Question : 11) Which of the following best describes the cost-plus pricing : 1186006

11) Which of the following best describes the cost-plus pricing approach?

A) Cost base + Markup component = Prospective selling price

B) Prospective selling price + Cost base = Markup component

C) Cost base + Gross margin = Prospective selling price

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

E) Cost base plus markup ÷ 100% = selling profit percentage

12) The current selling price for the Pluto, a mid-sized car, is $19,000. For next year it is anticipated that Pluto will have a $12,000 cost base. What is its prospective selling price, using cost-plus pricing, if the company desires a markup component of 15 percent?

A) $10,200

B) $13,800

C) $19,000

D) $30,000

E) $31,000

13) Seneca Company has invested $1,000,000 in a plant to make gas pumps for service stations. The average long-run income desired from the plant is $150,000 annually. The annual cost base for each pump is $1,000. What should be the prospective selling price for each pump if the company uses a target return on investment as the markup base?

A) $1,150

B) $2,500

C) $16,000

D) $17,000

E) $17,500

14) A product’s markup percentage would need to cover fixed manufacturing costs if

A) the company has only fixed manufacturing costs.

B) the company wants to break-even during the fiscal period.

C) the company wants to make a profit.

D) the cost base does not include fixed manufacturing costs.

E) the cost base includes fixed manufacturing costs as well as variable costs.

15) Johnson Petroleum Company is considering pricing its 5,000 litre petroleum tanks using either variable manufacturing or full product costs as the base. The variable cost base provides a prospective price of $2,800 and the full cost base provides a prospective price of $2,850. The difference between the two prices is

A) the amount of profit to be included.

B) due to the fact that the variable cost base must estimate all fixed costs, other variable costs, and desired profit while the full cost base must estimate only desired profit.

C) known as price discrimination.

D) caused by the inability of most companies to estimate fixed cost per unit with any degree of reliability.

E) known as peak pricing.

16) When target costing and target pricing are used together,

A) the target cost is established first, then the target price.

B) the target cost per unit is the estimated long-run price per unit that enables a product or service to achieve the target profit per unit.

C) the target price is set to undercut the competition.

D) target costs are higher than current costs because of inflation over time.

E) target price is the estimated price for a product or service that a potential customer will be willing to pay.

17) The target pricing approach is easier when

A) products highly differentiated and the consumer life cycle is shorter.

B) products highly differentiated and the consumer life cycle is longer.

C) products are not well differentiated and the consumer life cycle is shorter.

D) products are not well differentiated and the consumer life cycle is longer.

E) little is known about market factors.

Use the information below to answer the following question(s).

Acorn Products currently sells small boats for $360. It has costs currently assigned to it of $280. A competitor is bringing a new small boat to market that will sell for $300. Management believes it must lower the price to $300 to compete in the market for small boats. Marketing believes that the new price will cause sales to increase by 10 percent, even with a new competitor in the market. Acorn’s sales are currently 100,000 per year.

18) What is the target cost if target profit is 25 percent of the competitor’s selling price?

A) $75

B) $90

C) $225

D) $270

E) $280

19) Under cost-plus pricing, what is the required selling price to achieve a 15% markup?

A) $285

B) $6300

C) $310

D) $315

E) $322

20) What is Acorn’s target selling price if costs cannot be reduced and target profit is changed cost plus 20 percent?

A) $280.00

B) $336.00

C) $350.00

D) $353.33

E) $360.00