Question : 9) Which of the following statements true regarding cost-plus pricing? : 1211809

 

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

A) It starts with a target price which is the estimated price for a product.

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) It first determines product characteristics and target price on the basis of customer preferences and then computes a target cost.

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

10) Which of the following is an advantage of using full cost of the product as the cost base?

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

B) Using the full cost of the product as a basis for pricing increases the temptation to cut prices below full costs.

C) Fixed cost allocations can be arbitrary while using full cost of the product as the cost base.

D) It requires a detailed analysis of cost behavior for computations and hence promotes a better understanding of the cost behavior.

 

Answer the following questions using the information below:

 

Judith Vending Company has invested $800,000 in a plant to make vending machines. The target operating income desired from the plant is $120,000 annually. The company plans annual sales of 1,200 vending machines at a selling price of $1,000 each.

 

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

A) 18.0%

B) 15.0%

C) 14.0%

D) 66.7%

 

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

A) 10.00%

B) 11.11%

C) 12.68%

D) 13.62%

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

A) $1,000

B) $950

C) $900

D) $850

 

Answer the following questions using the information below:

 

Crimpson Company has invested $2,000,000 in a plant to make commercial juicer machines. The target operating income desired from the plant is $299,000 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 Crimpson Company?

A) 22.0%

B) 18.0%

C) 14.9%

D) 12.9%

 

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

A) 22.0%

B) 18.0%

C) 12.0%

D) 11.0%

 

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

A) $357.29

B) $352.35

C) $338.64

D) $328.00

Answer the following questions using the information below:

 

Wilde 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 labor775,000

Manufacturing overhead

Variable840,000

Fixed645,000

Selling and administrative

Variable360,000

Fixed480,000

Total costs$4,225,000

 

Wilde 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) 51.4%

B) 125.3%

C) 185.6%

D) 245.8%

 

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

A) 51.40%

B) 87.04%

C) 65.30%

D) 21.30%