lOMoARcPSD|10824435
Chapter 20 Testbank
Managerial Accounting (The University of the South Pacific)
StuDocu is not sponsored or endorsed by any college or university
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
Chapter 20 Testbank
Student: ___________________________________________________________________________
1.
Which of the following statements regarding price is/are true?
i. Prices are determined by the market, subject to the constraint that costs must be covered in the long
run.
ii. Prices are based on costs, subject to the constraint that customers and competitors will exert an
influence.
ii. A balance of market forces and cost is important when making pricing decisions.
A. i
B. i
i
C. ii and
iii
D. All of the given
answers
2.
Which of the following is not an issue when making a pricing decision?
A. Legal issues like collusion and price
discrimination.
B. Political
considerations
C. Environmental
regulations
D. Competiti
on
3.
The demand curve is also called the:
A. total revenue
curve
B. marginal revenue
curve
C. average revenue
curve
D. marginal cost
curve
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
4.
The curve that shows the relationship between sales price and quantity sold is called the:
A. marginal revenue
curve
B. average cost
curve
C. demand
curve
D. revenue
curve
5.
The marginal revenue curve:
A. shows the changes in total revenue that accompany a change in
quantity sold.
B. shows the relationship between sales price and
units sold.
C. shows the relationship between sales revenue and
quantity.
D. shows the average price at which any particular quantity
can be sold.
6.
Which of the following statements is false regarding price elasticity?
A. The impact of price changes on sales volume is defined as price
elasticity.
B. Demand is elastic if a price increase has a large negative impact on
sales volume.
C. Demand is elastic if price changes have no impact on sales
quantity.
D. Demand is inelastic if price changes have little or no impact on
sales quantity.
7.
Which of the following statements regarding the profit maximising model is/are true?
i. The profit maximising model is limited because a firm's demand and marginal revenue are difficult to
discern.
ii. The marginal revenue and marginal cost model is valid for all forms of market.
iii. Costing systems are not usually designed to measure the marginal changes in cost incurred as
production and sales increase unit by unit.
A. i
B. ii and
iii
C. ii
i
D. i and
iii
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
8.
In the economic profit-maximising pricing model, how do the total revenue and total cost curves
generally behave?
Total revenue
A. Upward sloping at increasing rate
B. Upward sloping at increasing rate
C. Upward sloping at decreasing rate
D.
9.
Downward sloping at constant rate
Total cost
Upward sloping at decreasing rate
Upward sloping at constant rate
Upward sloping, rate decreases, then
increases
Downward sloping, then upward
sloping
In the economic profit-maximising pricing model, how do the marginal revenue and marginal cost
curves generally behave?
Marginal revenue
A. Downward sloping
B. Downward sloping
C. Downward sloping
D. Upward sloping
Marginal cost
Downward sloping
Horizontal (zero slope)
U-shaped
U-shaped
10. Managers base prices on product costs due to many reasons. Which of the following is not one of the
reasons?
A. Most companies sell many products and services and cost-based pricing provides a simple and
direct approach.
B. Cost-based pricing provides a good starting point for
managers.
C. The cost of a product or service provides a lower limit or floor, below which the price cannot be set
in the long run.
D. Cost-based pricing is useful for standard cost
analysis.
11. Which of the following represents the cost-based pricing formula?
A. Price = cost + (mark-up % ×
cost)
B. Price = cost + markup %
C. Price = mark-up % ×
cost
D. Price = cost + (mark-up %
+ cost)
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
12. Which of the following is not an advantage of the variable cost pricing formula?
A. Variable cost analysis is consistent with cost volume profit
analysis.
B. Variable cost data does not require the allocation of common fixed costs to
individual product lines.
C. Variable costs help managers understand the profit implications of
changes in price.
D. It is cost effective to use because it is required for external
reporting.
13. If the average invested capital is $300 000 and the target return on investment is 20 per cent, what is
the target profit?
A. $50
000
B. $60
000
C. $70
000
D. $75
000
14. Which of the following formulas represents the mark-up percentage on full cost?
A. Mark-up % = target profit / (annual volume × total cost
per unit)
B. Mark-up % = target profit × total cost
per unit
C. Mark-up % = target profit × annual
volume
D. Mark-up % = (target profit × total cost per
unit) / annual volume
15. If the target profit is $60 000 for an annual volume of 480 units, the total annual fixed costs are $168
000 and the total variable cost per unit is $450, then what is the mark-up percentage on total variable
cost?
A. 15.6
%
B. 13.5
%
C. 105.6
%
D. 115.6
%
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
16. If the target profit is $60 000 for an annual volume of 480 units, the total annual fixed costs are $168
000 and the total variable cost per unit is $450, then what is the mark-up percentage on full cost?
A. 15.6
%
B. 13.5
%
C. 105.6
%
D. 51.4
%
17. Which of the following statements regarding cost-plus pricing is/are true?
A. Cost-plus pricing formulas incorporate both fixed and
variable costs.
B. Cost-plus pricing formulas establish a starting point in
setting prices.
C. Cost-plus pricing formulas are useful for updating prices for existing
products.
D. All of the given
answers
18. Which of the following statements about prices is false?
A. Prices must cover all costs and a normal profit
margin.
B. A variable cost-plus pricing formula requires a higher mark-up percentage than a total cost-plus
pricing formula.
C. Different definitions of cost base, each combined with a different mark-up percentage, will result in
the same price for a product or service.
D. If prices are set close to variable manufacturing costs, the firm will generally earn a higher
profit margin.
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
19. Which of the following statements regarding absorption cost pricing formulas is/are true?
i. Absorption cost pricing formulas provide a justifiable price that tends to be perceived as equitable by
all parties.
ii. Since absorption cost information is necessary for external reporting, it is cost effective to use it for
pricing.
iii. Absorption cost-plus pricing formulas generally will result in a higher mark-up percentage than
variable manufacturing cost formulas.
A. i and
ii
B. ii and
iii
C. i and
iii
D. All of the given
answers
20. Consider the following statements regarding cost-plus pricing formulas.
i. Full cost pricing formulas have the advantage of keeping the manager's attention focused on
covering total costs.
ii. With cost-plus pricing formulas, management must consider market conditions and likely actions of
competitors.
iii. Variable cost-plus formulas have the advantage of not obscuring important information about cost
behaviour.
Which of the above statements is/are true?
A. i
B. ii and
iii
C. i and
iii
D. All of the given
answers
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
21. Sample Company reported the following costs during 2008 for the manufacture and sale of 2000 units:
The average amount of capital invested in the product line during the year was $500 000 and the
targeted return on investment was 20 per cent. If Sample's price per unit was $245 and the mark-up
percentage was 53 per cent, what pricing formula was used by the company?
A. Total variable costplus
B. Variable manufacturing costplus
C. Absorption costplus
D. Time and materials costplus
22. Tots N Style Pty Ltd has the following data concerning a decorator playpen it manufactures:
If the company uses cost-plus pricing based on variable manufacturing costs, determine the mark-up
percentage used by the company to obtain a price of $105.
A. 350
%
B. 300
%
C. 250
%
D. 200
%
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
23. Tots N Style Pty Ltd has the following data concerning a decorator playpen it manufactures:
If the company uses cost-plus pricing based on total variable costs, determine the mark-up
percentage used by the company to obtain a price of $105.
A. 150
%
B. 300
%
C. 250
%
D. 200
%
24. Tots N Style Pty Ltd has the following data concerning a decorator playpen it manufactures:
If the company uses cost-plus pricing based on absorption costs, determine the mark-up percentage
used by the company to obtain a price of $120.
A. 140
%
B. 118
%
C. 71
%
D. 243
%
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
25. Tots N Style Pty Ltd has the following data concerning a decorator playpen it manufactures:
If the company uses cost-plus pricing based on full cost, determine the mark-up percentage used by
the company to obtain a price of $105.
A. 100
%
B. 75
%
C. 50
%
D. 25
%
26. The Houston Company manufactures office equipment. They are ready to introduce a new line of
desktop copiers. The following data concerns the copiers:
If the company uses cost-plus pricing based on variable manufacturing cost, what price must the
company charge when the mark-up percentage is 200 per cent?
A. $58
5
B. $45
0
C. $63
0
D. $54
0
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
27. The Houston Company manufactures office equipment. They are ready to introduce a new line of
desktop copiers. The following data concerns the copiers:
If the company uses cost-plus pricing based on total variable cost, what price must the company
charge when the mark-up percentage is 150 per cent?
A. $36
0
B. $52
5
C. $60
0
D. $49
5
28. The Houston Company manufactures office equipment. They are ready to introduce a new line of
desktop copiers. The following data concerns the copiers:
If the company uses cost-plus pricing based on absorption cost, what price must the company charge
when the mark-up percentage is 120 per cent?
A. $45
9
B. $42
0
C. $75
9
D. $59
4
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
29. The Houston Company manufactures office equipment. They are ready to introduce a new line of
desktop copiers. The following data concerns the copiers:
If the company uses cost-plus pricing based on full cost, what price must the company charge when
the mark-up percentage is 40 per cent?
A. $46
2
B. $56
7
C. $60
0
D. $51
3
30. Silco Pty Ltd manufactures various lines of computer equipment. They are planning to introduce a line
of laptop computers in January 2008. Current plans call for the production and sale of 1000 computers
with estimated production costs as follows.
The average amount of capital invested in the laptop computer line is $900 000 and Silco's target
return on investment for the line is 18 per cent. What price must Silco charge if the company uses
cost-plus pricing based on full cost?
A. $86
8
B. $90
0
C. $1
192
D. $1
930
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
31. Silco Pty Ltd manufactures various lines of computer equipment. They are planning to introduce a line
of laptop computers in January 2008. Current plans call for the production and sale of 1000 computers
with estimated production costs as follows.
The average amount of capital invested in the laptop computer line is $900 000 and Silco's target
return on investment for the line is 18 per cent. What is the mark-up percentage if the company uses
cost-plus pricing based on full cost?
A. 116.7
%
B. 15.7
%
C. 121.6
%
D. 58.9
%
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
32. Silco Pty Ltd manufactures various lines of computer equipment. They are planning to introduce a line
of laptop computers in January 2008. Current plans call for the production and sale of 1000 computers
with estimated production costs as follows.
The average amount of capital invested in the laptop computer line is $900 000 and Silco's target
return on investment for the line is 18 per cent. If Silco uses cost-plus pricing based on absorption
cost, determine the mark-up percentage the company must use.
A. 21.6
%
B. 15.7
%
C. 29.5
%
D. None of the given
answers
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
33. Silco Pty Ltd manufactures various lines of computer equipment. They are planning to introduce a line
of laptop computers in January 2008. Current plans call for the production and sale of 1000 computers
with estimated production costs as follows.
The average amount of capital invested in the laptop computer line is $900 000 and Silco's target
return on investment for the line is 18 per cent. What price must Silco charge if the company uses
cost-plus pricing based on total variable cost?
A. $193
0
B. $71
2
C. $119
2
D. $103
0
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
34. Silco Pty Ltd manufactures various lines of computer equipment. They are planning to introduce a line
of laptop computers in January 2008. Current plans call for the production and sale of 1000 computers
with estimated production costs as follows.
The average amount of capital invested in the laptop computer line is $900 000 and Silco's target
return on investment for the line is 18 per cent. What is the mark-up percentage if the company uses
cost-plus pricing based on total variable cost?
A. 116.7
%
B. 142.7
%
C. 121.6
%
D. 58.9
%
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
35. Town and Country Auto Repair uses time and material pricing. The Body Shop has the following cost
data.
Determine the time charge per hour.
A. $18.0
0
B. $35.0
0
C. $25.5
0
D. $40.0
0
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
36. Town and Country Auto Repair uses time and material pricing. The Body Shop has the following cost
data.
Determine the amount needed to be added to each dollar of material cost to obtain the material
charge.
A. $0.4
8
B. $0.0
8
C. $0.0
6
D. $0.1
0
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
37. Town and Country Auto Repair uses time and material pricing. The Body Shop has the following cost
data.
If a particular job takes 10 hours in labour and $500 in materials, determine the price charged for the
job.
A. $77
5
B. $85
0
C. $39
0
D. $89
0
38. An approach to pricing in which two charges are determined, one charge for labour used on the job
and another charge for the materials used on the job, is called:
A. time and material
pricing
B. variable cost
pricing
C. competitive
bidding
D. absorption cost
pricing
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
39. Which of the following statements about time and material pricing is/are true?
i. The labour charge includes the direct cost of the employee's time.
ii. The labour charge includes a charge to cover various overhead costs.
iii. The labour charge includes a handling charge for material.
A. i
B. i and
ii
C. i and
iii
D. All of the given
answers
40. Which of the following statements about time and material pricing is/are true?
i. The material charge includes the direct cost of the employee's time.
ii. The material charge includes the direct cost of materials used.
iii. The material charge includes a charge for material handling and storage.
A. i
i
B. ii
i
C. ii and
iii
D. All of the given
answers
41. How are the time charges calculated?
A. Hourly labour
cost
B. Hourly labour cost + annual
overhead
C. Hourly labour cost + [annual overhead (excluding material handling and storage) / annual labour
hours] + hourly charge to cover profit margin
D. Hourly labour cost + hourly charge to cover
profit margin
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
42. Econo Auto Repair estimates the following costs for 2008.
What material charge formula would be used to include a charge for the handling and storage of
material on every job?
A. Cost of material
only
B. Cost of material + $2 per labour
hour
C. Cost of material + $0.05 per $1 of
material
D. Cost of material + $0.50 per
labour hour
43. Which of the following statements about competitive bidding is/are true?
A. In a competitive bidding situation, the criterion to select the contractor is always based solely on the
design specifications of the job.
B. Competitive bidding occurs when two or more companies submit a sealed bid for a product, service
or project to a potential buyer.
C. From the perspective of the bidder, quantitative factors are more important than qualitative factors
in competitive bidding situations.
D. In a competitive bidding situation, the criterion to select the contractor is always based solely on
the design specifications of the job AND competitive bidding occurs when two or more companies
submit a sealed bid for a product, service or project to a potential buyer.
44. If a firm has excess capacity, which of the following is a sensible bidding strategy?
A. Set a price to cover all
costs.
B. Base the bid on the incremental costs incurred because the job will contribute toward covering the
company's fixed costs and profit.
C. Base the bid solely on direct labour
hours.
D. Common fixed costs must be allocated to individual jobs before
preparing the bid.
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
45. Which of the following statements about competitive bidding is/are true?
i. The higher the price that is bid, the greater the profit, if the firm gets the contract.
ii. Bidding a higher price increases the probability of obtaining the contract.
iii. A company bidding low enough to ensure the acceptance of a contract may have bid too low to
make an acceptable profit on the job.
A. i
B. i
i
C. i and
iii
D. All of the given
answers
46. Under competitive bidding when a company has no excess capacity, the bid price would normally
include:
A. only the incremental costs of
the job
B. only the variable costs of the job plus a modest
contribution margin
C. the full cost of the job including capacityproducing costs
D. the full cost of the job excluding capacityproducing costs
47. Which of the following statements regarding the manufacture of new products is/are true?
i. Uncertainties about the potential market for the product pose problems when pricing these products.
ii. Uncertainties regarding obstacles that will be encountered in manufacturing these products pose
pricing problems.
iii. Uncertainties about production costs will not influence pricing decisions because these types of
products are generally sold in a non-competitive market.
A. i
B. ii
i
C. i and
ii
D. All of the given
answers
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
48. Price skimming is when:
A. the initial product price is set low and is kept
constant.
B. the initial product price is set high giving high short-term profits; then the price is
slowly lowered.
C. the initial high product price is set high and
raised.
D. the initial product price is set low and
raised.
49. What term describes a pricing strategy in which the initial price is set relatively low for a new product
in order to gain a large market share?
A. Penetration
pricing
B. Target
pricing
C. Designed
pricing
D. Market share
pricing
50. The pricing strategy that results in greater initial sales volume but lower unit profits is called:
A. Skimming
pricing
B. Target
pricing
C. Predatory
pricing
D. Penetration
pricing
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
51. The Mixed-Up Floor Company Ltd makes two products, carpet polish and floor deodoriser. Operating
information from the previous year is as follows.
Fixed costs of $20 000 per year are presently allocated evenly between both products. If the product
mix were to change, total fixed costs would remain the same. Calculate the contribution margin per
machine hour for floor deodoriser.
A. $4.0
0
B. $2.0
0
C. $3.0
0
D. $0.2
5
52. The Mixed-Up Floor Co. Ltd makes two products, carpet polish and floor deodoriser. Operating
information from the previous year is as follows.
Fixed costs of $20 000 per year are presently allocated evenly between both products. If the product
mix were to change, total fixed costs would remain the same. Assuming everything produced for either
product can be sold, how many units of each product should be produced and sold if machine hours
are limited to 10 000?
Carpet polish
A.
B.
C.
D.
10 000 units
5 000 units
8 000 units
0 units
Floor deodoriser
0 units
10 000 units
4000 units
20 000 units
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
53. Contribution margin per machine hour can be calculated by dividing:
A. machine hours required per unit by sales margin
per unit
B. contribution margin per unit by machine hours
required per unit
C. total contribution margin per unit by total sales
revenue per unit
D. total machine hours required by total
contribution margin
54. Linear programming is used by decision makers when there are:
A. limited resources for
labour
B. scarce resources for machine
hours
C. scarce resources for both labour and machine
hours
D. multiple scarce
resources
55. Linear programming is useful:
A. when there is only one
product
B. when there are many
products
C. only when an activity-based costing system is
in use
D. when there is only one
constraint
56. In linear programming, the objective function is typically based on:
A. the selling price of the
products
B. the variable cost of the
products
C. the full cost of the
products
D. the contribution margin of the
products
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
57. In linear programming, a constraint represents:
A. the objective
function
B. the contribution margin
per unit
C. the limitations faced by
the firm
D. the break-even level of
activity
58. Which of the following statements regarding product cost distortion and product pricing is/are true?
A. Product cost distortions will have a more serious impact on product pricing if the market prices are a
major factor in setting prices.
B. Product cost distortions will have a more serious impact if cost-plus pricing is a major tool for
determining prices.
C. If product costs are distorted, it will not be possible to determine the
market price.
D. Product cost distortions will have a more serious impact if cost-plus pricing is a major tool for
determining prices AND if product costs are distorted, it will not be possible to determine the market
price.
59. Which of the following statements about product-cost distortions and product pricing is/are true?
i. Under conventional volume-based product costing systems, high volume and relatively simple
products are often overcosted while low volume and complex products are undercosted.
ii. The use of a conventional volume-based product costing system may result in significant cost
distortions among product lines.
iii. Overpricing high-volume products can lead to pricing errors.
A. i and
ii
B. ii and
iii
C. i and
iii
D. All of the given
answers
60. The Trade Practices Act 1974 (Cwlth) is legislation that:
A. restricts certain types of commercial activities,
including pricing
B. restricts employee
benefits
C. describes loan
procedures
D. generally allows the use of price-fixing
contracts
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
61. Which of the following statements about price-fixing contracts is/are true?
i. Price-fixing contracts are prohibited where they have the effect of substantially lessening
competition.
ii. Price-fixing contracts are a means of quoting different prices for different customers.
iii. Price-fixing contracts result in controlling the prices of goods or services.
A. i
B. ii and
iii
C. i and
iii
D. ii
i
62. What is price discrimination?
A. Quoting the same price to all
customers
B. Quoting different prices to different customers for different goods
and services
C. Quoting different prices to different customers for the same goods
or services
D. Quoting different prices to a customer, depending on quantity of goods or
services demanded
63. One of the consequences of traditional methods of overhead allocation combined with cost-based
pricing is that:
A. low-volume products can be
overpriced
B. high-volume products can be
underpriced
C. simple products can be
underpriced
D. high-volume products can be
overpriced
64. One of the advantages of activity-based costing (ABC) over traditional methods of overhead allocation,
when combined with cost-based pricing, is that ABC avoids the problem of:
A. low-volume products being
underpriced
B. low-volume products being
overpriced
C. high-volume products being
underpriced
D. complex products being
overpriced
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
65. The managing director of H Limited is setting the production plan for the next financial year. H has a
shortage of skilled labour and wishes to maximise the profitability of the company. H manufactures
three products X, Y and Z. There is 200 000 hours of skilled labour available in the year at a cost of
$10 per hour. The following information relates to each product.
Assuming all relevant information is provided, in what order should H manufacture its products to
maximise profit in the current year?
A. Z then
X
B. X then
Z
C. X, Y then
Z
D. None of the given
answers
66. A firm produces products X, Y and Z with contribution margins of $4, $5 and $10 respectively. The firm
has only 5000 machine hours available for a particular period. Machine hours required for each of the
products are 1, 1 and 5 hours respectively. Demand for the products is 1000 for X, 3000 for Y and 2000
for Z. How many units of each product will the firm produce?
A. 2000
Z
B. 1000 X, 3000 Y,
2000 Z
C. 3000 Y, 1000 X,
200 Z
D. 2000 Z, 3000
Y
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
67. C Limited manufactures specialist medical equipment. Recruitment and training of manufacturing staff
is difficult and C's operations management estimates that only 160 000 hours of labour at a rate of
$50 per hour will be available in the next financial year. The following details relate to C's planned
production of three products X, Y and Z for the next 12 months.
To maximise profits the products C should manufacture are:
A. Y then
Z
B. Y then Z, then
X.
C. X then
Z.
D. X then F, then
Y.
68. Karl's Kitchens is experimenting with different vinegars for sale on the domestic market. The
contribution margins per carton for three types V1, V2 and V3 are $120, $100 and $150 respectively.
The firm is constrained in terms of labour hours, and the labour hours required per carton of each type
of vinegar is 2 hours, 1.5 hours and 3 hours respectively. Assume the firm has 2240 available labour
hours per month, and the monthly demand is 1200 cartons of V1, 800 cartons of V2 and 300 cartons
of V3. What is the product mix that will maximise profit?
A. 800 V2, 520
V1
B. 300 V3, 670
V2
C. 1 200 V1, 800 V2, 300
V3
D. 1 120
V1
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
69. A firm employs average assets of $600 000 and calculates its mark-up on full cost based on a desired
return on investment of 20 per cent. Expected production is 10 000 units, and the full cost per unit is
$80. What is the mark-up percentage?
A. 20
%
B. 120
%
C. 15
%
D. 25
%
70. A firm employs average assets of $600 000 and calculates its mark-up on full cost based on a desired
return on investment of 20 per cent. Expected production is 10 000 units, and the full cost per unit is
$80. If the firm changed its pricing policy and determined in future to calculate its mark-up based on
absorption cost, which of the following statements (if any) is correct about the firm's new mark-up
percentage?
A. The mark-up percentage will be
lower.
B. The mark-up percentage will be
higher.
C. Because the price charged will be the same, there will be no change in the mark-up
percentage.
