CHAPTER 8 b
PRICING
SUMMARY OF QUESTIONS BY OBJECTIVES AND BLOOM’S TAXONOMY
b b b b b b b
Item LO BT Item LO BT Item LO BT Item LO BT Item LO BT
True-FalsebStatements
a
1. 1 Cb 6. 2 Cb 11. 3 Kb 16. 4 Kb 21.b 5 Cb
2. 1 7. 2 12. 4 17. 4 a 5
Kb Cb Kb Cb 22.b Kb
a
3. 1 Kb 8. 3 Kb 13. 4 Kb 18. 4 Kb 23.b 5 Kb
a a
4. 2 K 9. 3 K 14. 4 C 19. 5 K 24. 6 K
a a
5. 2 C 10. 3 K 15. 4 C 20. 5 C 25. 6 C
MultiplebChoicebQuestions
26. 1 Kb 50. 2 APb 74. 3 APb 98. 4 APb 122. 4 APb
27. 1 Kb 51. 2 APb 75. 3 APb 99. 4 APb 123. 4 APb
28. 1 Kb 52. 2 APb 76. 3 APb 100. 4 APb 124. 4 APb
a
29. 1 Cb 53. 2 APb 77. 3 APb 101. 4 APb 125. 5 Cb
a
30. 1 Cb 54. 2 Cb 78. 3 APb 102. 4 APb 126. 5 Kb
a
31. 1 Kb 55. 2 Cb 79. 3 APb 103. 4 APb 127. 5 Kb
a
32. 1 Kb 56. 2 Kb 80. 3 APb 104. 4 APb 128. 5 Kb
a
33. 1 Kb 57. 2 Kb 81. 3 Kb 105. 4 APb 129. 5 Kb
a
34. 1 Kb 58. 2 Cb 82. 3 Kb 106. 4 APb 130. 5 Kb
a
35. 1 Cb 59. 2 APb 83. 3 Kb 107. 4 Cb 131. 5 Kb
a
36. 1 APb 60. 2 APb 84. 3 APb 108. 4 Kb 132. 5 Cb
a
37. 1 APb 61. 2 Cb 85. 3 APb 109. 4 Kb 133. 5 Kb
a
38. 1 APb 62. 2 Kb 86. 3 APb 110. 4 Cb 134. 5 Kb
a
39. 1 APb 63. 2 APb 87. 4 Kb 111. 4 Kb 135. 5 Kb
a
40. 1 APb 64. 2 APb 88. 4 Kb 112. 4 Cb 136. 5 Cb
a
41. 2 Kb 65. 3 Kb 89. 4 Kb 113. 4 Kb 137. 5 APb
a
42. 2 Kb 66. 3 Kb 90. 4 Cb 114. 4 Cb 138. 5 APb
a
43. 2 APb 67. 3 Cb 91. 4 APb 115. 4 Kb 139. 5 APb
a
44. 2 APb 68. 3 Cb 92. 4 Kb 116. 4 Cb 140. 5 APb
a
45. 2 APb 69. 3 Kb 93. 4 Kb 117. 4 Cb 141. 5 APb
a
46. 2 APb 70. 3 APb 94. 4 Kb 118. 4 Kb 142. 5 APb
a
47. 2 APb 71. 3 APb 95. 4 Kb 119. 4 Cb 143. 5 APb
a
48. 2 AP 72. 3 AP 96. 4 K 120. 4 K 144. 6 AP
a
49. 2 AP 73. 3 K 97. 4 C 121. 4 AP 145. 6 AP
BriefbExercises
a
146. 1 APb 149. 2 APb 152. 3 APb 155. 4 APb 158.b 5 APb
a
147. 2 AP 150. 2 AP 153. 3 AP 156. 4 AP 159. 5 AP
148. 2 AP 151. 2 AP 154. 3 AP 157. 4 AP
Exercises
a
160. 1 APb 164. 2 APb 168. 3 APb 172. 4 ANb 176.b 5 APb
a
161. 1 APb 165. 2 APb 169. 3 APb 173. 4 ANb 177. 5 AP
162. 1 AP 166. 2 AP 170. 4 AN 174. 4 AN
163. 2 AP 167. 3 AP 171. 4 AN 175. 4 AN
a
b ThisbquestionbcoversbabtopicbinbanbAppendixbtobthebchapter.
