Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
1. Assume that the price elasticity of demand is less than -1 (for example, -1.5). As the
absolute value of the price elasticity of demand increases, the profit-maximizing price decreases.
2. Salt is an example of a product whose demand is price inelastic.
3. Demand for a product is said to be inelastic if a change in price has little effect on the
number of units sold.
App A-2
4. Demand for a product is said to be inelastic if a change in price has a substantial effect on
the number of units sold.
5. Gasoline is a product whose demand is elastic.
6. The price elasticity of demand can be estimated using the formula ln(1 + %change in
selling price)/ln(1 + %change in quantity sold).
7. The absorption costing approach to cost-plus pricing provides assurance that the
company's required rate of return will be realized even if unit sales are less than forecasted.
8. The markup over cost under the absorption costing approach would increase if the unit
product cost increases, holding everything else constant.
9. Target costing is primarily used when developing a new product.
10. Cost-plus pricing is so named because all costs--production, selling, and administrative--
are included in the cost base from which a target selling price is derived.
11. If a company sells a product for less than its budgeted unit product cost under absorption
costing, then the company will lose money.
12. Holding all other things constant, an increase in variable production costs will affect:
13. Holding all other things constant, an increase in fixed selling costs will affect:
14. Holding all other things constant, an increase in variable selling costs will affect:
15. Holding all other things constant, an increase in the company's required ROI will affect:
16. Holding all other things constant, if the price elasticity of demand increases (i.e.,
becomes more negative), then the markup under absorption costing will:
17. In the absorption approach to cost-plus pricing, which costs below are included in the
cost base?
18. Which of the following methods would probably be the most beneficial to a company that
has little or no control over the price that it can charge for its product or service?
19. Hanvold Company recently changed the selling price of one of its products. Data
concerning sales for comparable periods before and after the price change are presented below.
The product's price elasticity of demand as defined in the text is closest to:
20. Gorry Company's management has found that every 7% increase in the selling price of
one of the company's products leads to a 11% decrease in the product's total unit sales. The
product's absorption costing unit product cost is $13.00. The variable production cost of the
product is $4.00 per unit and the variable selling and administrative cost is $5.40 per unit.
According to the formula in the text, the product's profit-maximizing price is closest to:
21. Finnie Company's management believes that every 5% increase in the selling price of one
of the company's products results in a 13% decrease in the product's total unit sales. The
variable production cost of this product is $23.10 per unit and the variable selling and
administrative cost is $5.40 per unit.
The product's profit-maximizing price according to the formula in the text is closest to:
22. Inkeo Company recently changed the selling price of one of its products. Data concerning
sales for comparable periods before and after the price change are presented below.
The product's variable cost is $12.70 per unit.
According to the formula in the text, the product's profit-maximizing price is closest to:
23. Epperson Company's management believes that every 3% decrease in the selling price of
one of the company's products leads to an 8% increase in the product's total unit sales. The
product's price elasticity of demand as defined in the text is closest to:
24. The following information is available on Bruder Inc.'s Product A:
The company uses the absorption costing approach to cost-plus pricing described in the text.
Based on these data, the total selling and administrative expenses each year are:
25. Marvel Company estimates that the following costs and activity would be associated with
the manufacture and sale of one unit of product Y:
If the company uses the absorption costing approach to cost-plus pricing described in the text
and desires a 15% rate of return on investment (ROI), the required markup on absorption cost for
product Y would be:
26. Lafave Corporation uses the absorption costing approach to cost-plus pricing described
in the text to set prices for its products. Based on budgeted sales of 79,000 units next year, the
unit product cost of a particular product is $50.80. The company's selling and administrative
expenses for this product are budgeted to be $1,896,000 in total for the year. The company has
invested $260,000 in this product and expects a return on investment of 15%.
The markup on absorption cost for this product would be closest to:
27. Jaber Corporation makes a product with the following costs:
The company uses the absorption costing approach to cost-plus pricing described in the text.
The pricing calculations are based on budgeted production and sales of 52,000 units per year.
The company has invested $200,000 in this product and expects a return on investment of 9%.
The markup on absorption cost would be closest to:
28. Delsey Company manufactures product A which has a selling price of $48 per unit. Unit
costs associated with the manufacture and sale of product A follow (based on 30,000 units
manufactured and sold each year):
The company uses the absorption costing approach to cost-plus pricing described in the text.
The percentage markup being used to determine the selling price for product A is closest to:
29. Mahboud, Inc., uses the absorption costing approach to cost-plus pricing described in the
text to set prices for its products. Based on budgeted sales of 64,000 units next year, the unit
product cost of a particular product is $84.20. The company's selling and administrative expenses
for this product are budgeted to be $1,292,800 in total for the year. The company has invested
$560,000 in this product and expects a return on investment of 13%.
The selling price for this product based on the absorption costing approach would be closest to:
30. Kirsch, Inc., manufactures a product with the following costs:
The company uses the absorption costing approach to cost-plus pricing described in the text.
The pricing calculations are based on budgeted production and sales of 41,000 units per year.
The company has invested $540,000 in this product and expects a return on investment of 13%.
The selling price based on the absorption costing approach would be closest to:
