Learning Objective 7-5
1) Target annual operating income divided by invested capital is ________.
A) target price
B) locked in costs
C) target cost per unit
D) target operating income per unit
E) target rate of return on investment
2) Amarillo Manufacturing uses a 13% markup on the full unit cost of Product X to compute the selling price. The full unit cost of Product X is $850.
A) $95.50; $925.50
B) $110.50; $960.50
C) $115.50; $965.50
D) $120.50; $970.50
E) $125.50; $975.50
3) The Board Manufacturing Company reported investment capital of $80,000,000 and a 16% (pretax) target rate of return on the investment of 150,000 units of Product Y.
A) $5 operating income; $85.33 operating income per unit
B) $12,000,000 operating income; $85.33 operating income per unit
C) $12,500,000 operating income; $85.33 operating income per unit
D) $12,800,000 operating income; $85.33 operating income per unit
E) $12,850,000 operating income; $85.33 operating income per unit
4) The Walter Foundation invested $3,500,000 in a plant to remanufacture refrigerators. The target operating income from the plant is $250,000 annually. The company plans actual sales of 800 refrigerators at $1,100.00 each.
A) 6.14 %
B) 7.14 %
C) 8.14 %
D) 9.14 %
E) 10.14 %
5) The Kensington Corporation invested $2,500,000 in an operation to make wooden planks. The target operating income desired at the plant is $245,000 annually. The company plans actual sales of 700 planks at $500 each. The managerial accountant reported a target rate of return on the investment of 15%.
A) 2.00%
B) 2.13%
C) 2.33%
D) 2.43%
E) 2.53%
6) Mark Manufacturing had a product design that resulted in a $740 full cost of Product B. Assuming a markup of 10%, what is the prospective price of Product B?
A) $800
B) $804
C) $814
D) $824
E) $834
7) The Heritage Foundation reported the following information:
Cost Base
|
Estimated Cost per Unit
|
Markup Percentage
|
Markup Component
|
Prospective Selling Price
|
|
(1)
|
(2)
|
(3)
|
(4)
|
Variable manufacturing cost
|
$425.00
|
60%
|
?
|
?
|
Variable cost of the product
|
$550
|
45%
|
?
|
?
|
Manufacturing cost
|
$520
|
50%
|
?
|
?
|
Full cost of the product
|
$710
|
10%
|
?
|
?
|
Required:
Compute the markup component and the prospective selling price for each cost base at the Heritage Foundation.
A) Markup components for each cost base: $255; $247.50;$260; $71
Prospective selling price for each cost base: $680; $797.50; $780; $781
B) Markup components for each cost base: $260; $257.50; $270; $481
Prospective selling price for each cost base: $690; $797.50; $785; $785
C) Markup components for each cost base: $265; $262.50; $275; $491
Prospective selling price for each cost base: $700; $825.50; $795; $790
D) Markup components for each cost base: $270; $262.50; $280; $495
Prospective selling price for each cost base: $705: $830.50; $800; $795
E) Markup components for each cost base: $275; $267.50; $285; $500
Prospective selling price for each cost base: $710; $835.50; $805; $800
8) The general formula for setting a cost-based selling price adds a markup component to the cost base.
9) In contrast to cost-plus pricing, target pricing
never
determines product characteristics and target price on the basis of customer preferences and expected competitor responses, and then computes a target cost.
10) In the time-and-materials method, individual jobs are priced based on materials and labor time.
11) Do service companies use cost-plus pricing?