,8b-b2 TestbBankbforbManagerialbAccounting,bSeventhbEdition
CompletionbStatements
a
178. 1 Kb 180. 2 Kb 182. 4 Kb 184. 4 Kb 186. 5 Kb
a
179. 2 K 181. 3 K 183. 4 K 185. 4 K b 187 6 K
.
SUMMARY OF LEARNING OBJECTIVES BY QUESTION TYPE
b b b b b b
Item Type Item Type Item Typ Item Type Item Type Item Type Item Type
LearningbObjectiveb1
1. TF 27. MC 31. MC 35. MC 39. MC 161. Ex
2. TF 28. MC 32. MC 36. MC 40. MC 162. Ex
3. TF 29. MC 33. MC 37. MC 146. BE 178. C
26. MC 30. MC 34. MC 38. MC 160. Ex
LearningbObjectiveb2
4. TF 43. MC 49. MC 55. MC 61. MC 149. BE 166. Ex
5. TF 44. MC 50. MC 56. MC 62. MC 150. BE 179. C
6. TF 45. MC 51. MC 57. MC 63. MC 151. BE 180. C
7. TF 46. MC 52. MC 58. MC 64. MC 163. Ex
41. MC 47. MC 53. MC 59. MC 147. BE 164. Ex
42. MC 48. MC 54. MC 60. MC 148. BE 165. Ex
LearningbObjectiveb3
8. TF 66. MC 71. MC 76. MC 81. MC 86. MC 168. Ex
9. TF 67. MC 72. MC 77. MC 82. MC 152. BE 169. Ex
10. TF 68. MC 73. MC 78. MC 83. MC 153. BE 181. C
11. TF 69. MC 74. MC 79. MC 84. MC 154. BE
65. MC 70. MC 75. MC 80. MC 85. MC 167. BE
LearningbObjectiveb4
12. TF 89. MC 98. MC 107. MC 116. MC 155. BE 182. C
13. TF 90. MC 99. MC 108. MC 117. MC 156. BE 183. C
14. TF 91. MC 100. MC 109. MC 118. MC 157. BE 184. C
15. TF 92. MC 101. MC 110. MC 119. MC 170. Ex 185. C
16. TF 93. MC 102. MC 111. MC 120. MC 171. Ex
17. TF 94. MC 103. MC 112. MC 121. MC 172. Ex
18. TF 95. MC 104. MC 113. MC 122. MC 173. Ex
87. MC 96. MC 105. MC 114. MC 123. MC 174. Ex
88. MC 97. MC 106. MC 115. MC 124. MC 175. Ex
LearningbObjectiveb5a
19. TF 125. MC 130. MC 135. MC 140. MC 159. BE
20. TF 126. MC 131. MC 136. MC 141. MC 176. Ex
21. TF 127. MC 132. MC 137. MC 142. MC 177. Ex
22. TF 128. MC 133. MC 138. MC 143. MC 186. C
23. TF 129. MC 134. MC 139. MC 158. BE
LearningbObjectiveb6a
24. TF 25. TF 144. MC 145. MC 187. C
Note:bbbTFb =b True-False BEb =b BriefbExercise
Cb =bCompletionbMCb =b MultiplebChoice
Exb =b Exercise
, Pricing 8b-b3
Theb chapterb alsob containsb oneb setb ofb eightb Matchingb questionsb andb twob Short-
Answerb Essaybquestions.
CHAPTER LEARNING OBJECTIVES
b b
1. Computebabtargetbcostbwhenb thebmarketbdeterminesbabproductbprice.bTobcomputebabtarg
etbcost,bthebcompanybdeterminesbitsbtargetbsellingbprice.bOncebthebtargetbsellingbpricebisbset,bitb
determinesbitsbtargetbcostbbybsettingbabdesiredbprofit.bThebdifferencebbetweenbthebtargetbpriceba
ndbdesiredbprofitbisbthebtargetbcostbofbthebproduct.
2. Computebabtargetbsellingbpricebusingbcost-plusbpricing.bCost-
plusbpricingbinvolvesbestablishingbabcostbbasebandbaddingbtobthisbcostbbasebabmarkupbtobdeter
minebabtargetbsellingbprice.bThebcost-
plusbpricingbformulabisbexpressedbasbfollows:bTargetbsellingbpriceb=bCostb+b(Markupbpercentag
eb×bCost).