D. None of the given
answers
71. A firm has excess capacity, and has received an order for 50 000 units at $20 each over and above its
normal production activity of 600 000 units. To meet this order, new equipment at a cost of $200 000
would have to be bought, and this equipment would have to be scrapped after the order had been
filled. The firm currently sells for $50 per unit, has variable costs of $15.80, and fixed costs of $600
000. What is the additional profit (loss) for the firm if it accepts the order?
A. Loss of $10
000
B. Profit of $40
000
C. Loss of $40
000
D. Profit of $10
000
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
72. A firm has excess capacity, and has received an order for 50 000 units at $20 each over and above its
normal production activity of 600 000 units. To meet this order, new equipment at a cost of $200 000
would have to be bought, and this equipment would have to be scrapped after the order had been
filled. The firm currently sells for $50 per unit, has variable costs of $15.80, and fixed costs of $600
000. Assuming the firm had been aggressively seeking the business of the customer who requested
the special order, what would be the minimum price that the firm would be prepared to charge?
A. $15.8
0
B. $5
0
C. $27.8
0
D. $19.8
0
73. Which of the following statements is not correct? Linear programming is a technique designed to
recognise specifically that:
A. the choice of the optimal mix involves a cost-benefit
trade-off
B. firms will focus on the products with the highest
contribution margin
C. there may be more than one production
constraint
D. products compete with each other for limited
resources
74. The optimal decision in the linear programming model depends on:
A. the intersection of the constraint
lines
B. the slope of the objective
function
C. the slope of the objective function combined with all
constraints
D. the feasible region interact with the smallest
constraint
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
75. Which of the following describes, most accurately, what the area of feasible solutions on the linear
programming graph represents?
A. The area bordered by the intersection of the two
constraint lines.
B. The area bordered by the intersection of all
constraint lines.
C. The area on the graph that contains all possible combinations of products, including the
optimal combination.
D. The area bordered by the intersection of all constraint lines AND the area on the graph that contains
all possible combinations of products, including the optimal combination.
76. Waverly Ltd produces commercial grade washing machines. The Karewasher is currently selling for
$2000 per unit. The company wants to introduce a new model, Supawasher, which uses less water per
load. The comparative life-time costs of the two models are as follow:
The economic value of a Supawasher is: (ignore time value of money)
A. $30
0
B. $230
0
C. $290
0
D. $490
0
77. Avocado Ltd produces small electronic components for kitchen appliances. This year it expects to
produce 10 000 units of component X. The variable manufacturing cost of component X is $2 per unit,
and the variable selling and administrative cost of component X is $3 per unit. In addition, to produce
component X Avocado Ltd incurs annual fixed manufacturing cost of $50 000 and annual fixed selling
and administrative cost of $60 000. If the target profit is $2 per unit, and using cost plus pricing
approach, the mark up percentage based on total variable costs is:
A. 260
%
B. 80
%
C. C.63.6
%
D. 12.5
%
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
78. Avocado Ltd produces small electronic components for kitchen appliances. This year it expects to
produce 10 000 units of component X. The variable manufacturing cost of component X represents
50% of its total costs. The target profit is $2 per unit. Using the cost-plus pricing approach based on
total costs, the selling price per unit of component X is $20. If Avocado Ltd decides to change its costplus pricing approach to base the mark up percentage on variable manufacturing costs, the selling
price for each unit of component X will be:
A. $1
0
B. $2
0
C. $3
0
D. Not enough
information.
79. Gossip Goose (GG) and Tabloid Chicks (TC) are two magazines renowned for their reporting of
unverifiable entertainment news. Steven Hassaloff is the marketing director of GG, and Jasmine Trotter
is the advertising manager of TC. Steven and Jasmine met at the local pub one day and decided to
both sell their magazines at the same lower-than-average price ($3), in order to increase their market
shares and lower the level of competitive pressure in the market. Steven and Jasmine's agreement is
an example of:
A. Resale price maintenance, and is
illegal
B. Resale price maintenance and is legal only when both parties reach an agreement in the
absence of coercion
C. Price-fixing and is
illegal
D. Price-fixing and is legal only when both parties reach an agreement in the absence
of coercion
80. It is illegal for companies to offer different prices to different customers for the same goods or
services, except:
A. where the company is trying to meet a
competitor's price
B. where the company's corporate vision explicitly states this is a
company policy
C. where the company is pursuing a cost leadership
strategy
D. There is no exception: price discrimination is
always illegal.
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
81. Which of the following is not prohibited by the ACCC?
A. To prevent entry of other corporations into the
market
B. To prevent other corporations in competing in the
market
C. To take advantage of a company's market power to bulk purchase in order to achieve a
cost advantage
D. All of the above are acts prohibited by
ACCC
82. Gossip Goose (GG) is a magazine renowned for their reporting of unverifiable entertainment news. Dee
Hassaloff is the marketing director of GG. Recently, Hassaloff decided to lower the price of GG to $2 in
order to drive out some of the smaller competitors. Hassaloff's behaviour is best described as an
example of:
A. Skimming
pricing
B. Penetration
pricing
C. Predatory
pricing
D. Discriminatory
discounting.
83. Avocado Ltd produces small electronic components for kitchen appliances. Two of its products are
Component Y and Component Z. The selling price of Component Y is $15, and the selling price of
Component Z is $20. The variable cost per unit for Component Y is $8 and the variable cost per unit of
Component Z is $11. The machine hour requirement and demand for the two products are:
Avocado Ltd's production capacity is 6500 machine hours per month. The optimal product mix is:
A. 1000 units X, 1500
units Y
B. 0 units X, 2167
units Y
C. 1000 units X, 2500
units Y
D. 1500 units X, 1000
units Y
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
84. Avocado Ltd produces small electronic components for kitchen appliances. Two of its products are
Component Y and Component Z. The selling price of Component Y is $15, and the selling price of
Component Z is $20. The variable cost per unit for Component Y is $8 and the variable cost per unit of
Component Z is $11. The machine hour requirement and demand for the two products are:
Both Component Y and Component X have to undergo the machining process first, followed by a
manual polishing labour process. Avocado Ltd's capacity is 6500 machine hours and 6500 labour
hours. The top priority of Avocado Ltd in terms of managing constraints is:
A. Increase advertising to stimulate greater demand for
Component Z
B. Train employees to improve productivity in relation to
polishing
C. Invest in additional
machines
D. Lower the price of Component Y to simulate
demand
85. Value-based pricing refers to:
A. A pricing strategy that takes into account the costs and benefits experienced by the customer that
extend beyond the initial purchase price
B. A pricing strategy where customers' perceptions of value guide
the price
C. A pricing strategy where prices are determined based on net value of each component of a
product or service
D. A pricing strategy based on a labour and material
pricing formula
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
86. Influences on pricing decisions
Two of the major influences on pricing decisions are customer demand and actions of competitors.
i. What are the other two major influences?
ii. Briefly describe customer demand and actions of competitors.
iii. In the text example, Sydney Sailing Supplies faced the question of defining its own products
narrowly as sailing supplies or more broadly as boating supplies. Explain why these definitions could
influence how the management of Sydney Sailing Supplies views either ‘customer demand or actions
of competitors'.
87. Balance of market forces and cost-based pricing
i. ‘Product costs are critical in setting prices, for all costs must be covered in order to make a profit.'
Evaluate this statement.
ii. ‘Product costs set a ceiling and prices of competitors set a floor for the prices of our products.'
Evaluate this statement.
88. Total and marginal relationships in the economic profit maximising model
The following questions explore the relationships between total and marginal functions in the
economic profit maximising (EPM) model.
i. The total revenue function rises over the range of operating activity portrayed in the text. Why does
the marginal revenue function decrease?
ii. The total cost function increases over the relevant range of activity. Why does the marginal cost
function exhibit its complex behaviour?
iii. In the EPM model, what is the profit maximising level of volume? Explain.
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
89. Cost volume profit (CVP) compared to the economic profit maximising pricing model
The questions below explore the differences between the economic profit maximising pricing (EPM)
model and the CVP model discussed earlier.
i. How does the total revenue function in the EPM model differ from that in the CVP model?
ii. How does the total cost function in the EPM model differ from that in the CVP model?
iii. How is volume related to profit maximisation in the CVP model? How does this compare to the EPM
model?
90. Role of excess capacity in competitive bidding
Yendys Pty Ltd is preparing a bid for a project. Yendys experiences considerable seasonal variation in
the level of activity. This particular project would be done during a slack period of the year. The cost
structure of the company reflects high fixed costs.
i. How should the fixed costs be handled in the ‘time and materials' bidding approach to this project?
ii. Assume the company wins the bid and performs the job with financial results as projected in the bid.
Several months later, the customer contacts Yendys directly and requests a bid to do another job.
However, this project must be done during a peak season. How should Yendys' management respond?
How do you think the customer will respond?
91. Strategic pricing of new products
i. Distinguish between skimming pricing and penetration pricing.
ii. Are these two pricing strategies viable alternatives for most products? Explain.
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
92. Product cost distortion and pricing
Assume a firm relies heavily on cost-plus pricing to arrive at selling prices for its many products.
i. Define product cost distortion.
ii. Can product cost distortion ever be eliminated?
iii. Are there certain manufacturing situations in which product cost distortion is more likely? Explain.
iv. How can cost-plus pricing be improved in the situation described at the start of this question?
93. Legal restrictions
i. Define price discrimination.
ii. Assume a firm has been charged with price discrimination. What is the role of product-cost
information in defending the firm's pricing practices?
94. The marginal revenue – marginal cost paradigm, is valid for all forms of economic market including the
oligopolistic market.
True
False
95. When a supplier dictates the minimum price at which a product or service is to be resold by a buyer to
the retail or wholesale market, the supplier is said to be practicing the restricted practice of resale
price maintenance.
True
False
96. Linear programming is a tool used to determine an optimal solution given a number of constraints, by
identifying linear relationships between decision variables.
True
False
97. Capacity has no real impact on bids submitted by firms in a competitive bidding scenario.
True
False
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
98. When it comes to pricing decisions, the cost of the product or service is the lower limit of the price,
where as the legal, political and ethical issues set the upper level of the price.
True
False
99. When pricing new products, one strategy that can be used is price skimming where the initial product
price is set low and in doing this management hope the product will be widely accepted in the long
term.
True
False
100 The management accountant's role in product mix decisions is to provide adequate information to
.
allow linear programming to be utilised in the decision.
True
False
101 Cost-plus pricing formulas can only be used with full cost models.
.
True False
102 When decisions are being made about unprofitable products, one of the options available to managers
.
is to retain the loss-making product particularly if it forms a part of a range of products that the firm
wishes to sell.
True
False
103 Price elasticity is the term used to describe the impact of price changes on sales volume.
.
True False
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
Chapter 20 Testbank Key
1.
(p. 950)
Which of the following statements regarding price is/are true?
i. Prices are determined by the market, subject to the constraint that costs must be covered in the
long run.
ii. Prices are based on costs, subject to the constraint that customers and competitors will exert an
influence.
ii. A balance of market forces and cost is important when making pricing decisions.
A. i
B. i
i
C. ii and
iii
D. All of the given
answers
AACSB: Reflective
Difficulty: Easy
Graduate Attribute: Problem Solving
Learning Objective: 20-01 List and describe the major influences on pricing decisions
2.
Which of the following is not an issue when making a pricing decision?
(p. 950)
A. Legal issues like collusion and price
discrimination.
B. Political
considerations
C. Environmental
regulations
D. Competiti
on
AACSB: Reflective
Difficulty: Easy
Graduate Attribute: Problem Solving
Learning Objective: 20-01 List and describe the major influences on pricing decisions
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
3.
The demand curve is also called the:
(p. 953)
A. total revenue
curve
B. marginal revenue
curve
C. average revenue
curve
D. marginal cost
curve
Difficulty: Easy
Learning Objective: 20-02 Explain and use the economic profit-maximising pricing model
4.
