Question : 9) Which of the following statements FALSE regarding cost-plus pricing? : 1216933

 

9) Which of the following statements is FALSE regarding cost-plus pricing?

A) A company selects a cost base that it regards as reliable.

B) A company uses a markup percentage that estimates a product price that covers full product costs and earns the required return on investment.

C) The selling price computed is only a prospective price.

D) The cost-plus price chosen has already been studied for customer reaction to the price.

10) Advantages of using the full cost of the product as the cost base include all of the following EXCEPT that:

A) managers are informed regarding the minimum long-run cost they need to recover to stay in business

B) it limits the ability of a salesperson to cut prices

C) fixed cost allocations can be arbitrary

D) it does not require a detailed analysis of cost behavior for computations

 

Answer the following questions using the information below:

 

Timothy Company has invested $1,000,000 in a plant to make vending machines. The target operating income desired from the plant is $150,000 annually. The company plans annual sales of 1,500 vending machines at a selling price of $1,000 each.

 

11) What is the target rate of return on investment for Timothy Company?

A) 15.0%

B) 17.6%

C) 10.0%

D) 11.1%

 

12) What is the markup percentage as a percentage of cost for Timothy Company?

A) 15.0%

B) 17.6%

C) 10.0%

D) 11.1%

13) What is the cost base of each vending machine for Timothy Company?

A) $720

B) $900

C) $850

D) $890

 

Answer the following questions using the information below:

 

Thornton Company has invested $2,000,000 in a plant to make commercial juicer machines. The target operating income desired from the plant is $360,000 annually. The company plans annual sales of 7,000 juicer machines at a selling price of $400 each.

 

14) What is the target rate of return on investment for Thornton Company?

A) 22.0%

B) 18.0%

C) 14.8%

D) 12.9%

 

15) What is the markup percentage as a percentage of cost for Thornton Company?

A) 22.0%

B) 18.0%

C) 14.8%

D) 12.9%

16) What is the cost base of each juicer machine for Thornton Company?

A) $349

B) $324

C) $338

D) $304

 

Answer the following questions using the information below:

 

Oscar Corporation budgeted the following costs for the production of its one and only product for the next fiscal year:

 

Direct materials$1,125,000

Direct labor780,000

Manufacturing overhead

Variable840,000

Fixed645,000

Selling and administrative

Variable360,000

Fixed480,000

Total costs$4,230,000

 

Oscar has an annual target operating income of $900,000.

 

17) The markup percentage for setting prices as a percentage of total manufacturing costs is:

A) 51%

B) 125%

C) 185%

D) 245%

18) The markup percentage for setting prices as a percentage of variable manufacturing costs is:

A) 54%

B) 87%

C) 169%

D) 122%