3. Usebtime-and-materialbpricingbtobdeterminebthebcostbofbservicesbprovided.bUnderbtime-
band-materialbpricing,btwobpricingbratesbarebset—
onebforblaborbusedbonbabjobbandbanotherbforbthebmaterial.bTheblaborbratebincludesbdirectblaborbti
mebandbotherbemployeeb costs.b Thebmaterialbchargebisbbasedbonbthebcostbofbdirectbpartsbandbm
aterialsbusedb andbabmaterialbloadingbchargebforbrelatedboverheadbcost.
4. Determinebabtransferbpricebusingbthebnegotiated,bcost-based,bandbmarket-
basedbapproaches.bThebnegotiatedbpricebisbdeterminedbthroughbagreementbofbdivisionbmana
gers.bUnderbabcost-
basedbapproach,bthebtransferbpricebmaybbebbasedbonbvariablebcostbaloneborbonbvariablebcostbpl
usbfixedbcosts.bCompaniesbmaybaddbabmarkupbtobthesebnumbers.bThebcost-
bbasedbapproachboftenbleadsbtobpoorbperformancebevaluationsbandbpurchasingbdecisions.bAbm
arket-
basedbtransferbpricebisbbasedbonbexistingbcompetingbmarketbpricesbandbservices.bAbmarket-
basedbsystembisboftenbconsideredbthebbestbapproachbbecausebitbisbobjectivebandbgenerallybpro
videsbthebproperbeconomicbincentives.
*5.bDeterminebpricesbusingbabsorption-costbpricingbandbvariable-costbpricing.bAbsorption-
bcostbpricingbusesbtotalbmanufacturingbcostbasbthebcostbbasebandbprovidesbforbsellingbandbadmi
nistrativebcostsbplusbthebtargetbROIbthroughbthebmarkup.bThebtargetbsellingbpricebisbcomputedba
s:bManufacturingbcostbperbunitb+b(Markupbpercentageb×bManufacturingbcostbperbunit).bVariable-
costbpricingbusesballbofbthebvariablebcosts,bincludingbsellingbandbadministrativebcosts,basbthebco
stbbasebandbprovidesbforbfixedbcostsbandbtargetbROIbthroughbthebmarkup.bThebtargetbsellingbpric
ebisbcomputedbas:bVariablebcostbperbunitb+b(Markupbpercentageb×bVariablebcostbperbunit).
*6.bExplainbissuesbinvolvedbinbtransferringbgoodsbbetweenbdivisionsbinbdifferentbcountries.b
Companiesbmustbpaybincomebtaxbinbthebcountrybwherebtheybgeneratebthebincome.bInborderbtobm
aximizebincomebandbminimizebincomebtax,bmanybcompaniesbpreferbtobreportbmorebincomebinbco
untriesbwithblowbtaxbrates,bandblessbincomebinbcountriesbwithbhighbtaxbrates.bThisbisbaccomplish
edbbybadjustingbthebtransferbpricesbtheybusebonbinternalbtransfersb betweenbdivisionsblocatedbinb
differentbcountries.
, 8b-b4 TestbBankbforbManagerialbAccounting,bSeventhbEdition
TRUE-FALSE STATEMENTS b
1. Inbmostbcases,babcompanybsetsbthebpricebinsteadbofbitbbeingbsetbbybthebcompetitivebmarket.
Ans:bF,bLO:b1,bBloom:bC,bDifficulty:bEasy,bMin:b1,bAACSB:bReflectivebThinking,bAICPAbBB:bMarketing/ClientbFocus,bAICPAbFN:bDecisionbModeling,bAIC
PAbPC:bProjectbManagement,bIMA:bBusinessbEconomics
2. Inb ab competitivebmarket,babcompanybisbforcedbtob actbasbabpriceb takerbandbmustbemphasizeb
minimizingbandbcontrollingbcosts.
Ans:bT,bLO:b1,bBloom:bK,bDifficulty:bEasy,bMin:b1,bAACSB:bReflectivebThinking,bAICPAbBB:bMarketing/ClientbFocus,bAICPAbFN:bDecisionbModeling,bAIC
PAbPC:bProjectbManagement,bIMA:bBusinessbEconomics
3. Theb differenceb betweenb theb targetb priceb andb theb desiredb profitb isb theb targetb costb ofb theb
product.
