Week 9 - Costing and Pricing

Question 1

Market Based Pricing

Answer 1

Relationship between price and quantity

If a company can accurately forecast the volume of items sold at a particular price, it will be able to set a price that will provide the highest operating income.

Question 2

Cost plus pricing

Answer 2

method to pricing is applying a markup to cost

Question 3

markup

Answer 3

difference between selling price and cost

Question 4

Advantage of Cost Plus Pricing

Answer 4

business ca ensure that it covers product costs and earns a profit

Question 5

Disadvantage of Cost Plus Pricing

Answer 5

does not consider market and customer information

Question 6

Target Costing

Answer 6

process of using anticipated market price to calculate the maximum costs the business can incur.

The maximum allowable cost i

Question 7

Pros of target costing

Answer 7

Pro - proactive approach to managing costs and minimizes use and costs of non-value activities

Question 8

Cons of Target Costing

Answer 8

• reduce quality of products
• lead to cheap ingredients and materials, which reduced profit
• requires very detailed cost data

Question 9

Menu engineering is a method of analysis that focuses on each menu item’s:
Select one:
a. Fixed costs and variable costs.
b. Contribution margin and fixed costs.
c. Contribution margin and popularity.
d. Variable costs and popularity.

Answer 9

C

Question 10

Based on the most recent market research, a restaurant is recommended to price its deluxe cheeseburger platter at $20 per unit. If the company requires a profit of $9 per platter, the target cost should be:
Select one:
a. $20 per platter
b. $10 per platter
c. $11 per platter
d. $9 per platter

Answer 10

C

Question 11

If a 160-room hotel reported an occupancy rate of 85% for September, how many rooms did it sell on average per day during the month?
Select one:
a. 160
b. 136
c. 145
d. 139

Answer 11

B

Question 12

A chef is pricing a new dish for her restaurant. If the dish costs her $8.50 to make and she desires to maintain a 30% food cost percentage, what should be the price of the new dish?
Select one:
a. $2.55
b. $12.14
c. $14.45
d. $28.33

Answer 12

D

Question 13

When ranking menu items using menu engineering, plowhorses have:
Select one:
a. Low profitability and low popularity
b. High profitability and high popularity
c. Low profitability and high popularity
d. High profitability and low popularity

Answer 13

c

Question 14

The maximum allowable cost is also known as the:
Select one:
a. Period cost
b. Markup cost
c. Target cost
d. Variable cost

Answer 14

C

Question 15

Assume the cost plus pricing strategy is used. If a restaurant’s markup is 70% and the total product cost is $5, how much should it charge for this particular product?
Select one:
a. $7.00
b. $5.70
c. $8.50
d. $5.00

Answer 15

C

[$5 x (1 + 0.70)]

Question 16

If a 100 seat restaurant is open every day and has total sales of $200,000 for the month of September, what is the average lunch check if lunch sales are 60% of the total sales and the seat turnover is 2.2 times?
Select one:
a. $18.18
b. $12.12
c. $17.60
d. $30.30

Answer 16

A - $18.18

Explanation: Average lunch check is calculated as (Meals by period × Total sales for the period) ÷ (Number of seats × Seat turnover × Days open) = (60% × $200,000) ÷ (100 × 2.2 × 30) = $18.18.