MASTER THE FUNDAMENTALS OF PRICING
STRATEGIES, COST BEHAVIORS, BREAK-EVEN
ANALYSIS, GOVERNMENT CONTRACT COSTING
(FAR/TINA), COST-VOLUME-PROFIT
RELATIONSHIPS, AND SHOULD-COST REVIEWS
WITH COMPREHENSIVE MULTIPLE-CHOICE
QUESTIONS. LATEST UPDATE 2026 NOTE MOSR
RECENT
1. A company manufactures 10,000 units of a product. Total fixed costs are
$50,000 and total variable costs are $150,000. What is the total cost per
unit?
a) $5
b) $15
c) $20
d) $25
*c) $20**
*Rationale: Total cost is $50,000 + $150,000 = $200,000. Divided by 10,000
units equals $20 per unit.
2. Which of the following best describes a direct cost?
a) A cost that cannot be traced to a specific cost object in an economically
feasible way
b) A cost that remains constant in total regardless of production volume
c) A cost that is directly traceable to a specific cost object
d) A cost incurred for the benefit of multiple cost objects
c) A cost that is directly traceable to a specific cost object
Rationale: Direct costs can be conveniently and economically traced to a
specific cost object, such as direct materials and direct labor.
,3. In cost-volume-profit analysis, the contribution margin is calculated as:
a) Sales revenue minus fixed costs
b) Sales revenue minus variable costs
c) Sales revenue minus total costs
d) Variable costs minus fixed costs
b) Sales revenue minus variable costs
Rationale: Contribution margin represents the amount available to cover
fixed costs and generate profit after covering all variable costs.
4. A supplier offers goods at $100 per unit with terms of 2/10, net 30. What is
the effective cost if the buyer pays on day 30 instead of taking the discount?
a) $2
b) $100
c) $98
d) $102
**a) $2**
Rationale: The discount is 2% of $100 = $2. By not taking the discount, the
buyer incurs an additional $2 cost per unit for the 20-day extension of credit.
5. What does the learning curve theory primarily suggest about production
costs?
a) Total costs increase proportionally with production volume
b) Unit variable costs remain constant regardless of volume
c) Unit labor costs decline by a predictable percentage as cumulative
production doubles
d) Fixed costs decrease as production increases
c) Unit labor costs decline by a predictable percentage as cumulative
production doubles
Rationale: The learning curve shows that as workers become more efficient
through repetition, the labor hours per unit decrease at a predictable rate.
6. A cost that has already been incurred and cannot be recovered is known as
a:
a) Opportunity cost
, b) Sunk cost
c) Marginal cost
d) Differential cost
b) Sunk cost
Rationale: Sunk costs are past expenditures that cannot be changed by
current or future decisions and should be ignored in decision-making.
7. If a product's price is $80, variable cost per unit is $50, and fixed costs are
$90,000, what is the break-even point in units?
a) 1,125 units
b) 1,800 units
c) 3,000 units
d) 4,500 units
**c) 3,000 units**
*Rationale: Break-even units = Fixed costs ÷ (Price - Variable cost) = $90,000
÷ ($80 - $50) = 3,000 units.*
8. Which pricing strategy involves setting a high initial price for a new product
to skim maximum revenue from segments willing to pay?
a) Penetration pricing
b) Market skimming pricing
c) Cost-plus pricing
d) Competitive pricing
b) Market skimming pricing
Rationale: Price skimming aims to capture high margins from early adopters
before gradually lowering the price to attract more price-sensitive
customers.
9. What type of cost includes both fixed and variable components?
a) Step cost
b) Mixed cost
c) Implicit cost
d) Period cost
b) Mixed cost
, Rationale: A mixed cost, also called a semi-variable cost, has a fixed base
component and a variable component that changes with activity level.
10.In government procurement, a certified cost or pricing data requirement is
generally triggered when the contract value exceeds:
a) $100,000
b) $500,000
c) $750,000
d) $2,000,000
*d) $2,000,000**
*Rationale: Under the Truth in Negotiations Act (TINA), certified cost or
pricing data is required for negotiated procurements exceeding the TINA
threshold, which is currently $2 million.
11.Target costing begins with which of the following?
a) Determining the product cost and adding a markup
b) Analyzing competitor costs only
c) Determining the market-based price and subtracting the desired profit
margin
d) Calculating the break-even point first
c) Determining the market-based price and subtracting the desired profit
margin
Rationale: Target costing is a market-driven approach where the allowable
cost is derived from the competitive market price less the required profit.