Ans:bT,bLO:b1,bBloom:bK,bDifficulty:bEasy,bMin:b1,bAACSB:bReflectivebThinking,bAICPAbBB:bMarketing/ClientbFocus,bAICPAbFN:bDecisionbModeling,bAIC
PAbPC:bProjectbManagement,bIMA:bBusinessbEconomics
4. Inb ab competitiveb environment,b theb companyb mustb setb ab targetb costb andb ab targetb sellingb
price.
Ans:bF,bLO:b2,bBloom:bK,bDifficulty:bEasy,bMin:b1,bAACSB:bReflectivebThinking,bAICPAbBB:bMarketing/ClientbFocus,bAICPAbFN:bDecisionbModeling,bAIC
PAbPC:bProjectbManagement,bIMA:bBusinessbEconomics
5. Thebcost-
plusbpricingbapproachbestablishesbabcostbbasebandbaddsbabmarkupbtobthisbbasebtobdetermineb
abtargetbsellingbprice.
Ans:bT,bLO:b2,bBloom:bC,bDifficulty:bEasy,bMin:b1,bAACSB:bReflectivebThinking,bAICPAbBB:bMarketing/ClientbFocus,bAICPAbFN:bDecisionbModeling,bAIC
PAbPC:bProjectbManagement,bIMA:bCostbManagement
6. Theb cost-plusb pricingb modelbgivesb considerationb tob theb demandb side—
whetherb customersbwillbpaybthebtargetbsellingbprice.
Ans:bF,bLO:b2,bBloom:bC,bDifficulty:bEasy,bMin:b1,bAACSB:bReflectivebThinking,bAICPAbBB:bMarketing/ClientbFocus,bAICPAbFN:bDecisionbModeling,bAIC
PAbPC:bProjectbManagement,bIMA:bCostbManagement
7. Salesb volumeb playsb ab largeb roleb inb determiningb perb unitb costsb inb theb cost-
plusb pricingbapproach.
Ans:bT,bLO:b2,bBloom:bC,bDifficulty:bEasy,bMin:b1,bAACSB:bReflectivebThinking,bAICPAbBB:bMarketing/ClientbFocus,bAICPAbFN:bDecisionbModeling,bAIC
PAbPC:bProjectbManagement,bIMA:bCostbManagement
8. Inb time-and-
materialb pricing,b theb materialb chargeb isb basedb onb theb costb ofb directb materialsbusedbandbab
materialbloadingbchargebforbrelatedboverheadbcosts.
Ans:bT,bLO:b3,bBloom:bK,bDifficulty:bEasy,bMin:b1,bAACSB:bReflectivebThinking,bAICPAbBB:bMarketing/ClientbFocus,bAICPAbFN:bDecisionbModeling,bAIC
PAbPC:bProjectbManagement,bIMA:bBusinessbEconomics
9. Thebfirstbstepbforbtime-and-materialbpricingbisbtobcalculatebthebmaterialbloadingbcharge.
Ans:bF,bLO:b3,bBloom:bK,bDifficulty:bEasy,bMin:b1,bAACSB:bReflectivebThinking,bAICPAbBB:bMarketing/ClientbFocus,bAICPAbFN:bDecisionbModeling,bAIC
PAbPC:bProjectbManagement,bIMA:bCostbManagement
10. Theb materialb loadingb chargeb isb expressedb asb ab percentageb ofb theb totalb estimatedb costb ofb
materialsbforbthebyear.
Ans:bT,bLO:b3,bBloom:bK,bDifficulty:bEasy,bMin:b1,bAACSB:bReflectivebThinking,bAICPAbBB:bMarketing/ClientbFocus,bAICPAbFN:bDecisionbModeling,bAIC
PAbPC:bProjectbManagement,bIMA:bBusinessbEconomics
11. Divisionsbwithinbverticallybintegratedb companiesbnormallybsellbgoodsbonlybtobotherbdivisionsb
withinbthebsamebcompany.
