60. Which of the following is a common form of value engineering in which the design team
prepares several possible designs of the product, each having similar features with different
levels of performance and different costs?
61. Which of the following is a common type of value engineering in which the performance
and cost of each major function or feature of the product is examined?
62. A type of strategic pricing based on analytical methods is used to:
63. Johnson Marine has the following costs and expected sales for the coming year. Johnson
is considering a number of different methods to determine the price of its product.
Total Costs
Variable Manufacturing $2,350,000
Variable Selling and Administrative 750,000
Plant-level Fixed Overhead 1,200,000
Fixed Selling and Administrative 600,000
Batch-level Fixed Overhead 200,000
Total Investment in Product Line 10,000,000
Expected Sales (units) 20,000
If Johnson determines price using a 40% markup of full manufacturing cost, the price is:
64. Johnson Marine has the following costs and expected sales for the coming year. Johnson
is considering a number of different methods to determine the price of its product.
Total Costs
Variable Manufacturing $2,350,000
Variable Selling and Administrative 750,000
Plant-level Fixed Overhead 1,200,000
Fixed Selling and Administrative 600,000
Batch-level Fixed Overhead 200,000
Total Investment in Product Line 10,000,000
Expected Sales (units) 20,000
If Johnson determines price so as to receive a desired return on assets of 15%, the price is:
65. Johnson Marine has the following costs and expected sales for the coming year. Johnson
is considering a number of different methods to determine the price of its product.
Total Costs
Variable Manufacturing $2,350,000
Variable Selling and Administrative 750,000
Plant-level Fixed Overhead 1,200,000
Fixed Selling and Administrative 600,000
Batch-level Fixed Overhead 200,000
Total Investment in Product Line 10,000,000
Expected Sales (units) 20,000
If Johnson determines price using a desired gross margin percentage of 50%, the price is:
66. Johnson Marine has the following costs and expected sales for the coming year. Johnson
is considering a number of different methods to determine the price of its product.
Total Costs
Variable Manufacturing $2,350,000
Variable Selling and Administrative 750,000
Plant-level Fixed Overhead 1,200,000
Fixed Selling and Administrative 600,000
Batch-level Fixed Overhead 200,000
Total Investment in Product Line 10,000,000
Expected Sales (units) 20,000
If Johnson determines price using a desired return on life cycle costs of 30%, the price is:
67. Johnson Marine has the following costs and expected sales for the coming year. Johnson
is considering a number of different methods to determine the price of its product.
Total Costs
Variable Manufacturing $2,350,000
Variable Selling and Administrative 750,000
Plant-level Fixed Overhead 1,200,000
Fixed Selling and Administrative 600,000
Batch-level Fixed Overhead 200,000
Total Investment in Product Line 10,000,000
Expected Sales (units) 20,000
If Johnson determines price using a 20% markup of life cycle cost, the price is:
68. Caldwell Company desires to enter a market with a new product. As part of this process
the following tasks will be performed:
1. Determine a desired profit margin.
2. Use Kaizen costing.
3. Design and engineer the product.
4. Determine the product’s cost.
5. Determine the suggested selling price.
Which task would Caldwell Company perform first if it plans to use target costing?
69. The five tasks that follow take place with the concept known as target costing:
1. Use value engineering to identify ways to reduce product cost.
2. Determine the market price.
3. Determine the desired profit.
4. Use kaizen costing and operational control to reduce costs.
5. Calculate the target cost at market price less desired profit.
Which of the following choices depicts the correct sequence of these tasks?
70. David Corporation manufactures a single product that has a cost of $250. The company
uses a 60% markup on manufacturing cost to arrive at a selling price of $400, which results in a
price that is higher than that of the leading competitors. If David adopts the approach known as
target costing, the company will first:
71. Baldwin produces bicycles in a highly competitive market. During the past year, the
company has added a 20% markup on the $300 manufacturing cost for one of its most popular
models. A new competitor recently entered the market with a competitive model that is priced at
$320, seriously eroding Baldwin’s market share. Management now desires to use a target-costing
approach to remain competitive and is willing to accept a 20% return on sales.
If target costing is used, which of the following choices correctly denotes (1) Baldwin’s selling
price and (2) Baldwin’s target cost?
Selling Price Target Cost
A) $360 $288
B) $360 $256
C) $320 $256
D) $320 $288
E) None of these answer choices is correct.
72. The Gargus Company, which manufactures projection equipment, is ready to introduce a
new line of portable projectors. The following data are available for a proposed model:
Variable manufacturing costs 270
Applied fixed manufacturing overhead 135
Variable selling and administrative costs 90
Applied fixed selling and administrative costs 105
What price will the company charge if the firm uses cost-plus pricing based on variable
manufacturing cost and a markup percentage of 200%?
73. The Gargus Company, which manufactures projection equipment, is ready to introduce a
new line of portable projectors. The following data are available for a proposed model:
Variable manufacturing costs $270
Applied fixed manufacturing overhead 135
Variable selling and administrative costs 90
Applied fixed selling and administrative costs 105
What price will the company charge if the firm uses cost-plus pricing based on total variable cost
and a markup percentage of 150%?