The curve that shows the relationship between sales price and quantity sold is called the:
(p. 953)
A. marginal revenue
curve
B. average cost
curve
C. demand
curve
D. revenue
curve
Difficulty: Easy
Learning Objective: 20-02 Explain and use the economic profit-maximising pricing model
5.
The marginal revenue curve:
(p. 953)
A. shows the changes in total revenue that accompany a change in
quantity sold.
B. shows the relationship between sales price and
units sold.
C. shows the relationship between sales revenue and
quantity.
D. shows the average price at which any particular quantity
can be sold.
Difficulty: Easy
Learning Objective: 20-02 Explain and use the economic profit-maximising pricing model
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
6.
Which of the following statements is false regarding price elasticity?
(p. 953)
A. The impact of price changes on sales volume is defined as price
elasticity.
B. Demand is elastic if a price increase has a large negative impact on
sales volume.
C. Demand is elastic if price changes have no impact on sales
quantity.
D. Demand is inelastic if price changes have little or no impact on
sales quantity.
AACSB: Reflective
Difficulty: Easy
Graduate Attribute: Problem Solving
Learning Objective: 20-02 Explain and use the economic profit-maximising pricing model
7.
(p. 953)
Which of the following statements regarding the profit maximising model is/are true?
i. The profit maximising model is limited because a firm's demand and marginal revenue are
difficult to discern.
ii. The marginal revenue and marginal cost model is valid for all forms of market.
iii. Costing systems are not usually designed to measure the marginal changes in cost incurred as
production and sales increase unit by unit.
A. i
B. ii and
iii
C. ii
i
D. i and
iii
AACSB: Reflective
Difficulty: Easy
Graduate Attribute: Problem Solving
Learning Objective: 20-02 Explain and use the economic profit-maximising pricing model
8.
(p. 953)
In the economic profit-maximising pricing model, how do the total revenue and total cost curves
generally behave?
Total revenue
Total cost
A. Upward sloping at increasing rate
B. Upward sloping at increasing rate
C. Upward sloping at decreasing rate
D. Downward sloping at constant rate
Upward sloping at decreasing rate
Upward sloping at constant rate
Upward sloping, rate decreases, then
increases
Downward sloping, then upward
sloping
AACSB: Reflective
Difficulty: Easy
Learning Objective: 20-02 Explain and use the economic profit-maximising pricing model
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
9.
(p. 953)
In the economic profit-maximising pricing model, how do the marginal revenue and marginal cost
curves generally behave?
Marginal revenue
A.
B.
C.
D.
Downward sloping
Downward sloping
Downward sloping
Upward sloping
Marginal cost
Downward sloping
Horizontal (zero slope)
U-shaped
U-shaped
AACSB: Reflective
Difficulty: Easy
Learning Objective: 20-02 Explain and use the economic profit-maximising pricing model
10.
(p. 956)
Managers base prices on product costs due to many reasons. Which of the following is not one of
the reasons?
A. Most companies sell many products and services and cost-based pricing provides a simple and
direct approach.
B. Cost-based pricing provides a good starting point for
managers.
C. The cost of a product or service provides a lower limit or floor, below which the price cannot be
set in the long run.
D. Cost-based pricing is useful for standard cost
analysis.
AACSB: Reflective
Difficulty: Easy
Graduate Attribute: Problem Solving
Learning Objective: 20-03 Explain value-based, economic-value and cost-price pricing strategies, and use these methods to calculate
prices
11.
Which of the following represents the cost-based pricing formula?
(p. 956)
A. Price =
cost)
B. Price =
up %
C. Price =
cost
D. Price =
cost)
cost + (mark-up % ×
cost + markmark-up % ×
cost + (mark-up % +
Difficulty: Easy
Learning Objective: 20-03 Explain value-based, economic-value and cost-price pricing strategies, and use these methods to calculate
prices
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
12.
Which of the following is not an advantage of the variable cost pricing formula?
(p. 956)
A. Variable cost analysis is consistent with cost volume profit
analysis.
B. Variable cost data does not require the allocation of common fixed costs to individual
product lines.
C. Variable costs help managers understand the profit implications of
changes in price.
D. It is cost effective to use because it is required for external
reporting.
AACSB: Reflective
Difficulty: Medium
Graduate Attribute: Problem Solving
Learning Objective: 20-03 Explain value-based, economic-value and cost-price pricing strategies, and use these methods to calculate
prices
13.
(p. 956)
If the average invested capital is $300 000 and the target return on investment is 20 per cent, what
is the target profit?
A. $50
000
B. $60
000
C. $70
000
D. $75
000
AACSB: Analytical
Difficulty: Easy
Graduate Attribute: Problem Solving
Learning Objective: 20-03 Explain value-based, economic-value and cost-price pricing strategies, and use these methods to calculate
prices
14.
Which of the following formulas represents the mark-up percentage on full cost?
(p. 956)
A. Mark-up % = target profit / (annual volume × total cost
per unit)
B. Mark-up % = target profit × total cost
per unit
C. Mark-up % = target profit × annual
volume
D. Mark-up % = (target profit × total cost per unit) /
annual volume
Difficulty: Easy
Learning Objective: 20-03 Explain value-based, economic-value and cost-price pricing strategies, and use these methods to calculate
prices
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
15.
(p. 956)
If the target profit is $60 000 for an annual volume of 480 units, the total annual fixed costs are
$168 000 and the total variable cost per unit is $450, then what is the mark-up percentage on total
variable cost?
A. 15.6
%
B. 13.5
%
C. 105.6
%
D. 115.6
%
AACSB: Analytical
Difficulty: Easy
Graduate Attribute: Problem Solving
Learning Objective: 20-03 Explain value-based, economic-value and cost-price pricing strategies, and use these methods to calculate
prices
16.
(p. 956)
If the target profit is $60 000 for an annual volume of 480 units, the total annual fixed costs are
$168 000 and the total variable cost per unit is $450, then what is the mark-up percentage on full
cost?
A. 15.6
%
B. 13.5
%
C. 105.6
%
D. 51.4
%
AACSB: Analytical
Difficulty: Easy
Graduate Attribute: Problem Solving
Learning Objective: 20-03 Explain value-based, economic-value and cost-price pricing strategies, and use these methods to calculate
prices
17.
Which of the following statements regarding cost-plus pricing is/are true?
(p. 956)
A. Cost-plus pricing formulas incorporate both fixed and
variable costs.
B. Cost-plus pricing formulas establish a starting point in
setting prices.
C. Cost-plus pricing formulas are useful for updating prices for existing
products.
D. All of the given
answers
AACSB: Reflective
Difficulty: Medium
Graduate Attribute: Problem Solving
Learning Objective: 20-03 Explain value-based, economic-value and cost-price pricing strategies, and use these methods to calculate
prices
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
18.
Which of the following statements about prices is false?
(p. 956)
A. Prices must cover all costs and a normal profit
margin.
B. A variable cost-plus pricing formula requires a higher mark-up percentage than a total cost-plus
pricing formula.
C. Different definitions of cost base, each combined with a different mark-up percentage, will result
in the same price for a product or service.
D. If prices are set close to variable manufacturing costs, the firm will generally earn a higher
profit margin.
AACSB: Reflective
Difficulty: Medium
Graduate Attribute: Problem Solving
Learning Objective: 20-03 Explain value-based, economic-value and cost-price pricing strategies, and use these methods to calculate
prices
19.
(p. 956)
Which of the following statements regarding absorption cost pricing formulas is/are true?
i. Absorption cost pricing formulas provide a justifiable price that tends to be perceived as equitable
by all parties.
ii. Since absorption cost information is necessary for external reporting, it is cost effective to use it
for pricing.
iii. Absorption cost-plus pricing formulas generally will result in a higher mark-up percentage than
variable manufacturing cost formulas.
A. i and
ii
B. ii and
iii
C. i and
iii
D. All of the given
answers
AACSB: Reflective
Difficulty: Medium
Graduate Attribute: Problem Solving
Learning Objective: 20-03 Explain value-based, economic-value and cost-price pricing strategies, and use these methods to calculate
prices
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
20.
(p. 956)
Consider the following statements regarding cost-plus pricing formulas.
i. Full cost pricing formulas have the advantage of keeping the manager's attention focused on
covering total costs.
ii. With cost-plus pricing formulas, management must consider market conditions and likely actions
of competitors.
iii. Variable cost-plus formulas have the advantage of not obscuring important information about
cost behaviour.
Which of the above statements is/are true?
A. i
B. ii and
iii
C. i and
iii
D. All of the given
answers
AACSB: Reflective
Difficulty: Easy
Graduate Attribute: Problem Solving
Learning Objective: 20-03 Explain value-based, economic-value and cost-price pricing strategies, and use these methods to calculate
prices
21.
(p. 956)
Sample Company reported the following costs during 2008 for the manufacture and sale of 2000
units:
The average amount of capital invested in the product line during the year was $500 000 and the
targeted return on investment was 20 per cent. If Sample's price per unit was $245 and the markup percentage was 53 per cent, what pricing formula was used by the company?
A. Total variable costplus
B. Variable manufacturing costplus
C. Absorption costplus
D. Time and materials costplus
AACSB: Analytical
Difficulty: Difficult
Graduate Attribute: Problem Solving
Learning Objective: 20-03 Explain value-based, economic-value and cost-price pricing strategies, and use these methods to calculate
prices
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
22.
Tots N Style Pty Ltd has the following data concerning a decorator playpen it manufactures:
(p. 956)
If the company uses cost-plus pricing based on variable manufacturing costs, determine the markup percentage used by the company to obtain a price of $105.
A. 350
%
B. 300
%
C. 250
%
D. 200
%
AACSB: Analytical
Difficulty: Easy
Graduate Attribute: Problem Solving
Learning Objective: 20-03 Explain value-based, economic-value and cost-price pricing strategies, and use these methods to calculate
prices
23.
Tots N Style Pty Ltd has the following data concerning a decorator playpen it manufactures:
(p. 956)
If the company uses cost-plus pricing based on total variable costs, determine the mark-up
percentage used by the company to obtain a price of $105.
A. 150
%
B. 300
%
C. 250
%
D. 200
%
AACSB: Analytical
Difficulty: Easy
Graduate Attribute: Problem Solving
Learning Objective: 20-03 Explain value-based, economic-value and cost-price pricing strategies, and use these methods to calculate
prices
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
24.
Tots N Style Pty Ltd has the following data concerning a decorator playpen it manufactures:
(p. 956)
If the company uses cost-plus pricing based on absorption costs, determine the mark-up
percentage used by the company to obtain a price of $120.
A. 140
%
B. 118
%
C. 71
%
D. 243
%
AACSB: Analytical
Difficulty: Easy
Graduate Attribute: Problem Solving
Learning Objective: 20-03 Explain value-based, economic-value and cost-price pricing strategies, and use these methods to calculate
prices
25.
Tots N Style Pty Ltd has the following data concerning a decorator playpen it manufactures:
(p. 956)
If the company uses cost-plus pricing based on full cost, determine the mark-up percentage used
by the company to obtain a price of $105.
A. 100
%
B. 75
%
C. 50
%
D. 25
%
AACSB: Analytical
Difficulty: Easy
Graduate Attribute: Problem Solving
Learning Objective: 20-03 Explain value-based, economic-value and cost-price pricing strategies, and use these methods to calculate
prices
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
26.
(p. 956)
The Houston Company manufactures office equipment. They are ready to introduce a new line of
desktop copiers. The following data concerns the copiers:
If the company uses cost-plus pricing based on variable manufacturing cost, what price must the
company charge when the mark-up percentage is 200 per cent?
A. $58
5
B. $45
0
C. $63
0
D. $54
0
AACSB: Analytical
Difficulty: Easy
Graduate Attribute: Problem Solving
Learning Objective: 20-03 Explain value-based, economic-value and cost-price pricing strategies, and use these methods to calculate
prices
27.
(p. 956)
The Houston Company manufactures office equipment. They are ready to introduce a new line of
desktop copiers. The following data concerns the copiers:
If the company uses cost-plus pricing based on total variable cost, what price must the company
charge when the mark-up percentage is 150 per cent?
A. $36
0
B. $52
5
C. $60
0
D. $49
5
AACSB: Analytical
Difficulty: Easy
Graduate Attribute: Problem Solving
Learning Objective: 20-03 Explain value-based, economic-value and cost-price pricing strategies, and use these methods to calculate
prices
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
28.
(p. 956)
The Houston Company manufactures office equipment. They are ready to introduce a new line of
desktop copiers. The following data concerns the copiers:
If the company uses cost-plus pricing based on absorption cost, what price must the company
charge when the mark-up percentage is 120 per cent?
A. $45
9
B. $42
0
C. $75
9
D. $59
4
AACSB: Analytical
Difficulty: Easy
Graduate Attribute: Problem Solving
Learning Objective: 20-03 Explain value-based, economic-value and cost-price pricing strategies, and use these methods to calculate
prices
29.
(p. 956)
The Houston Company manufactures office equipment. They are ready to introduce a new line of
desktop copiers. The following data concerns the copiers:
If the company uses cost-plus pricing based on full cost, what price must the company charge
when the mark-up percentage is 40 per cent?
A. $46
2
B. $56
7
C. $60
0
D. $51
3
AACSB: Analytical
Difficulty: Easy
Graduate Attribute: Problem Solving
Learning Objective: 20-03 Explain value-based, economic-value and cost-price pricing strategies, and use these methods to calculate
prices
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
30.
(p. 956)
Silco Pty Ltd manufactures various lines of computer equipment. They are planning to introduce a
line of laptop computers in January 2008. Current plans call for the production and sale of 1000
computers with estimated production costs as follows.
The average amount of capital invested in the laptop computer line is $900 000 and Silco's target
return on investment for the line is 18 per cent. What price must Silco charge if the company uses
cost-plus pricing based on full cost?
A. $86
8
B. $90
0
C. $1
192
D. $1
930
AACSB: Analytical
Difficulty: Easy
Graduate Attribute: Problem Solving
Learning Objective: 20-03 Explain value-based, economic-value and cost-price pricing strategies, and use these methods to calculate
prices
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
31.
(p. 956)
Silco Pty Ltd manufactures various lines of computer equipment. They are planning to introduce a
line of laptop computers in January 2008. Current plans call for the production and sale of 1000
computers with estimated production costs as follows.
The average amount of capital invested in the laptop computer line is $900 000 and Silco's target
return on investment for the line is 18 per cent. What is the mark-up percentage if the company
uses cost-plus pricing based on full cost?
A. 116.7
%
B. 15.7
%
C. 121.6
%
D. 58.9
%
AACSB: Analytical
Difficulty: Easy
Graduate Attribute: Problem Solving
Learning Objective: 20-03 Explain value-based, economic-value and cost-price pricing strategies, and use these methods to calculate
prices
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
32.
(p. 956)
Silco Pty Ltd manufactures various lines of computer equipment. They are planning to introduce a
line of laptop computers in January 2008. Current plans call for the production and sale of 1000
computers with estimated production costs as follows.
The average amount of capital invested in the laptop computer line is $900 000 and Silco's target
return on investment for the line is 18 per cent. If Silco uses cost-plus pricing based on absorption
cost, determine the mark-up percentage the company must use.
A. 21.6
%
B. 15.7
%
C. 29.5
%
D. None of the given
answers
AACSB: Analytical
Difficulty: Easy
Graduate Attribute: Problem Solving
Learning Objective: 20-03 Explain value-based, economic-value and cost-price pricing strategies, and use these methods to calculate
prices
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
33.
(p. 956)
Silco Pty Ltd manufactures various lines of computer equipment. They are planning to introduce a
line of laptop computers in January 2008. Current plans call for the production and sale of 1000
computers with estimated production costs as follows.
The average amount of capital invested in the laptop computer line is $900 000 and Silco's target
return on investment for the line is 18 per cent. What price must Silco charge if the company uses
cost-plus pricing based on total variable cost?
A. $193
0
B. $71
2
C. $119
2
D. $103
0
AACSB: Analytical
Difficulty: Easy
Graduate Attribute: Problem Solving
Learning Objective: 20-03 Explain value-based, economic-value and cost-price pricing strategies, and use these methods to calculate
prices
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
34.
(p. 956)
Silco Pty Ltd manufactures various lines of computer equipment. They are planning to introduce a
line of laptop computers in January 2008. Current plans call for the production and sale of 1000
computers with estimated production costs as follows.
The average amount of capital invested in the laptop computer line is $900 000 and Silco's target
return on investment for the line is 18 per cent. What is the mark-up percentage if the company
uses cost-plus pricing based on total variable cost?
A. 116.7
%
B. 142.7
%
C. 121.6
%
D. 58.9
%
AACSB: Analytical
Difficulty: Easy
Graduate Attribute: Problem Solving
Learning Objective: 20-03 Explain value-based, economic-value and cost-price pricing strategies, and use these methods to calculate
prices
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
35.
(p. 960)
Town and Country Auto Repair uses time and material pricing. The Body Shop has the following cost
data.
Determine the time charge per hour.
A. $18.0
0
B. $35.0
0
C. $25.5
0
D. $40.0
0
AACSB: Analytical
Difficulty: Easy
Graduate Attribute: Problem Solving
Learning Objective: 20-04 Determine prices using the time and material pricing approach
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
36.
(p. 960)
Town and Country Auto Repair uses time and material pricing. The Body Shop has the following cost
data.
Determine the amount needed to be added to each dollar of material cost to obtain the material
charge.
A. $0.4
8
B. $0.0
8
C. $0.0
6
D. $0.1
0
AACSB: Analytical
Difficulty: Easy
Graduate Attribute: Problem Solving
Learning Objective: 20-04 Determine prices using the time and material pricing approach
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
37.
(p. 960)
Town and Country Auto Repair uses time and material pricing. The Body Shop has the following cost
data.
If a particular job takes 10 hours in labour and $500 in materials, determine the price charged for
the job.
A. $77
5
B. $85
0
C. $39
0
D. $89
0
AACSB: Analytical
Difficulty: Difficult
Graduate Attribute: Problem Solving
Learning Objective: 20-04 Determine prices using the time and material pricing approach
38.
(p. 960)
An approach to pricing in which two charges are determined, one charge for labour used on the job
and another charge for the materials used on the job, is called:
A. time and material
pricing
B. variable cost
pricing
C. competitive
bidding
D. absorption cost
pricing
Difficulty: Easy
Learning Objective: 20-04 Determine prices using the time and material pricing approach
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
39.
(p. 960)
Which of the following statements about time and material pricing is/are true?
i. The labour charge includes the direct cost of the employee's time.
ii. The labour charge includes a charge to cover various overhead costs.
iii. The labour charge includes a handling charge for material.
A. i
B. i and
ii
C. i and
iii
D. All of the given
answers
Difficulty: Easy
Learning Objective: 20-04 Determine prices using the time and material pricing approach
40.
(p. 960)
Which of the following statements about time and material pricing is/are true?
i. The material charge includes the direct cost of the employee's time.
ii. The material charge includes the direct cost of materials used.
iii. The material charge includes a charge for material handling and storage.
A. i
i
B. ii
i
C. ii and
iii
D. All of the given
answers
Difficulty: Easy
Learning Objective: 20-04 Determine prices using the time and material pricing approach
41.
How are the time charges calculated?
(p. 960)
A. Hourly labour
cost
B. Hourly labour cost + annual
overhead
C. Hourly labour cost + [annual overhead (excluding material handling and storage) / annual
labour hours] + hourly charge to cover profit margin
D. Hourly labour cost + hourly charge to cover
profit margin
Difficulty: Easy
Learning Objective: 20-04 Determine prices using the time and material pricing approach
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
42.
Econo Auto Repair estimates the following costs for 2008.
(p. 960)
What material charge formula would be used to include a charge for the handling and storage of
material on every job?
A. Cost of material
only
B. Cost of material + $2 per labour
hour
C. Cost of material + $0.05 per $1 of
material
D. Cost of material + $0.50 per
labour hour
AACSB: Analytical
Difficulty: Easy
Graduate Attribute: Problem Solving
Learning Objective: 20-04 Determine prices using the time and material pricing approach
43.
Which of the following statements about competitive bidding is/are true?
(p. 963)
A. In a competitive bidding situation, the criterion to select the contractor is always based solely on
the design specifications of the job.
B. Competitive bidding occurs when two or more companies submit a sealed bid for a product,
service or project to a potential buyer.
C. From the perspective of the bidder, quantitative factors are more important than qualitative
factors in competitive bidding situations.
D. In a competitive bidding situation, the criterion to select the contractor is always based solely on
the design specifications of the job AND competitive bidding occurs when two or more
companies submit a sealed bid for a product, service or project to a potential buyer.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 20-07 Select and analyse relevant information and set prices in special order or competitive bid situations
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
44.
If a firm has excess capacity, which of the following is a sensible bidding strategy?
(p. 963)
A. Set a price to cover all
costs.
B. Base the bid on the incremental costs incurred because the job will contribute toward covering
the company's fixed costs and profit.
C. Base the bid solely on direct labour
hours.
D. Common fixed costs must be allocated to individual jobs before
preparing the bid.
AACSB: Reflective
Difficulty: Easy
Graduate Attribute: Problem Solving
Learning Objective: 20-07 Select and analyse relevant information and set prices in special order or competitive bid situations
45.
(p. 963)
Which of the following statements about competitive bidding is/are true?
i. The higher the price that is bid, the greater the profit, if the firm gets the contract.
ii. Bidding a higher price increases the probability of obtaining the contract.
iii. A company bidding low enough to ensure the acceptance of a contract may have bid too low to
make an acceptable profit on the job.
A. i
B. i
i
C. i and
iii
D. All of the given
answers
AACSB: Reflective
Difficulty: Easy
Graduate Attribute: Problem Solving
Learning Objective: 20-07 Select and analyse relevant information and set prices in special order or competitive bid situations
46.
(p. 963)
Under competitive bidding when a company has no excess capacity, the bid price would normally
include:
A. only the incremental costs of
the job
B. only the variable costs of the job plus a modest
contribution margin
C. the full cost of the job including capacityproducing costs
D. the full cost of the job excluding capacityproducing costs
AACSB: Reflective
Difficulty: Easy
Graduate Attribute: Problem Solving
Learning Objective: 20-07 Select and analyse relevant information and set prices in special order or competitive bid situations
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
47.
(p. 963)
Which of the following statements regarding the manufacture of new products is/are true?
i. Uncertainties about the potential market for the product pose problems when pricing these
products.
ii. Uncertainties regarding obstacles that will be encountered in manufacturing these products pose
pricing problems.
iii. Uncertainties about production costs will not influence pricing decisions because these types of
products are generally sold in a non-competitive market.
A. i
B. ii
i
C. i and
ii
D. All of the given
answers
AACSB: Reflective
Difficulty: Easy
Graduate Attribute: Problem Solving
Learning Objective: 20-06 Discuss the issues involved in the strategic pricing of new products
48.
Price skimming is when:
(p. 963)
A. the initial product price is set low and is kept
constant.
B. the initial product price is set high giving high short-term profits; then the price is
slowly lowered.