Ans:b F,b LO:b 4,b Bloom:b K,b Difficulty:b Easy,b Min:b 1,b AACSB:b ReflectivebThinking,b AICPAb BB:b Industry/Sectorb Perspective,b AICPAb FN:b Decisionb Modeling,b
AICPAbPC:bProjectbManagement,b IMA:bBusinessbEconomics
PRICING
SUMMARY OF QUESTIONS BY OBJECTIVES AND BLOOM’S TAXONOMY
b b b b b b b
Item LO BT Item LO BT Item LO BT Item LO BT Item LO BT
True-FalsebStatements
a
1. 1 Cb 6. 2 Cb 11. 3 Kb 16. 4 Kb 21.b 5 Cb
2. 1 7. 2 12. 4 17. 4 a 5
Kb Cb Kb Cb 22.b Kb
a
3. 1 Kb 8. 3 Kb 13. 4 Kb 18. 4 Kb 23.b 5 Kb
a a
4. 2 K 9. 3 K 14. 4 C 19. 5 K 24. 6 K
a a
5. 2 C 10. 3 K 15. 4 C 20. 5 C 25. 6 C
MultiplebChoicebQuestions
26. 1 Kb 50. 2 APb 74. 3 APb 98. 4 APb 122. 4 APb
27. 1 Kb 51. 2 APb 75. 3 APb 99. 4 APb 123. 4 APb
28. 1 Kb 52. 2 APb 76. 3 APb 100. 4 APb 124. 4 APb
a
29. 1 Cb 53. 2 APb 77. 3 APb 101. 4 APb 125. 5 Cb
a
30. 1 Cb 54. 2 Cb 78. 3 APb 102. 4 APb 126. 5 Kb
a
31. 1 Kb 55. 2 Cb 79. 3 APb 103. 4 APb 127. 5 Kb
a
32. 1 Kb 56. 2 Kb 80. 3 APb 104. 4 APb 128. 5 Kb
a
33. 1 Kb 57. 2 Kb 81. 3 Kb 105. 4 APb 129. 5 Kb
a
34. 1 Kb 58. 2 Cb 82. 3 Kb 106. 4 APb 130. 5 Kb
a
35. 1 Cb 59. 2 APb 83. 3 Kb 107. 4 Cb 131. 5 Kb
a
36. 1 APb 60. 2 APb 84. 3 APb 108. 4 Kb 132. 5 Cb
a
37. 1 APb 61. 2 Cb 85. 3 APb 109. 4 Kb 133. 5 Kb
a
38. 1 APb 62. 2 Kb 86. 3 APb 110. 4 Cb 134. 5 Kb
a
39. 1 APb 63. 2 APb 87. 4 Kb 111. 4 Kb 135. 5 Kb
a
40. 1 APb 64. 2 APb 88. 4 Kb 112. 4 Cb 136. 5 Cb
a
41. 2 Kb 65. 3 Kb 89. 4 Kb 113. 4 Kb 137. 5 APb
a
42. 2 Kb 66. 3 Kb 90. 4 Cb 114. 4 Cb 138. 5 APb
a
43. 2 APb 67. 3 Cb 91. 4 APb 115. 4 Kb 139. 5 APb
a
44. 2 APb 68. 3 Cb 92. 4 Kb 116. 4 Cb 140. 5 APb
a
45. 2 APb 69. 3 Kb 93. 4 Kb 117. 4 Cb 141. 5 APb
a
46. 2 APb 70. 3 APb 94. 4 Kb 118. 4 Kb 142. 5 APb
a
47. 2 APb 71. 3 APb 95. 4 Kb 119. 4 Cb 143. 5 APb
a
48. 2 AP 72. 3 AP 96. 4 K 120. 4 K 144. 6 AP
a
49. 2 AP 73. 3 K 97. 4 C 121. 4 AP 145. 6 AP
BriefbExercises
a
146. 1 APb 149. 2 APb 152. 3 APb 155. 4 APb 158.b 5 APb
a
147. 2 AP 150. 2 AP 153. 3 AP 156. 4 AP 159. 5 AP
148. 2 AP 151. 2 AP 154. 3 AP 157. 4 AP
Exercises
a
160. 1 APb 164. 2 APb 168. 3 APb 172. 4 ANb 176.b 5 APb
a
161. 1 APb 165. 2 APb 169. 3 APb 173. 4 ANb 177. 5 AP
162. 1 AP 166. 2 AP 170. 4 AN 174. 4 AN
163. 2 AP 167. 3 AP 171. 4 AN 175. 4 AN
a
b ThisbquestionbcoversbabtopicbinbanbAppendixbtobthebchapter.
