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Exam 8: Pricing

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Question 51

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Use the following information for questions The Lumber Division of Paul Bunyon Homes Inc. produces and sells lumber that can be sold to outside customers or within the company to the Construction Division. The following data have been gathered for the coming period: $\begin{array}{ll}\text { Lumber Division: }\\\text { Capacity } & 200,000 \text { board feet } \\\text { Price per board foot } & \$ 2.50 \\\text { Variable production cost per bd. ft. } & \$ 1.25 \\\text { Variable selling cost per bd. ft. } & \$ 0.50\\\text { Construction Division: }\\\text { Board feet needed } & 60,000 \\\text { Outside price paid per bd. ft. } & \$ 2.00\end{array}$ If the Lumber Division sells to the Construction Division, $0.35 per board foot can be saved in shipping costs. -If current outside sales are 130,000 board feet, what is the minimum transfer price that the Lumber Division could accept?

A) $1.25
B) $1.40
C) $1.75
D) $2.50

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Question 52

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Using time-and-material pricing involves how many steps?

A) 4
B) 3
C) 2
D) 1

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Question 53

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Use the following information for questions Lonely Guy Repair Service recently performed repair services for a customer that totaled $400. Somehow the bill was lost and the company accountant was trying to recreate the bill from memory. This is what was remembered: $\begin{array} { l l } \text { Total bill } & \$ 600 \\\text { Labor profit margin } & \$ 10 \\\text { Materials profit margin } & 20 \% \\\text { Total labor charges } & \$ 390 \\\text { Cost of materials used } & \$ 120 \\\text { Total hourly cost } & \$ 22.50\end{array}$ -What was the material loading charge?

In the formula for the minimum transfer price, opportunity cost is the __________ of the goods sold externally.

All of the following are correct statements about the cost-plus pricing approach except that it

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.

Use the following information for questions Custom Shoes Co. has gathered the following information concerning one model of shoe: $\begin{array}{ll}\text { Variable manufacturing costs } & \$ 40,000 \\\text { Variable selling and administrative costs } & \$ 20,000 \\\text { Fixed manufacturing costs } & \$ 160,000 \\\text { Fixed selling and administrative costs } & \$ 120,000 \\\text { Investment } & \$ 1,700,000 \\\text { ROl } & 30 \% \\\text { Planned production and sales } & 5,000 \text { pairs }\end{array}$ -What is the markup percentage?

Variable costs of units sold internally will always be

A problem with a cost-based transfer price is that it does not provide adequate incentive for the selling division to control costs.

Use the following information for questions . Jaycee Auto Repair has the following budgeted costs for the next year: $\begin{array}{lcr}&\text { Time Charges}&\text { Material Charges }\\\text { Shop employees' wages and benefits } & \$ 120,000 & \$ \\\text { Parts manager's salary and benefits } & - & 45,000 \\\text { Office employee's salary and benefits } & 30,000 & 15,000 \\\text { Other overhead } & 15,000 & 40,000 \\\text { Invoice cost of parts and materials } & - & 400,000\\\text { Total budgeted costs }&\$165,000&\$500,000\end{array}$ -The labor rate to be used next year assuming 7,500 hours of repair time and a profit margin of $25 per labor hour is

Use the following information for questions The Wood Division of Fir Products, Inc. manufactures rubber moldings and sells them externally for $55. Its variable cost is $25 per unit, and its fixed cost per unit is $7. Fir's president wants the Wood Division to transfer 5,000 units to another company division at a price of $32. -Assuming the Wood Division does not have any available capacity, the minimum transfer price it should accept is

Wasson Widget Company is contemplating the production and sale of a new widget. Projected sales are $300,000 (or 75,000 units) and desired profit is $36,000. What is the target cost per unit?

The last step in determining the material loading charge percentage is to

In January 2019, Wheels 'N Spokes repairs a bicycle that uses parts of $180. Its material loading charge on this repair would be

Use the following information for questions Custom Shoes Co. has gathered the following information concerning one model of shoe: $\begin{array}{ll}\text { Variable manufacturing costs } & \$ 40,000 \\\text { Variable selling and administrative costs } & \$ 20,000 \\\text { Fixed manufacturing costs } & \$ 160,000 \\\text { Fixed selling and administrative costs } & \$ 120,000 \\\text { Investment } & \$ 1,700,000 \\\text { ROl } & 30 \% \\\text { Planned production and sales } & 5,000 \text { pairs }\end{array}$ -What is the target selling price per pair of shoes?

When a cost-based transfer price is used, the transfer price may be based on any of the following except

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.

Use the following information for questions Tuttle Motorcycles Inc. manufactures and sells high-priced motorcycles. The Engine Division produces and sells engines to other motorcycle companies and internally to the Production Division. It has been decided that the Engine Division will sell 20,000 units to the Production Division at $1,050 a unit. The Engine Division, currently operating at capacity, has a unit sales price of $2,550 and unit variable costs and fixed costs of $1,050 and $750, respectively. The Production Division is currently paying $2,400 per unit to an outside supplier. $90 per unit can be saved on internal sales from reduced selling expenses. -What is the minimum transfer price that the Engine Division should accept?

In the cost-plus pricing approach, the desired ROI per unit is computed by multiplying the ROI percentage by

The first step for time-and-material pricing is to calculate the