ACC 560 WK 6 Quiz 8
1. In most cases, a company sets the price instead of it being set by the competitive market.
2. In a competitive market, a company is forced to act as a price taker and must emphasize minimizing and controlling costs.
3. The difference between the target price and the desired profit is the target cost of the product.
4. In a competitive environment, the company must set a target cost and a target selling price.
5. The cost-plus pricing approach establishes a cost base and adds a markup to this base to determine a target selling price.
6. The cost-plus pricing model gives consideration to the demand sidewhether customers will pay the target selling price.
7. Sales volume plays a large role in determining per unit costs in the cost-plus pricing approach.
8. In time-and-material pricing, the material charge is based on the cost of direct materials used and a material loading charge for related overhead costs.
9. The first step for time-and-material pricing is to calculate the material loading charge.
10. The material loading charge is expressed as a percentage of the total estimated cost of materials for the year.
11. Divisions within vertically integrated companies normally sell goods only to other divisions within the same company.
12. Using the negotiated transfer pricing approach, a minimum transfer price is established by the selling division.
13. There are two approaches for determining a transfer price: cost-based and market-based.
14. If a cost-based transfer price is used, the transfer price must be based on variable cost.
15. A problem with a cost-based transfer price is that it does not provide adequate incentive for the selling division to control costs.
16. In the formula for a minimum transfer price, opportunity cost is the contribution margin of goods sold externally.
17. The market-based transfer price approach produces a higher total contribution margin to the company than the cost-based approach.
18. A negotiated transfer price should be used when an outside market for the goods does not exist.
19. The number of transfers between divisions that are located in different countries has decreased as companies rely more on outsourcing.
20. Differences in tax rates between countries can complicate the determination of the appropriate transfer price.
a21. The absorption-cost approach is consistent with generally accepted accounting principles because it defines the cost base as the manufacturing cost.
a22. The first step in the absorption-cost approach is to compute the markup percentage used in setting the target selling price.
a23. Because absorption cost data already exists in general ledger accounts, it is cost effective to use it for pricing.
a24. The markup percentage in the variable-cost approach is computed by dividing the desired ROI/unit plus fixed costs/unit by the variable costs/unit.
a25. Under the variable-cost approach, the cost base consists of all of the variable costs associated with a product except variable selling and administrative costs.