,8b-b2 TestbBankbforbManagerialbAccounting,bSeventhbEdition
CompletionbStatements
a
178. 1 Kb 180. 2 Kb 182. 4 Kb 184. 4 Kb 186. 5 Kb
a
179. 2 K 181. 3 K 183. 4 K 185. 4 K b 187 6 K
.
SUMMARY OF LEARNING OBJECTIVES BY QUESTION TYPE
b b b b b b
Item Type Item Type Item Typ Item Type Item Type Item Type Item Type
LearningbObjectiveb1
1. TF 27. MC 31. MC 35. MC 39. MC 161. Ex
2. TF 28. MC 32. MC 36. MC 40. MC 162. Ex
3. TF 29. MC 33. MC 37. MC 146. BE 178. C
26. MC 30. MC 34. MC 38. MC 160. Ex
LearningbObjectiveb2
4. TF 43. MC 49. MC 55. MC 61. MC 149. BE 166. Ex
5. TF 44. MC 50. MC 56. MC 62. MC 150. BE 179. C
6. TF 45. MC 51. MC 57. MC 63. MC 151. BE 180. C
7. TF 46. MC 52. MC 58. MC 64. MC 163. Ex
41. MC 47. MC 53. MC 59. MC 147. BE 164. Ex
42. MC 48. MC 54. MC 60. MC 148. BE 165. Ex
LearningbObjectiveb3
8. TF 66. MC 71. MC 76. MC 81. MC 86. MC 168. Ex
9. TF 67. MC 72. MC 77. MC 82. MC 152. BE 169. Ex
10. TF 68. MC 73. MC 78. MC 83. MC 153. BE 181. C
11. TF 69. MC 74. MC 79. MC 84. MC 154. BE
65. MC 70. MC 75. MC 80. MC 85. MC 167. BE
LearningbObjectiveb4
12. TF 89. MC 98. MC 107. MC 116. MC 155. BE 182. C
13. TF 90. MC 99. MC 108. MC 117. MC 156. BE 183. C
14. TF 91. MC 100. MC 109. MC 118. MC 157. BE 184. C
15. TF 92. MC 101. MC 110. MC 119. MC 170. Ex 185. C
16. TF 93. MC 102. MC 111. MC 120. MC 171. Ex
17. TF 94. MC 103. MC 112. MC 121. MC 172. Ex
18. TF 95. MC 104. MC 113. MC 122. MC 173. Ex
87. MC 96. MC 105. MC 114. MC 123. MC 174. Ex
88. MC 97. MC 106. MC 115. MC 124. MC 175. Ex
LearningbObjectiveb5a
19. TF 125. MC 130. MC 135. MC 140. MC 159. BE
20. TF 126. MC 131. MC 136. MC 141. MC 176. Ex
21. TF 127. MC 132. MC 137. MC 142. MC 177. Ex
22. TF 128. MC 133. MC 138. MC 143. MC 186. C
23. TF 129. MC 134. MC 139. MC 158. BE
LearningbObjectiveb6a
24. TF 25. TF 144. MC 145. MC 187. C
Note:bbbTFb =b True-False BEb =b BriefbExercise
Cb =bCompletionbMCb =b MultiplebChoice
Exb =b Exercise
, Pricing 8b-b3
Theb chapterb alsob containsb oneb setb ofb eightb Matchingb questionsb andb twob Short-
Answerb Essaybquestions.
CHAPTER LEARNING OBJECTIVES
b b
1. Computebabtargetbcostbwhenb thebmarketbdeterminesbabproductbprice.bTobcomputebabtarg
etbcost,bthebcompanybdeterminesbitsbtargetbsellingbprice.bOncebthebtargetbsellingbpricebisbset,bitb
determinesbitsbtargetbcostbbybsettingbabdesiredbprofit.bThebdifferencebbetweenbthebtargetbpriceba
ndbdesiredbprofitbisbthebtargetbcostbofbthebproduct.
2. Computebabtargetbsellingbpricebusingbcost-plusbpricing.bCost-
plusbpricingbinvolvesbestablishingbabcostbbasebandbaddingbtobthisbcostbbasebabmarkupbtobdeter
minebabtargetbsellingbprice.bThebcost-
plusbpricingbformulabisbexpressedbasbfollows:bTargetbsellingbpriceb=bCostb+b(Markupbpercentag
eb×bCost).