C. the initial high product price is set high and
raised.
D. the initial product price is set low and
raised.
Difficulty: Easy
Learning Objective: 20-06 Discuss the issues involved in the strategic pricing of new products
49.
(p. 963)
What term describes a pricing strategy in which the initial price is set relatively low for a new
product in order to gain a large market share?
A. Penetration
pricing
B. Target
pricing
C. Designed
pricing
D. Market share
pricing
Difficulty: Easy
Learning Objective: 20-06 Discuss the issues involved in the strategic pricing of new products
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
50.
The pricing strategy that results in greater initial sales volume but lower unit profits is called:
(p. 963)
A. Skimming
pricing
B. Target
pricing
C. Predatory
pricing
D. Penetration
pricing
Difficulty: Easy
Learning Objective: 20-06 Discuss the issues involved in the strategic pricing of new products
51.
(p. 967)
The Mixed-Up Floor Company Ltd makes two products, carpet polish and floor deodoriser. Operating
information from the previous year is as follows.
Fixed costs of $20 000 per year are presently allocated evenly between both products. If the
product mix were to change, total fixed costs would remain the same. Calculate the contribution
margin per machine hour for floor deodoriser.
A. $4.0
0
B. $2.0
0
C. $3.0
0
D. $0.2
5
AACSB: Analytical
Difficulty: Easy
Graduate Attribute: Problem Solving
Learning Objective: 20-09 Select and analyse relevant information for tactical and long-term product mix decisions
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
52.
(p. 967)
The Mixed-Up Floor Co. Ltd makes two products, carpet polish and floor deodoriser. Operating
information from the previous year is as follows.
Fixed costs of $20 000 per year are presently allocated evenly between both products. If the
product mix were to change, total fixed costs would remain the same. Assuming everything
produced for either product can be sold, how many units of each product should be produced and
sold if machine hours are limited to 10 000?
Carpet polish
A.
B.
C.
D.
10 000 units
5 000 units
8 000 units
0 units
Floor deodoriser
0
10 000
4000
20 000
units
units
units
units
AACSB: Analytical
Difficulty: Medium
Graduate Attribute: Problem Solving
Learning Objective: 20-09 Select and analyse relevant information for tactical and long-term product mix decisions
53.
Contribution margin per machine hour can be calculated by dividing:
(p. 967)
A. machine hours required per unit by sales margin
per unit
B. contribution margin per unit by machine hours
required per unit
C. total contribution margin per unit by total sales
revenue per unit
D. total machine hours required by total
contribution margin
AACSB: Reflective
Difficulty: Easy
Learning Objective: 20-09 Select and analyse relevant information for tactical and long-term product mix decisions
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
54.
Linear programming is used by decision makers when there are:
(p. 975)
A. limited resources for
labour
B. scarce resources for machine
hours
C. scarce resources for both labour and machine
hours
D. multiple scarce
resources
AACSB: Reflective
Difficulty: Easy
Learning Objective: 20-10 Use linear programming in short-term (tactical) product mix decisions
55.
Linear programming is useful:
(p. 975)
A. when there is only one
product
B. when there are many
products
C. only when an activity-based costing system is
in use
D. when there is only one
constraint
AACSB: Reflective
Difficulty: Easy
Learning Objective: 20-10 Use linear programming in short-term (tactical) product mix decisions
56.
In linear programming, the objective function is typically based on:
(p. 975)
A. the selling price of the
products
B. the variable cost of the
products
C. the full cost of the
products
D. the contribution margin of the
products
AACSB: Reflective
Difficulty: Easy
Learning Objective: 20-10 Use linear programming in short-term (tactical) product mix decisions
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
57.
In linear programming, a constraint represents:
(p. 975)
A. the objective
function
B. the contribution margin
per unit
C. the limitations faced by
the firm
D. the break-even level of
activity
AACSB: Reflective
Difficulty: Easy
Learning Objective: 20-10 Use linear programming in short-term (tactical) product mix decisions
58.
(p. 962)
Which of the following statements regarding product cost distortion and product pricing is/are
true?
A. Product cost distortions will have a more serious impact on product pricing if the market prices
are a major factor in setting prices.
B. Product cost distortions will have a more serious impact if cost-plus pricing is a major tool for
determining prices.
C. If product costs are distorted, it will not be possible to determine the
market price.
D. Product cost distortions will have a more serious impact if cost-plus pricing is a major tool for
determining prices AND if product costs are distorted, it will not be possible to determine the
market price.
AACSB: Reflective
Difficulty: Easy
Graduate Attribute: Problem Solving
Learning Objective: 20-05 Explain how product cost distortions can undermine a firm’s pricing policy
59.
(p. 962)
Which of the following statements about product-cost distortions and product pricing is/are true?
i. Under conventional volume-based product costing systems, high volume and relatively simple
products are often overcosted while low volume and complex products are undercosted.
ii. The use of a conventional volume-based product costing system may result in significant cost
distortions among product lines.
iii. Overpricing high-volume products can lead to pricing errors.
A. i and
ii
B. ii and
iii
C. i and
iii
D. All of the given
answers
AACSB: Reflective
Difficulty: Easy
Graduate Attribute: Problem Solving
Learning Objective: 20-05 Explain how product cost distortions can undermine a firm’s pricing policy
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
60.
The Trade Practices Act 1974 (Cwlth) is legislation that:
(p. 965)
A. restricts certain types of commercial activities,
including pricing
B. restricts employee
benefits
C. describes loan
procedures
D. generally allows the use of price-fixing
contracts
AACSB: Reflective
Difficulty: Easy
Learning Objective: 20-08 Describe the regulations that impose restrictions on pricing
61.
(p. 965)
Which of the following statements about price-fixing contracts is/are true?
i. Price-fixing contracts are prohibited where they have the effect of substantially lessening
competition.
ii. Price-fixing contracts are a means of quoting different prices for different customers.
iii. Price-fixing contracts result in controlling the prices of goods or services.
A. i
B. ii and
iii
C. i and
iii
D. ii
i
AACSB: Reflective
Difficulty: Easy
Learning Objective: 20-08 Describe the regulations that impose restrictions on pricing
62.
What is price discrimination?
(p. 965)
A. Quoting the same price to all
customers
B. Quoting different prices to different customers for different goods
and services
C. Quoting different prices to different customers for the same goods
or services
D. Quoting different prices to a customer, depending on quantity of goods or
services demanded
AACSB: Reflective
Difficulty: Easy
Learning Objective: 20-08 Describe the regulations that impose restrictions on pricing
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
63.
(p. 962)
One of the consequences of traditional methods of overhead allocation combined with cost-based
pricing is that:
A. low-volume products can be
overpriced
B. high-volume products can be
underpriced
C. simple products can be
underpriced
D. high-volume products can be
overpriced
AACSB: Reflective
Difficulty: Easy
Graduate Attribute: Problem Solving
Learning Objective: 20-05 Explain how product cost distortions can undermine a firm’s pricing policy
64.
(p. 962)
One of the advantages of activity-based costing (ABC) over traditional methods of overhead
allocation, when combined with cost-based pricing, is that ABC avoids the problem of:
A. low-volume products being
underpriced
B. low-volume products being
overpriced
C. high-volume products being
underpriced
D. complex products being
overpriced
AACSB: Reflective
Difficulty: Easy
Graduate Attribute: Problem Solving
Learning Objective: 20-05 Explain how product cost distortions can undermine a firm’s pricing policy
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
65.
(p. 967)
The managing director of H Limited is setting the production plan for the next financial year. H has
a shortage of skilled labour and wishes to maximise the profitability of the company. H
manufactures three products X, Y and Z. There is 200 000 hours of skilled labour available in the
year at a cost of $10 per hour. The following information relates to each product.
Assuming all relevant information is provided, in what order should H manufacture its products to
maximise profit in the current year?
A. Z then
X
B. X then
Z
C. X, Y then
Z
D. None of the given
answers
AACSB: Analytical
Difficulty: Easy
Graduate Attribute: Problem Solving
Learning Objective: 20-09 Select and analyse relevant information for tactical and long-term product mix decisions
66.
(p. 967)
A firm produces products X, Y and Z with contribution margins of $4, $5 and $10 respectively. The
firm has only 5000 machine hours available for a particular period. Machine hours required for each
of the products are 1, 1 and 5 hours respectively. Demand for the products is 1000 for X, 3000 for Y
and 2000 for Z. How many units of each product will the firm produce?
A. 2000
Z
B. 1000 X, 3000 Y,
2000 Z
C. 3000 Y, 1000 X,
200 Z
D. 2000 Z, 3000
Y
AACSB: Analytical
Difficulty: Difficult
Graduate Attribute: Problem Solving
Learning Objective: 20-09 Select and analyse relevant information for tactical and long-term product mix decisions
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
67.
(p. 967)
C Limited manufactures specialist medical equipment. Recruitment and training of manufacturing
staff is difficult and C's operations management estimates that only 160 000 hours of labour at a
rate of $50 per hour will be available in the next financial year. The following details relate to C's
planned production of three products X, Y and Z for the next 12 months.
To maximise profits the products C should manufacture are:
A. Y then
Z
B. Y then Z, then
X.
C. X then
Z.
D. X then F, then
Y.
AACSB: Analytical
Difficulty: Medium
Graduate Attribute: Problem Solving
Learning Objective: 20-09 Select and analyse relevant information for tactical and long-term product mix decisions
68.
(p. 967)
Karl's Kitchens is experimenting with different vinegars for sale on the domestic market. The
contribution margins per carton for three types V1, V2 and V3 are $120, $100 and $150
respectively. The firm is constrained in terms of labour hours, and the labour hours required per
carton of each type of vinegar is 2 hours, 1.5 hours and 3 hours respectively. Assume the firm has
2240 available labour hours per month, and the monthly demand is 1200 cartons of V1, 800
cartons of V2 and 300 cartons of V3. What is the product mix that will maximise profit?
A. 800 V2, 520
V1
B. 300 V3, 670
V2
C. 1 200 V1, 800 V2, 300
V3
D. 1 120
V1
AACSB: Analytical
Difficulty: Difficult
Graduate Attribute: Problem Solving
Learning Objective: 20-09 Select and analyse relevant information for tactical and long-term product mix decisions
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
69.
(p. 956)
A firm employs average assets of $600 000 and calculates its mark-up on full cost based on a
desired return on investment of 20 per cent. Expected production is 10 000 units, and the full cost
per unit is $80. What is the mark-up percentage?
A. 20
%
B. 120
%
C. 15
%
D. 25
%
AACSB: Analytical
Difficulty: Easy
Graduate Attribute: Problem Solving
Learning Objective: 20-03 Explain value-based, economic-value and cost-price pricing strategies, and use these methods to calculate
prices
70.
(p. 956)
A firm employs average assets of $600 000 and calculates its mark-up on full cost based on a
desired return on investment of 20 per cent. Expected production is 10 000 units, and the full cost
per unit is $80. If the firm changed its pricing policy and determined in future to calculate its markup based on absorption cost, which of the following statements (if any) is correct about the firm's
new mark-up percentage?
A. The mark-up percentage will be
lower.
B. The mark-up percentage will be
higher.
C. Because the price charged will be the same, there will be no change in the mark-up
percentage.
D. None of the given
answers
AACSB: Reflective
Difficulty: Medium
Graduate Attribute: Problem Solving
Learning Objective: 20-03 Explain value-based, economic-value and cost-price pricing strategies, and use these methods to calculate
prices
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
71.
(p. 956)
A firm has excess capacity, and has received an order for 50 000 units at $20 each over and above
its normal production activity of 600 000 units. To meet this order, new equipment at a cost of $200
000 would have to be bought, and this equipment would have to be scrapped after the order had
been filled. The firm currently sells for $50 per unit, has variable costs of $15.80, and fixed costs of
$600 000. What is the additional profit (loss) for the firm if it accepts the order?
