fixed selling and administrative expenses, $56. NayTag desires an ROI per unit of $80. Instructions Compute NayTag’s markup percentage using a total cost approach. 8 - 28 Test Bank for Managerial Accounting, Seventh Edition Solution 149 (5 min) The markup percentage would be: $80 = 25% $72 + $48 + $36 + $84 + $24 + $56 Ans: N/A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Marketing/Client Focus, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics BE 150 MAC Company has invested $3,000,000 in assets to produce 10,000 units of its finished product. MAC’s budget for the year is as follows: net income, $360,000; variable costs, $2,400,000; fixed costs, $300,000. Instructions Compute each of the following: 1. Budgeted ROI. 2. Markup percentage using a total cost approach. Ans: N/A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Marketing/Client Focus, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Performance Measurement Solution 150 (5 min) 1. ROI is equal to net income divided by invested assets. For MAC Company, budgeted ROI is: Budgeted ROI = $360,000 ÷ $3,000,000 = 12% 2. The markup percentage is equal to: Net income Total cost For MAC Company, the budgeted markup percentage is: $360,000 = 13.3% $2,400,000 + $300,000 BE 151 During the current year Greeve Corporation expects to produce 10,000 units and has budgeted the following: net income $300,000; variable costs $900,000; and fixed costs $350,000. It has invested assets of $1,750,000. The company’s budgeted ROI was 20%. What was its budgeted markup percentage using a full-cost approach? Ans: N/A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Marketing/Client Focus, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Performance Measurement Solution 151 (5 min) The markup percentage is equal to Desired ROI per unit divided by total unit cost. The desired ROI per unit is computed as follows: Desired ROI per unit = $1,750,000  20% = $35 10,000 units The total unit cost is computed as follows: Total unit cost = $900,000 + $350,000 = $125 10,000 units Solution 151 (cont.) The markup percentage is computed as follows: Desired ROI per unit = $35 = 28% Total unit cost $125 BE 152 Horton Small Engine Repair charges $45 per hour of labor. It has a material loading percentage of 40%. On a recent job replacing the engine of a riding lawnmower, Horton worked 4 hours and used parts with a cost of $400. Calculate Horton’s total bill. Ans: N/A, LO: 3, Bloom: AP, Difficulty: Medium, Min: 4, AACSB: Analytic, AICPA BB: Marketing/Client Focus, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics Solution 152 (4 min) Horton’s total bill would equal: (4 hours  $45) + $400 + ($400  40%) = $740 BE 153 On a recent job repairing a small boat engine, Marine Repairs Company worked 21 hours and used parts with a cost of $1,500. Marine Repairs Company charges $80 per hour of labor and has a material loading charge of 60%. Instructions Calculate the total bill for repairing the small boat engine. Ans: N/A, LO: 3, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Marketing/Client Focus, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics Solution 153 (5 min) The total bill would equal: (21 hours × $80) + $1,500 + ($1,500 × 60%) = $4,080 BE 154 Alma and Associates, a new consulting service, recently received a bill for repairs on its computers totaling $2,280. Alma thinks it may have been overcharged and is trying to recreate the components of the bill. She knows the hourly rate is $75 and 15 hours of labor was charged. She also knows $700 of parts were replaced. Instructions Compute the material loading charge percentage the repair service used