3. Usebtime-and-materialbpricingbtobdeterminebthebcostbofbservicesbprovided.bUnderbtime-
band-materialbpricing,btwobpricingbratesbarebset—
onebforblaborbusedbonbabjobbandbanotherbforbthebmaterial.bTheblaborbratebincludesbdirectblaborbti
mebandbotherbemployeeb costs.b Thebmaterialbchargebisbbasedbonbthebcostbofbdirectbpartsbandbm
aterialsbusedb andbabmaterialbloadingbchargebforbrelatedboverheadbcost.
4. Determinebabtransferbpricebusingbthebnegotiated,bcost-based,bandbmarket-
basedbapproaches.bThebnegotiatedbpricebisbdeterminedbthroughbagreementbofbdivisionbmana
gers.bUnderbabcost-
basedbapproach,bthebtransferbpricebmaybbebbasedbonbvariablebcostbaloneborbonbvariablebcostbpl
usbfixedbcosts.bCompaniesbmaybaddbabmarkupbtobthesebnumbers.bThebcost-
bbasedbapproachboftenbleadsbtobpoorbperformancebevaluationsbandbpurchasingbdecisions.bAbm
arket-
basedbtransferbpricebisbbasedbonbexistingbcompetingbmarketbpricesbandbservices.bAbmarket-
basedbsystembisboftenbconsideredbthebbestbapproachbbecausebitbisbobjectivebandbgenerallybpro
videsbthebproperbeconomicbincentives.
*5.bDeterminebpricesbusingbabsorption-costbpricingbandbvariable-costbpricing.bAbsorption-
bcostbpricingbusesbtotalbmanufacturingbcostbasbthebcostbbasebandbprovidesbforbsellingbandbadmi
nistrativebcostsbplusbthebtargetbROIbthroughbthebmarkup.bThebtargetbsellingbpricebisbcomputedba
s:bManufacturingbcostbperbunitb+b(Markupbpercentageb×bManufacturingbcostbperbunit).bVariable-
costbpricingbusesballbofbthebvariablebcosts,bincludingbsellingbandbadministrativebcosts,basbthebco
stbbasebandbprovidesbforbfixedbcostsbandbtargetbROIbthroughbthebmarkup.bThebtargetbsellingbpric
ebisbcomputedbas:bVariablebcostbperbunitb+b(Markupbpercentageb×bVariablebcostbperbunit).
*6.bExplainbissuesbinvolvedbinbtransferringbgoodsbbetweenbdivisionsbinbdifferentbcountries.b
Companiesbmustbpaybincomebtaxbinbthebcountrybwherebtheybgeneratebthebincome.bInborderbtobm
aximizebincomebandbminimizebincomebtax,bmanybcompaniesbpreferbtobreportbmorebincomebinbco
untriesbwithblowbtaxbrates,bandblessbincomebinbcountriesbwithbhighbtaxbrates.bThisbisbaccomplish
edbbybadjustingbthebtransferbpricesbtheybusebonbinternalbtransfersb betweenbdivisionsblocatedbinb
differentbcountries.
, 8b-b4 TestbBankbforbManagerialbAccounting,bSeventhbEdition
TRUE-FALSE STATEMENTS b
1. Inbmostbcases,babcompanybsetsbthebpricebinsteadbofbitbbeingbsetbbybthebcompetitivebmarket.
Ans:bF,bLO:b1,bBloom:bC,bDifficulty:bEasy,bMin:b1,bAACSB:bReflectivebThinking,bAICPAbBB:bMarketing/ClientbFocus,bAICPAbFN:bDecisionbModeling,bAIC
PAbPC:bProjectbManagement,bIMA:bBusinessbEconomics
2. Inb ab competitivebmarket,babcompanybisbforcedbtob actbasbabpriceb takerbandbmustbemphasizeb
minimizingbandbcontrollingbcosts.
Ans:bT,bLO:b1,bBloom:bK,bDifficulty:bEasy,bMin:b1,bAACSB:bReflectivebThinking,bAICPAbBB:bMarketing/ClientbFocus,bAICPAbFN:bDecisionbModeling,bAIC
PAbPC:bProjectbManagement,bIMA:bBusinessbEconomics
3. Theb differenceb betweenb theb targetb priceb andb theb desiredb profitb isb theb targetb costb ofb theb
product.
