Financial And Managerial Accounting Ch 8 Flashcards
Management of the Catering Company would like the Food Division to transfer 10,000 cans of its final product to the Restaurant Division for HK$30. The Food Division sells the product to customers for HK$70 per unit. The Food Division’s variable cost per unit is HK$35 and its fixed cost per unit is HK$10. If the Food Division has 10,000 units available capacity, what is the minimum transfer price the Food Division should accept?
a. HK$30
b. HK$35
c. HK$45
d. HK$70
Management of the Catering Company would like the Food Division to transfer 10,000 cans of its final product to the Restaurant Division for HK$30. The Food Division sells the product to customers for HK$70 per unit. The Food Division’s variable cost per unit is HK$35 and its fixed cost per unit is HK$10. If the Food Division has 10,000 units available capacity, what is the minimum transfer price the Food Division should accept?
b. HK$35
Fine Line Phones is considering introducing a fashion cover for its phones. Market research indicates that 200,000 units can be sold if the price is no more than $20. If Fine Line decides to produce the covers, it will need to invest $1,000,000 in new production equipment. Fine Line requires a minimum rate of return of 25% on all investments. Determine the target cost per unit for the cover.
Fine Line Phones is considering introducing a fashion cover for its phones. Market research indicates that 200,000 units can be sold if the price is no more than $20. If Fine Line decides to produce the covers, it will need to invest $1,000,000 in new production equipment. Fine Line requires a minimum rate of return of 25% on all investments. Determine the target cost per unit for the cover.
The desired profit for this new product line is $1,000,000 x 25% = $250,000
Each cover must result in profit of $250,000 ÷ 200,000 units = $1.25
target cost = market price ($20) - desired profit ($1.25) = $18.75 per unit
Target cost related to price and profit means that:
a. Cost and desired profit must be determined before selling price
b. Cost and selling price must be determined before desired profit.
c. Price and desired profit must be determined before costs
d. Costs can be achieved only if the company is at full capacity
Target cost related to price and profit means that:
c. Price and desired profit must be determined before costs
Cost-plus pricing means that:
a. Selling price = variable cost + (markup percentage + variable cost)
b. Selling price = cost + (markup percentage X cost)
c. Selling price = manufacturing cost + (markup percentage + manufacturing cost)
d. Selling price = fixed cost + (markup percentage X fixed cost)
Cost-plus pricing means that:
b. Selling price = cost + (markup percentage X cost)
Air Corporation produces air purifiers. The following per unit cost information is available: direct materials $16, direct labor $18, variable manufacturing overhead $11, variable selling and administrative expenses $6. Fixed selling and administrative expenses are $50,000, and fixed manufacturing overhead is $150,000. Using a 45% markup percentage on total per unit cost and assuming 10,000 units, compute the target selling price.
Air Corporation produces air purifiers. The following per unit cost information is available: direct materials $16, direct labor $18, variable manufacturing overhead $11, variable selling and administrative expenses $6. Fixed selling and administrative expenses are $50,000, and fixed manufacturing overhead is $150,000. Using a 45% markup percentage on total per unit cost and assuming 10,000 units, compute the target selling price.
Answer: 102,95$
Variable cost per unit: 16+18+11+6 = 51$
Fixed cost per unit: (50 000$ / 10000) + (150 000$ / 10000) = 20
Total costs per unit = 51 +20 = 71$
71 + 45% = 102,95
Crescent Electrical Repair has decided to price its work on a time-and-material basis. It estimates the following costs for the year related to labor.
Technician wages and benefits $100,000
Office employee’s salary/benefits $40,000
Other overhead $80,000
Crescent desires a profit margin of $10 per labor hour and budgets 5,000 hours of repair time for the year. The office employee’s salary, benefits, and other overhead costs should be divided evenly between time charges and material loading charges. Crescent labor charge per hour would be:
a. $42
b. $34
c. $32
d. $30
Crescent Electrical Repair has decided to price its work on a time-and-material basis. It estimates the following costs for the year related to labor.