12.Which cost flow assumption states that the earliest inventory purchased is
the first to be used or sold?
a) LIFO
b) Weighted average
c) FIFO
d) Specific identification
c) FIFO
Rationale: First-In, First-Out (FIFO) assumes the oldest inventory items are
STRATEGIES, COST BEHAVIORS, BREAK-EVEN
ANALYSIS, GOVERNMENT CONTRACT COSTING
(FAR/TINA), COST-VOLUME-PROFIT
RELATIONSHIPS, AND SHOULD-COST REVIEWS
WITH COMPREHENSIVE MULTIPLE-CHOICE
QUESTIONS. LATEST UPDATE 2026 NOTE MOSR
RECENT
1. A company manufactures 10,000 units of a product. Total fixed costs are
$50,000 and total variable costs are $150,000. What is the total cost per
unit?
a) $5
b) $15
c) $20
d) $25
*c) $20**
*Rationale: Total cost is $50,000 + $150,000 = $200,000. Divided by 10,000
units equals $20 per unit.
2. Which of the following best describes a direct cost?
a) A cost that cannot be traced to a specific cost object in an economically
feasible way
b) A cost that remains constant in total regardless of production volume
c) A cost that is directly traceable to a specific cost object
d) A cost incurred for the benefit of multiple cost objects
c) A cost that is directly traceable to a specific cost object
Rationale: Direct costs can be conveniently and economically traced to a
specific cost object, such as direct materials and direct labor.
,3. In cost-volume-profit analysis, the contribution margin is calculated as:
a) Sales revenue minus fixed costs
b) Sales revenue minus variable costs
c) Sales revenue minus total costs
d) Variable costs minus fixed costs
b) Sales revenue minus variable costs
Rationale: Contribution margin represents the amount available to cover
fixed costs and generate profit after covering all variable costs.
4. A supplier offers goods at $100 per unit with terms of 2/10, net 30. What is
the effective cost if the buyer pays on day 30 instead of taking the discount?
a) $2
b) $100
c) $98
d) $102
**a) $2**
Rationale: The discount is 2% of $100 = $2. By not taking the discount, the
buyer incurs an additional $2 cost per unit for the 20-day extension of credit.
5. What does the learning curve theory primarily suggest about production
costs?
a) Total costs increase proportionally with production volume
b) Unit variable costs remain constant regardless of volume
c) Unit labor costs decline by a predictable percentage as cumulative
production doubles
d) Fixed costs decrease as production increases
c) Unit labor costs decline by a predictable percentage as cumulative
production doubles
Rationale: The learning curve shows that as workers become more efficient
through repetition, the labor hours per unit decrease at a predictable rate.
6. A cost that has already been incurred and cannot be recovered is known as
a:
a) Opportunity cost
, b) Sunk cost
c) Marginal cost
d) Differential cost
b) Sunk cost
Rationale: Sunk costs are past expenditures that cannot be changed by
current or future decisions and should be ignored in decision-making.
7. If a product's price is $80, variable cost per unit is $50, and fixed costs are
$90,000, what is the break-even point in units?
a) 1,125 units
b) 1,800 units
c) 3,000 units
d) 4,500 units
**c) 3,000 units**
*Rationale: Break-even units = Fixed costs ÷ (Price - Variable cost) = $90,000
÷ ($80 - $50) = 3,000 units.*
8. Which pricing strategy involves setting a high initial price for a new product
to skim maximum revenue from segments willing to pay?
a) Penetration pricing
b) Market skimming pricing
c) Cost-plus pricing
d) Competitive pricing
b) Market skimming pricing
Rationale: Price skimming aims to capture high margins from early adopters
before gradually lowering the price to attract more price-sensitive
customers.
9. What type of cost includes both fixed and variable components?
a) Step cost
b) Mixed cost
c) Implicit cost
d) Period cost
b) Mixed cost
, Rationale: A mixed cost, also called a semi-variable cost, has a fixed base
component and a variable component that changes with activity level.
10.In government procurement, a certified cost or pricing data requirement is
generally triggered when the contract value exceeds:
a) $100,000
b) $500,000
c) $750,000
d) $2,000,000
*d) $2,000,000**
*Rationale: Under the Truth in Negotiations Act (TINA), certified cost or
pricing data is required for negotiated procurements exceeding the TINA
threshold, which is currently $2 million.
11.Target costing begins with which of the following?
a) Determining the product cost and adding a markup
b) Analyzing competitor costs only
c) Determining the market-based price and subtracting the desired profit
margin
d) Calculating the break-even point first
c) Determining the market-based price and subtracting the desired profit
margin
Rationale: Target costing is a market-driven approach where the allowable
cost is derived from the competitive market price less the required profit.
12.Which cost flow assumption states that the earliest inventory purchased is
the first to be used or sold?
a) LIFO
b) Weighted average
c) FIFO
d) Specific identification
c) FIFO
Rationale: First-In, First-Out (FIFO) assumes the oldest inventory items are