A. Loss of $10
000
B. Profit of $40
000
C. Loss of $40
000
D. Profit of $10
000
AACSB: Analytical
Difficulty: Medium
Graduate Attribute: Problem Solving
Learning Objective: 20-03 Explain value-based, economic-value and cost-price pricing strategies, and use these methods to calculate
prices
72.
(p. 956)
A firm has excess capacity, and has received an order for 50 000 units at $20 each over and above
its normal production activity of 600 000 units. To meet this order, new equipment at a cost of $200
000 would have to be bought, and this equipment would have to be scrapped after the order had
been filled. The firm currently sells for $50 per unit, has variable costs of $15.80, and fixed costs of
$600 000. Assuming the firm had been aggressively seeking the business of the customer who
requested the special order, what would be the minimum price that the firm would be prepared to
charge?
A. $15.8
0
B. $5
0
C. $27.8
0
D. $19.8
0
AACSB: Analytical
Difficulty: Medium
Graduate Attribute: Problem Solving
Learning Objective: 20-03 Explain value-based, economic-value and cost-price pricing strategies, and use these methods to calculate
prices
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
73.
(p. 975)
Which of the following statements is not correct? Linear programming is a technique designed to
recognise specifically that:
A. the choice of the optimal mix involves a cost-benefit
trade-off
B. firms will focus on the products with the highest
contribution margin
C. there may be more than one production
constraint
D. products compete with each other for limited
resources
AACSB: Reflective
Difficulty: Easy
Learning Objective: 20-10 Use linear programming in short-term (tactical) product mix decisions
74.
The optimal decision in the linear programming model depends on:
(p. 975)
A. the intersection of the constraint
lines
B. the slope of the objective
function
C. the slope of the objective function combined with all
constraints
D. the feasible region interact with the smallest
constraint
AACSB: Reflective
Difficulty: Easy
Learning Objective: 20-10 Use linear programming in short-term (tactical) product mix decisions
75.
(p. 975)
Which of the following describes, most accurately, what the area of feasible solutions on the linear
programming graph represents?
A. The area bordered by the intersection of the two
constraint lines.
B. The area bordered by the intersection of all
constraint lines.
C. The area on the graph that contains all possible combinations of products, including the
optimal combination.
D. The area bordered by the intersection of all constraint lines AND the area on the graph that
contains all possible combinations of products, including the optimal combination.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 20-10 Use linear programming in short-term (tactical) product mix decisions
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
76.
(p. 956)
Waverly Ltd produces commercial grade washing machines. The Karewasher is currently selling for
$2000 per unit. The company wants to introduce a new model, Supawasher, which uses less water
per load. The comparative life-time costs of the two models are as follow:
The economic value of a Supawasher is: (ignore time value of money)
A. $30
0
B. $230
0
C. $290
0
D. $490
0
AACSB: Analytical
Difficulty: Medium
Graduate Attribute: Problem Solving
Learning Objective: 20-03 Explain value-based, economic-value and cost-price pricing strategies, and use these methods to calculate
prices
77.
(p. 956)
Avocado Ltd produces small electronic components for kitchen appliances. This year it expects to
produce 10 000 units of component X. The variable manufacturing cost of component X is $2 per
unit, and the variable selling and administrative cost of component X is $3 per unit. In addition, to
produce component X Avocado Ltd incurs annual fixed manufacturing cost of $50 000 and annual
fixed selling and administrative cost of $60 000. If the target profit is $2 per unit, and using cost
plus pricing approach, the mark up percentage based on total variable costs is:
A. 260
%
B. 80
%
C. C.63.6
%
D. 12.5
%
AACSB: Analytical
Difficulty: Medium
Graduate Attribute: Problem Solving
Learning Objective: 20-03 Explain value-based, economic-value and cost-price pricing strategies, and use these methods to calculate
prices
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
78.
(p. 956)
Avocado Ltd produces small electronic components for kitchen appliances. This year it expects to
produce 10 000 units of component X. The variable manufacturing cost of component X represents
50% of its total costs. The target profit is $2 per unit. Using the cost-plus pricing approach based on
total costs, the selling price per unit of component X is $20. If Avocado Ltd decides to change its
cost-plus pricing approach to base the mark up percentage on variable manufacturing costs, the
selling price for each unit of component X will be:
A. $1
0
B. $2
0
C. $3
0
D. Not enough
information.
AACSB: Analytical
Difficulty: Medium
Graduate Attribute: Problem Solving
Learning Objective: 20-03 Explain value-based, economic-value and cost-price pricing strategies, and use these methods to calculate
prices
79.
(p. 965)
Gossip Goose (GG) and Tabloid Chicks (TC) are two magazines renowned for their reporting of
unverifiable entertainment news. Steven Hassaloff is the marketing director of GG, and Jasmine
Trotter is the advertising manager of TC. Steven and Jasmine met at the local pub one day and
decided to both sell their magazines at the same lower-than-average price ($3), in order to increase
their market shares and lower the level of competitive pressure in the market. Steven and
Jasmine's agreement is an example of:
A. Resale price maintenance, and is
illegal
B. Resale price maintenance and is legal only when both parties reach an agreement in the
absence of coercion
C. Price-fixing and is
illegal
D. Price-fixing and is legal only when both parties reach an agreement in the absence
of coercion
AACSB: Reflective
Difficulty: Easy
Graduate Attribute: Problem Solving
Learning Objective: 20-08 Describe the regulations that impose restrictions on pricing
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
80.
(p. 965)
It is illegal for companies to offer different prices to different customers for the same goods or
services, except:
A. where the company is trying to meet a
competitor's price
B. where the company's corporate vision explicitly states this is a
company policy
C. where the company is pursuing a cost leadership
strategy
D. There is no exception: price discrimination is
always illegal.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 20-08 Describe the regulations that impose restrictions on pricing
81.
Which of the following is not prohibited by the ACCC?
(p. 965)
A. To prevent entry of other corporations into the
market
B. To prevent other corporations in competing in the
market
C. To take advantage of a company's market power to bulk purchase in order to achieve a
cost advantage
D. All of the above are acts prohibited by
ACCC
AACSB: Reflective
Difficulty: Medium
Graduate Attribute: Problem Solving
Learning Objective: 20-08 Describe the regulations that impose restrictions on pricing
82.
(p. 965)
Gossip Goose (GG) is a magazine renowned for their reporting of unverifiable entertainment news.
Dee Hassaloff is the marketing director of GG. Recently, Hassaloff decided to lower the price of GG
to $2 in order to drive out some of the smaller competitors. Hassaloff's behaviour is best described
as an example of:
A. Skimming
pricing
B. Penetration
pricing
C. Predatory
pricing
D. Discriminatory
discounting.
AACSB: Reflective
Difficulty: Easy
Graduate Attribute: Problem Solving
Learning Objective: 20-08 Describe the regulations that impose restrictions on pricing
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
83.
(p. 967)
Avocado Ltd produces small electronic components for kitchen appliances. Two of its products are
Component Y and Component Z. The selling price of Component Y is $15, and the selling price of
Component Z is $20. The variable cost per unit for Component Y is $8 and the variable cost per unit
of Component Z is $11. The machine hour requirement and demand for the two products are:
Avocado Ltd's production capacity is 6500 machine hours per month. The optimal product mix is:
A. 1000 units X, 1500
units Y
B. 0 units X, 2167
units Y
C. 1000 units X, 2500
units Y
D. 1500 units X, 1000
units Y
AACSB: Analytical
Difficulty: Easy
Graduate Attribute: Problem Solving
Learning Objective: 20-09 Select and analyse relevant information for tactical and long-term product mix decisions
84.
(p. 967)
Avocado Ltd produces small electronic components for kitchen appliances. Two of its products are
Component Y and Component Z. The selling price of Component Y is $15, and the selling price of
Component Z is $20. The variable cost per unit for Component Y is $8 and the variable cost per unit
of Component Z is $11. The machine hour requirement and demand for the two products are:
Both Component Y and Component X have to undergo the machining process first, followed by a
manual polishing labour process. Avocado Ltd's capacity is 6500 machine hours and 6500 labour
hours. The top priority of Avocado Ltd in terms of managing constraints is:
A. Increase advertising to stimulate greater demand for
Component Z
B. Train employees to improve productivity in relation to
polishing
C. Invest in additional
machines
D. Lower the price of Component Y to simulate
demand
AACSB: Analytical
AACSB: Reflective
Difficulty: Medium
Graduate Attribute: Problem Solving
Learning Objective: 20-09 Select and analyse relevant information for tactical and long-term product mix decisions
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
85.
Value-based pricing refers to:
(p. 956)
A. A pricing strategy that takes into account the costs and benefits experienced by the customer
that extend beyond the initial purchase price
B. A pricing strategy where customers' perceptions of value guide
the price
C. A pricing strategy where prices are determined based on net value of each component of a
product or service
D. A pricing strategy based on a labour and material
pricing formula
Difficulty: Easy
Learning Objective: 20-03 Explain value-based, economic-value and cost-price pricing strategies, and use these methods to calculate
prices
86.
(p. 950)
Influences on pricing decisions
Two of the major influences on pricing decisions are customer demand and actions of competitors.
i. What are the other two major influences?
ii. Briefly describe customer demand and actions of competitors.
iii. In the text example, Sydney Sailing Supplies faced the question of defining its own products
narrowly as sailing supplies or more broadly as boating supplies. Explain why these definitions
could influence how the management of Sydney Sailing Supplies views either ‘customer demand or
actions of competitors'.
i. Two major influences on pricing decisions are product costs and political, legal and image-related
issues.
ii. Customer demand refers to the number of units that customers wish to obtain as a function of
several variables including price, design features, quality etc.
‘Actions of competitors' refers to the actions that other sellers of products may take in response to
initiatives by our firm. These actions include, but are not limited to, changes in price, selling terms,
quality, customer service after sale and variety within the product line.
iii. If the product line is viewed narrowly as sailing supplies, then customer demand is viewed
narrowly as relating to those customers that are already committed to sailing. However, a wider
view would suggest that customer demand be viewed as not consisting solely of people who are
committed to sailing, but rather as people who may change their consumption to other types of
boating activities such as canoes and small motorboats.
In a similar fashion, the actions of competitors may be viewed narrowly as the actions of other
firms that produce sailing supplies or may be viewed broadly as the actions of firms that produce
items for canoes or for small motorboats. If the narrow view is taken, the company is not fully
taking into account customers or competitors' actions, which may influence their sales, market
share and profits.
AACSB: Communication
AACSB: Reflective
Difficulty: Medium
Graduate Attribute: Communication
Graduate Attribute: Problem Solving
Learning Objective: 20-01 List and describe the major influences on pricing decisions
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
87.
(p. 950,
960)
Balance of market forces and cost-based pricing
i. ‘Product costs are critical in setting prices, for all costs must be covered in order to make a profit.'
Evaluate this statement.
ii. ‘Product costs set a ceiling and prices of competitors set a floor for the prices of our products.'
Evaluate this statement.
i. The influence of customer demand and actions of competitors cannot be ignored. No profit will be
made if a product is priced so as to cover cost, but at a level above either a competitor's price or a
customer's willingness to sacrifice other consumption opportunities in order to obtain this product.
ii. The reverse of this statement makes more sense: our product costs set a floor on selling prices. If
our firm cannot cover costs in the long term, the products should not be made. Likewise, the prices
of competitors represent an upper limit on our prices unless there are characteristics of our product
that make it attractive to customers in spite of the additional cost.