Technician wages and benefits $100,000
Office employee’s salary/benefits $40,000
Other overhead $80,000
Crescent desires a profit margin of $10 per labor hour and budgets 5,000 hours of repair time for the year. The office employee’s salary, benefits, and other overhead costs should be divided evenly between time charges and material loading charges. Crescent labor charge per hour would be:
a. $42
Presented below are data for Harmon Electrical Repair Shop for next year. The desired profit margin per labor hour is $10. The material loading charge is 40% of invoice cost. Harmon estimates that 8,000 labor hours will be worked next year.
Repair technicians wages: $130 000
Fringe benefits: $30 000
Overhead: $20 000
If Harmon repairs a TV that takes 4 hours to repair and uses parts of $50, compute the bill for this job.
Job: repair TV
Labour charges:
Cost of parts and materials:
Material loading charge:
Total price of materials:
Total price of labour and material:
Presented below are data for Harmon Electrical Repair Shop for next year. The desired profit margin per labor hour is $10. The material loading charge is 40% of invoice cost. Harmon estimates that 8,000 labor hours will be worked next year.
Repair technicians wages: $130 000
Fringe benefits: $30 000
Overhead: $20 000
If Harmon repairs a TV that takes 4 hours to repair and uses parts of $50, compute the bill for this job.
Labour charge:
(130 000 / 8000) + (30 000 / 8000) + ( 20 000 / 8000) = $22,5
With desired profit of $10 = $22,5 + 10 = $32,5
Job: repair TV
Labour charges: 4h x $32,5 = 130
Cost of parts and materials: $50
Material loading charge: 50 x 40% = $20
Total price of materials: 50 + 20 = $70
Total price of labour and material: $200
The clock division of Control Central Corporation manufactures clocks and then sells them to customers for $10 per unit. Its variable cost is $4 per unit, and its fixed cost per unit is $2.50. Management would like the clock division to transfer 8,000 of these clocks to another division within the company at a price of $5. The clock division could avoid $0.50 per clock of variable packaging costs by selling internally. Determine the minimum transfer price, assuming
a) the clock division is not operating at full capacity
b) the clock division is operating at full capacity
The clock division of Control Central Corporation manufactures clocks and then sells them to customers for $10 per unit. Its variable cost is $4 per unit, and its fixed cost per unit is $2.50. Management would like the clock division to transfer 8,000 of these clocks to another division within the company at a price of $5. The clock division could avoid $0.50 per clock of variable packaging costs by selling internally. Determine the minimum transfer price, assuming
a) the clock division is not operating at full capacity.
Answer: 4 - 0.5 = $3.5
opportunity cost + variable cost = minimum transfer price
b) the clock division is operating at full capacity.
Answer: 10 - 0,5 = $9.5
Taan Classic Toys has examined the market for toy train locomotives. It belives there is a market niche in which it can sell locomotives at NT2400 each. It estimates that it could sell 10 000 of these locomotives annually. Variable costs to make locomotive are expected to be NT750. Taan anticipates a profit of of NT450 per locomotive. The target cost for the locomotive is:
a. NT2400
b. NT1950
c. NT1200
d. NT750
Taan Classic Toys has examined the market for toy train locomotives. It belives there is a market niche in which it can sell locomotives at NT2400 each. It estimates that it could sell 10 000 of these locomotives annually. Variable costs to make locomotive are expected to be NT750. Taan anticipates a profit of of NT450 per locomotive. The target cost for the locomotive is:
b. NT1950
The target cost for selling the locomotive is selling price less desired profit (2400 - 450) = NT1950
In a competitive, common-prodcut environment, a seller would most likely use:
a. time-and-material pricing
b. variable costing
c. target costing
d. cost-plus pricing
In a competitive, common-prodcut environment, a seller would most likely use:
c. target costing
A seller would most likely use target costing in a competitive common-product environment as the price is set by the market. In a less competitive environment, companies have a greter ability to set the product price and therefore could use other methods.