Ans:bT,bLO:b1,bBloom:bK,bDifficulty:bEasy,bMin:b1,bAACSB:bReflectivebThinking,bAICPAbBB:bMarketing/ClientbFocus,bAICPAbFN:bDecisionbModeling,bAIC
PAbPC:bProjectbManagement,bIMA:bBusinessbEconomics
4. Inb ab competitiveb environment,b theb companyb mustb setb ab targetb costb andb ab targetb sellingb
price.
Ans:bF,bLO:b2,bBloom:bK,bDifficulty:bEasy,bMin:b1,bAACSB:bReflectivebThinking,bAICPAbBB:bMarketing/ClientbFocus,bAICPAbFN:bDecisionbModeling,bAIC
PAbPC:bProjectbManagement,bIMA:bBusinessbEconomics
5. Thebcost-
plusbpricingbapproachbestablishesbabcostbbasebandbaddsbabmarkupbtobthisbbasebtobdetermineb
abtargetbsellingbprice.
Ans:bT,bLO:b2,bBloom:bC,bDifficulty:bEasy,bMin:b1,bAACSB:bReflectivebThinking,bAICPAbBB:bMarketing/ClientbFocus,bAICPAbFN:bDecisionbModeling,bAIC
PAbPC:bProjectbManagement,bIMA:bCostbManagement
6. Theb cost-plusb pricingb modelbgivesb considerationb tob theb demandb side—
whetherb customersbwillbpaybthebtargetbsellingbprice.
Ans:bF,bLO:b2,bBloom:bC,bDifficulty:bEasy,bMin:b1,bAACSB:bReflectivebThinking,bAICPAbBB:bMarketing/ClientbFocus,bAICPAbFN:bDecisionbModeling,bAIC
PAbPC:bProjectbManagement,bIMA:bCostbManagement
7. Salesb volumeb playsb ab largeb roleb inb determiningb perb unitb costsb inb theb cost-
plusb pricingbapproach.
Ans:bT,bLO:b2,bBloom:bC,bDifficulty:bEasy,bMin:b1,bAACSB:bReflectivebThinking,bAICPAbBB:bMarketing/ClientbFocus,bAICPAbFN:bDecisionbModeling,bAIC
PAbPC:bProjectbManagement,bIMA:bCostbManagement
8. Inb time-and-
materialb pricing,b theb materialb chargeb isb basedb onb theb costb ofb directb materialsbusedbandbab
materialbloadingbchargebforbrelatedboverheadbcosts.
Ans:bT,bLO:b3,bBloom:bK,bDifficulty:bEasy,bMin:b1,bAACSB:bReflectivebThinking,bAICPAbBB:bMarketing/ClientbFocus,bAICPAbFN:bDecisionbModeling,bAIC
PAbPC:bProjectbManagement,bIMA:bBusinessbEconomics
9. Thebfirstbstepbforbtime-and-materialbpricingbisbtobcalculatebthebmaterialbloadingbcharge.
Ans:bF,bLO:b3,bBloom:bK,bDifficulty:bEasy,bMin:b1,bAACSB:bReflectivebThinking,bAICPAbBB:bMarketing/ClientbFocus,bAICPAbFN:bDecisionbModeling,bAIC
PAbPC:bProjectbManagement,bIMA:bCostbManagement
10. Theb materialb loadingb chargeb isb expressedb asb ab percentageb ofb theb totalb estimatedb costb ofb
materialsbforbthebyear.
Ans:bT,bLO:b3,bBloom:bK,bDifficulty:bEasy,bMin:b1,bAACSB:bReflectivebThinking,bAICPAbBB:bMarketing/ClientbFocus,bAICPAbFN:bDecisionbModeling,bAIC
PAbPC:bProjectbManagement,bIMA:bBusinessbEconomics
11. Divisionsbwithinbverticallybintegratedb companiesbnormallybsellbgoodsbonlybtobotherbdivisionsb
withinbthebsamebcompany.
Ans:b F,b LO:b 4,b Bloom:b K,b Difficulty:b Easy,b Min:b 1,b AACSB:b ReflectivebThinking,b AICPAb BB:b Industry/Sectorb Perspective,b AICPAb FN:b Decisionb Modeling,b
AICPAbPC:bProjectbManagement,b IMA:bBusinessbEconomics
