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True or False
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1
One of the four major influences that govern price-setting decisions is customer demand.
A)True
B)False
2
Political considerations are seldom a factor in pricing decisions.
A)True
B)False
3
The demands of customers are of paramount importance in the setting of prices, but of little importance in the design of the product.
A)True
B)False
4
Usually, predicting competitor reactions to product-design and pricing strategy is difficult.
A)True
B)False
5
Prices are determined by the market, and subject to the constraint that costs must be covered in the long run.
A)True
B)False
6
Companies that have the price of their products determined totally by the market in which the products are sold are referred to as price takers.
A)True
B)False
7
A demand curve shows the relationship between sales price and the quantity of units demanded.
A)True
B)False
8
A marginal revenue curve shows the change in total cost that accompanies a change in quantity produced and sold.
A)True
B)False
9
The relationship between total cost and the quantity produced and sold each month is graphical displayed with a total cost curve.
A)True
B)False
10
A marginal cost curve shows the change in total cost that accompanies a change in quantity produced and sold.
A)True
B)False
11
The demand curve shows the change in total revenue that accompanies a change in the quantity sold.
A)True
B)False
12
The demand curve and the average revenue curve are the same.
A)True
B)False
13
Price elasticity refers to the impact of prices changes on demand for substitute products.
A)True
B)False
14
The extent to which a change in a product's price affects the demand for substitute products is called cross- elasticity.
A)True
B)False
15
A firm can reach a break-even point twice during an accounting period.
A)True
B)False
16
Demand is inelastic if price changes have little or no impact on sales quantity.
A)True
B)False
17
When the demand for margarine increases as a result of exorbitant prices for butter, the margarine is referred to as a substitute product.
A)True
B)False
18
If a firm sells its product for the same price for each of the units sold during the accounting period, its total revenue will be in direct proportion to each unit sold.
A)True
B)False
19
The marginal-revenue, marginal-cost paradigm is valid in all forms of market organization.
A)True
B)False
20
The managerial accountant seldom faces a cost-benefit trade-off in the production of cost information for pricing and other decisions.
A)True
B)False
21
One of the difficulties of using a cost-plus pricing formula is defining cost.
A)True
B)False
22
The basic formula for cost-plus pricing is: Price = Cost + (Markup percentage x Cost).
A)True
B)False
23
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If the markup percentage on variable manufacturing cost is 135%, then the selling price is $940.
A)True
B)False
24
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If the markup percentage on absorption manufacturing cost is 56.6%, then the selling price is $940.
A)True
B)False
25
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If the markup percentage on variable cost is 88%, then the selling price is $940.
A)True
B)False
26
A primary disadvantage to using absorption-cost or total-cost pricing formulas is that they obscure the cost behavior pattern of the firm.
A)True
B)False
27
In the long run, the price must cover only the variable costs.
A)True
B)False
28
Absorption-costing or total-cost pricing formulas provide a justifiable price that tends to be perceived as equitable to all parties.
A)True
B)False
29
Absorption cost information is provided by a firm's cost-accounting system, because it is required for internal financial reporting.
A)True
B)False
30
One advantage to variable-costing formulas is that variable-cost data do not obscure the cost behavior pattern by unitizing fixed costs.
A)True
B)False
31
The primary disadvantage to variable-cost pricing is the possibility of setting the selling price too low to cover all fixed costs and make a reasonable profit.
A)True
B)False
32
Return-on-investment pricing is a pricing method in which the profit is based on the firm's target return on investment.
A)True
B)False
33
When cost-plus pricing is based on total cost per unit of $600 per unit, and the company must make a profit of $120 per unit on an annual volume of 1,000 units, the markup percentage on total cost (return-on-investment pricing) is 20%.
A)True
B)False
34
If the total variable cost of product is $500 per unit, and the markup percentage must be sufficient to cover both annual profit of $40,000 and annual fixed costs of $170,000, the required markup percentage on total variable cost (return-on-investment pricing) for 1,000 units is 58%.
A)True
B)False
35
When using cost-plus pricing (return-on-investment pricing) the formula for determining the markup percentage based on total costs, the numerator is (Target profit + Total annual fixed costs).
A)True
B)False
36
When using cost-plus pricing (return-on-investment pricing) the formula for determining the markup percentage based on total variable costs, the numerator is (Target profit + Total annual fixed costs).
A)True
B)False
37
Cost-plus pricing is used widely in practice to establish a starting point in setting prices.
A)True
B)False
38
When applying penetration pricing, an initial high price is set for a new product in order to reap short-run profits, and, over time, the price is reduced gradually.
A)True
B)False
39
With skimming pricing, an initial high price is set for a new product in order to reap short-run profits.
A)True
B)False
40
Under penetration pricing, the initial price for a new product is set low to penetrate the market deeply and gain a large share of the market.
A)True
B)False
41
Target costing is the process of designing a product, and the processes used to produce it, so that ultimately the product can be manufactured at a cost that will enable a firm to make a profit when the product is sold at an estimated market-driven price.
A)True
B)False
42
One of the key principles of target costing is to determine the target profit margin ahead of the target cost.
A)True
B)False
43
Design engineering is a key element in target costing.
A)True
B)False
44
Cross-functional teams are only responsible for the production phase of a product.
A)True
B)False
45
Traditional cost-accounting systems have tended to focus only on the production phase and have not paid enough attention to the product's life cycle.
A)True
B)False
46
Activity-based costing (ABC) systems are not particularly helpful in achieving a product's target cost.
A)True
B)False
47
An engineer can try out many different design features and immediately see the product-cost implications, without ever leaving the computer terminal, when a computer-integrated manufacturing (CIM) system is used.
A)True
B)False
48
Use of a traditional, volume-based product-costing system may result in significant cost distortion among product lines.
A)True
B)False
49
The concept of value engineering is an outgrowth of target costing.
A)True
B)False
50
Under time and material pricing, the price includes components for labor cost and material cost, plus markups on either or both of these cost components.
A)True
B)False
51
A customized furniture manufacturer might use a time and material pricing cost-based approach.
A)True
B)False
52
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Using a time and material pricing cost-based approach, the rate per labor hour is $26 per hour.
A)True
B)False
53
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Using a time and material pricing cost-based approach, the total material cost for a job that has a required material cost of $4,000 is $4,250.
A)True
B)False
54
A situation in which two or more companies submit sealed bids (or prices) for a product, service, or project to a potential buyer is called competitive bidding.
A)True
B)False
55
Competitive bidding simplifies a manager's pricing problem.
A)True
B)False
56
In a competitive-bidding situation, the issue of capacity will determine the appropriate bid made by the producing company or firm.
A)True
B)False
57
Accepting a special order when excess capacity exists entails no opportunity cost.
A)True
B)False
58
In the United States, unlike in many other countries, businesses are free to set any price they wish for their products or services.
A)True
B)False
59
The Robinson-Patman Act, the Clayton Act, and the Sherman Act restrict certain types of pricing behavior.
A)True
B)False
60
With predatory pricing, the price of a product is set low temporarily to broaden demand, then the product's supply is restricted and the price is raised.
A)True
B)False
61
When dealing with predatory pricing, the laws and court cases are very clear as to the appropriate definition of cost.
A)True
B)False





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