Choi Ltd. is considering developing a new product. The company has gathered the following information on this product:
Expected total unit cost: 25 000 yen
Estimated investment for new product: 500 000 000 yen
Desired ROI: 10%
Expected number of units to be produced and sold: 1000
Given this information, the desired markup percentage and selling price are:
a. markup percentage 10%, selling price 55 000 yen
b. markup percentage 200%, selling price 75 000 yen
c. markup percentage 10%, selling price 50 000 yen
d. markup percentage 100%, selling price 55 000 yen
Choi Ltd. is considering developing a new product. The company has gathered the following information on this product:
Expected total unit cost: 25 000 yen
Estimated investment for new product: 500 000 000 yen
Desired ROI: 10%
Expected number of units to be produced and sold: 1000
Given this information, the desired markup percentage and selling price are:
b. markup percentage 200%, selling price 75 000 yen
The desired markup percentage: ((10% x 500 000 000) / 1000) / 25000 = 200%
The selling price: 25000 + 50000 = 75 000 yen
Limawan Tools provides the following information for the new product it recently introduced:
Total unit cost: 300 000 Rp
Desired ROI per unit: 100 00 Rp
Target selling price: 400 000 Rp
What would be Limawan’s percentage markup on cost?
a. 125%
b. 75%
c. 33 1/3%
d. 25%
Limawan Tools provides the following information for the new product it recently introduced:
Total unit cost: 300 000 Rp
Desired ROI per unit: 100 00 Rp
Target selling price: 400 000 Rp
What would be Limawan’s percentage markup on cost?
c. 33 1/3%
100 000 / 300 00 = 33 1/3%
Kikubhai Electrical Repair has decided to price its workon a time-and-material basis. It estimates the following costs for the year related to labour.
Technician wages and benefits: 5 000 000 Rs
Office employee’s salary and benefits: 2 000 000 Rs
Other overhead: 4 000 000 Rs
Kikubhai desires a profit margin of 500 Rs per labor hour and budgets 5000 hours of repair time for the year. The office employee’s salary, benefits, and other overhead costs should be divided evenly between time charges and material loading charges. Kikubhai labor charge per hour would be:
a. 2100 Rs
b. 1700 Rs
c. 1600 Rs
d. 1500 Rs
Kikubhai Electrical Repair has decided to price its workon a time-and-material basis. It estimates the following costs for the year related to labour.
Technician wages and benefits: 5 000 000 Rs
Office employee’s salary and benefits: 2 000 000 Rs
Other overhead: 4 000 000 Rs
Kikubhai desires a profit margin of 500 Rs per labor hour and budgets 5000 hours of repair time for the year. The office employee’s salary, benefits, and other overhead costs should be divided evenly between time charges and material loading charges. Kikubhai labor charge per hour would be:
a. 2100 Rs
5 000 000 / 5000 = 1000
(2 000 000 / 5000) x 0,5 = 200
(4 000 000 / 5000) x 0,5 = 400
1000 + 200 + 400 + 500 = 2100 Rs
Time-and-material pricing would most likely be used by a:
a. garden-fertilizer producer
b. lawn-mower manufacturer
c. tree farm
d. lawn-care provider
Time-and-material pricing would most likely be used by a:
d. lawn-care provider
A lawn-care provider would be most likely to use time-and-material pricing as it is a service company.
When a company uses time-and-material pricing, the material loading charge is expressed as a percentage of:
a. the total estimated labor costs for the year
b. the total estimated costs of parts and materials for the year
c. the total estimated overhead costs for the year
d. the total estimated costs of parts, materials, and labor fof the year
When a company uses time-and-material pricing, the material loading charge is expressed as a percentage of:
b. the total estimated costs of parts and materials for the year