AACSB: Communication
AACSB: Reflective
Difficulty: Medium
Graduate Attribute: Communication
Graduate Attribute: Problem Solving
Learning Objective: 20-01 List and describe the major influences on pricing decisions
Learning Objective: 20-04 Determine prices using the time and material pricing approach
88.
(p. 953)
Total and marginal relationships in the economic profit maximising model
The following questions explore the relationships between total and marginal functions in the
economic profit maximising (EPM) model.
i. The total revenue function rises over the range of operating activity portrayed in the text. Why
does the marginal revenue function decrease?
ii. The total cost function increases over the relevant range of activity. Why does the marginal cost
function exhibit its complex behaviour?
iii. In the EPM model, what is the profit maximising level of volume? Explain.
i. The total revenue function is increasing at a decreasing rate; consequently, the rate of change in
marginal revenue is negative.
ii. The marginal cost function decreases initially reflecting economies of scale achieved at relatively
low levels of activity. However, at relatively high levels of activity, the marginal cost function
increases due to diseconomies of scale exhibited in the sharply rising total cost function at these
levels of activity.
iii. The profit maximising level of volume is at the intersection of the marginal cost and marginal
revenue functions. To the left of this volume, additional sales will generate greater revenue than
the incremental costs; to the right of this volume, the opposite is true.
AACSB: Communication
AACSB: Reflective
Difficulty: Easy
Graduate Attribute: Communication
Graduate Attribute: Problem Solving
Learning Objective: 20-02 Explain and use the economic profit-maximising pricing model
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
89.
(p. 953)
Cost volume profit (CVP) compared to the economic profit maximising pricing model
The questions below explore the differences between the economic profit maximising pricing (EPM)
model and the CVP model discussed earlier.
i. How does the total revenue function in the EPM model differ from that in the CVP model?
ii. How does the total cost function in the EPM model differ from that in the CVP model?
iii. How is volume related to profit maximisation in the CVP model? How does this compare to the
EPM model?
i. In the CVP model, the total revenue function has a constant slope reflecting the assumption of a
constant selling price. In the EPM model, the slope of the total revenue function is quite high at the
beginning and gradually declines (and may turn negative at sufficiently high levels of volume).
Thus, selling price is not assumed constant in the EPM model.
ii. In the CVP model, the total cost function has a constant slope reflecting the assumptions that
total fixed costs remain constant and that variable costs increase at a constant amount per unit. In
the EPM model, the slope is steep at the beginning, enters a range of constant slope and then
increases at an increasing rate at higher levels of volume.
iii. In the CVP model, profit is maximised at the highest level of volume in the relevant range,
assuming that unit selling price exceeds unit variable cost. In the EPM model, profit decreases at
sufficiently high levels of volume because of declines in unit selling price and increases in unit
variable costs.
AACSB: Communication
AACSB: Reflective
Difficulty: Difficult
Graduate Attribute: Communication
Graduate Attribute: Problem Solving
Learning Objective: 20-02 Explain and use the economic profit-maximising pricing model
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
90.
(p. 963)
Role of excess capacity in competitive bidding
Yendys Pty Ltd is preparing a bid for a project. Yendys experiences considerable seasonal variation
in the level of activity. This particular project would be done during a slack period of the year. The
cost structure of the company reflects high fixed costs.
i. How should the fixed costs be handled in the ‘time and materials' bidding approach to this
project?
ii. Assume the company wins the bid and performs the job with financial results as projected in the
bid. Several months later, the customer contacts Yendys directly and requests a bid to do another
job. However, this project must be done during a peak season. How should Yendys' management
respond? How do you think the customer will respond?
i. Fixed costs should not receive the same emphasis that would be given if the project were to be
done during a peak time. Any contribution that this project can make in excess of the direct
incremental costs will augment the profit of the company.
ii. The bid for the second project cannot be prepared on the same basis as the bid for the first
project because of the timing. The requirement to perform the job during a peak season means
that the job must provide a sufficient return to make it more attractive than other jobs.
The customer is likely to be unhappy about the considerable change in bid from the first project.
However, if the customer understands the seasonal nature of Yendys' business, then perhaps the
customer will change its time schedule to better accommodate the seasonal nature of Yendys'
business.
AACSB: Communication
AACSB: Reflective
Difficulty: Difficult
Graduate Attribute: Communication
Graduate Attribute: Problem Solving
Learning Objective: 20-07 Select and analyse relevant information and set prices in special order or competitive bid situations
91.
(p. 963)
Strategic pricing of new products
i. Distinguish between skimming pricing and penetration pricing.
ii. Are these two pricing strategies viable alternatives for most products? Explain.
i. Skimming pricing is designed to obtain a high price per unit at relatively low levels of sales. As
the product becomes known and interest in it grows, the price is lowered, thus stimulating sales
volume.
Penetration pricing seeks to generate a relatively high level of sales volume initially in order to
achieve a high market share.
ii. These two pricing strategies probably are not viable strategies for most products. The skimming
strategy requires a small core of customers for whom price is unimportant compared to other
characteristics of the product. On the other hand, penetration pricing is more appropriate when the
market has already been established and the firm wishes to have an impact with its entry into the
market.
AACSB: Communication
AACSB: Reflective
Difficulty: Easy
Graduate Attribute: Communication
Graduate Attribute: Problem Solving
Learning Objective: 20-06 Discuss the issues involved in the strategic pricing of new products
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
92.
(p. 962)
Product cost distortion and pricing
Assume a firm relies heavily on cost-plus pricing to arrive at selling prices for its many products.
i. Define product cost distortion.
ii. Can product cost distortion ever be eliminated?
iii. Are there certain manufacturing situations in which product cost distortion is more likely?
Explain.
iv. How can cost-plus pricing be improved in the situation described at the start of this question?
i. Product cost distortion refers to the assignment of costs to products in a manner that does not
reflect the utilisation of resources by that product.
ii. Product cost distortion cannot be eliminated.
Activity-based costing can reduce distortions substantially. However, activity-based costing relies
on cost drivers for each cost pool. These drivers are unlikely to reflect perfectly the consumption of
resources by various products.
iii. Product cost distortions are more likely in situations where there are substantial differences in
the volume, size or complexity of various products.
iv. A more elaborate costing system rather than a conventional volume-based costing system will
help reduce product cost distortion. In particular, a single overhead application mechanism is
virtually guaranteed to produce distortions in the situation described in question iii. Activity-based
costing systems can help reduce product cost distortions.
AACSB: Communication
AACSB: Reflective
Difficulty: Easy
Graduate Attribute: Communication
Graduate Attribute: Problem Solving
Learning Objective: 20-05 Explain how product cost distortions can undermine a firm’s pricing policy
93.
(p. 965)
Legal restrictions
i. Define price discrimination.
ii. Assume a firm has been charged with price discrimination. What is the role of product-cost
information in defending the firm's pricing practices?
i. Price discrimination is charging different prices to different customers where those differences are
not justified by differences in providing those products or services to those customers.
ii. In the price discrimination case, product cost information can be used to demonstrate that there
are differences in costs in providing the product or service to various customers. For example, a
customer who infrequently places relatively large orders with relatively low-quality requirements
can be served less expensively than another customer who frequently places relatively small
orders with tight delivery times and has exacting quality requirements.
AACSB: Communication
AACSB: Reflective
Difficulty: Medium
Graduate Attribute: Communication
Graduate Attribute: Problem Solving
Learning Objective: 20-08 Describe the regulations that impose restrictions on pricing
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
94.
(p. 953)
The marginal revenue – marginal cost paradigm, is valid for all forms of economic market including
the oligopolistic market.
FALSE
AACSB: Reflective
Difficulty: Easy
Graduate Attribute: Problem Solving
Learning Objective: 20-02 Explain and use the economic profit-maximising pricing model
95.
(p. 965)
When a supplier dictates the minimum price at which a product or service is to be resold by a buyer
to the retail or wholesale market, the supplier is said to be practicing the restricted practice of
resale price maintenance.
TRUE
Difficulty: Easy
Learning Objective: 20-08 Describe the regulations that impose restrictions on pricing
96.
(p. 975)
Linear programming is a tool used to determine an optimal solution given a number of constraints,
by identifying linear relationships between decision variables.
TRUE
Difficulty: Easy
Learning Objective: 20-10 Use linear programming in short-term (tactical) product mix decisions
97.
Capacity has no real impact on bids submitted by firms in a competitive bidding scenario.
(p. 963)
FALSE
AACSB: Reflective
Difficulty: Easy
Graduate Attribute: Problem Solving
Learning Objective: 20-07 Select and analyse relevant information and set prices in special order or competitive bid situations
98.
(p. 965)
When it comes to pricing decisions, the cost of the product or service is the lower limit of the price,
where as the legal, political and ethical issues set the upper level of the price.
FALSE
AACSB: Reflective
Difficulty: Easy
Graduate Attribute: Problem Solving
Learning Objective: 20-08 Describe the regulations that impose restrictions on pricing
99.
(p. 963)
When pricing new products, one strategy that can be used is price skimming where the initial
product price is set low and in doing this management hope the product will be widely accepted in
the long term.
FALSE
Difficulty: Easy
Learning Objective: 20-06 Discuss the issues involved in the strategic pricing of new products
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
100.
(p. 975)
The management accountant's role in product mix decisions is to provide adequate information to
allow linear programming to be utilised in the decision.
TRUE
AACSB: Reflective
Difficulty: Easy
Learning Objective: 20-10 Use linear programming in short-term (tactical) product mix decisions
101.
Cost-plus pricing formulas can only be used with full cost models.
(p. 956)
FALSE
AACSB: Reflective
Difficulty: Easy
Learning Objective: 20-03 Explain value-based, economic-value and cost-price pricing strategies, and use these methods to calculate
prices
102.
(p. 950)
When decisions are being made about unprofitable products, one of the options available to
managers is to retain the loss-making product particularly if it forms a part of a range of products
that the firm wishes to sell.
TRUE
AACSB: Reflective
Difficulty: Easy
Graduate Attribute: Problem Solving
Learning Objective: 20-01 List and describe the major influences on pricing decisions
103.
Price elasticity is the term used to describe the impact of price changes on sales volume.
(p. 953)
TRUE
Difficulty: Easy
Learning Objective: 20-02 Explain and use the economic profit-maximising pricing model
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)
lOMoARcPSD|10824435
Chapter 20 Testbank Summary
Category
AACSB: Analytical
# of Questions
35
AACSB: Communication
8
AACSB: Reflective
52
Difficulty: Difficult
6
Difficulty: Easy
80
Difficulty: Medium
17
Graduate Attribute: Communication
8
Graduate Attribute: Problem Solving
69
Learning Objective: 20-01 List and describe the major influences on pricing decisions
5
Learning Objective: 20-02 Explain and use the economic profit-maximising pricing model
11
Learning Objective: 20-03 Explain value-based, economic-value and cost-price pricing strategie
s, and use these methods to calculate prices
34
Learning Objective: 20-04 Determine prices using the time and material pricing approach
9
Learning Objective: 20-05 Explain how product cost distortions can undermine a firm’s pricing
policy
5
Learning Objective: 20-06 Discuss the issues involved in the strategic pricing of new products
6
Learning Objective: 20-07 Select and analyse relevant information and set prices in special ord
er or competitive bid situations
6
Learning Objective: 20-08 Describe the regulations that impose restrictions on pricing
10
Learning Objective: 20-09 Select and analyse relevant information for tactical and long-term pr
oduct mix decisions
9
Learning Objective: 20-10 Use linear programming in short-term (tactical) product mix decision
s
9
Downloaded by ?ào Mai Xuân Qu?nh (quynhdmx19405@st.uel.edu.vn)