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Difficulty

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AppA -1
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Professional exam adapted

Other topics

LO3: Target costing

LO2: Absorption costing approach

LO1: Economists' approach to pricing

Question Type

16

T/F

17

Conceptual M/C

18

Conceptual M/C

19

Conceptual M/C

20

Conceptual M/C

21

Conceptual M/C

22

Conceptual M/C

23

Conceptual M/C

24

Conceptual M/C

25

Single Part M/C

26

Single Part M/C

27

Single Part M/C

28

Single Part M/C

29

Single Part M/C

30

Single Part M/C

31

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32

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33

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34

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35

Single Part M/C

36

Single Part M/C

37

Single Part M/C

AppA -2
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

38

Single Part M/C

39

Single Part M/C

40

Single Part M/C

41

Single Part M/C

42

Single Part M/C

43

Single Part M/C

44

Single Part M/C

45

Single Part M/C

46

Single Part M/C

AppA-Ref1

47-48

Multipart M/C

AppA-Ref2

49-50

Multipart M/C

AppA-Ref3

51-52

Multipart M/C

AppA-Ref4

53-55

Multipart M/C

AppA-Ref5

56-57

Multipart M/C

M-H

AppA-Ref6

58-60

Multipart M/C

AppA-Ref7

61-62

Multipart M/C

AppA-Ref8

63-64

Multipart M/C

AppA-Ref9

65-66

Multipart M/C

AppA-Ref10

67-68

Multipart M/C

69

Problem

70

Problem

71

Problem

AppA -3
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

72

Problem

73

Problem

74

Problem

75

Problem

76

Problem

77

Problem

78

Problem

79

Problem

80

Problem

81

Problem

82

Problem

AppA -4
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Appendix A
Pricing Products and Services

True / False Questions

1. If the unit sales for one product are more sensitive to price increases than another
product, then its markup over variable cost should be less than for the other product
if the company wants to maximize profit.
True

False

2. Price elasticity measures the degree to which consumers resent an increase in price.
True

False

3. If a product is price inelastic, then only a very large change in selling price will result
in a substantial change in the volume of units sold.
True

False

4. The price elasticity of demand is NOT used to determine the markup over cost when
computing the profit-maximizing price.
True

False

5. The price elasticity of demand is NOT used in the absorption costing approach to
cost-plus pricing to determine the markup over cost.
True

False

6. The markup over cost under the absorption costing approach would increase if selling
and administrative expenses increase, holding everything else constant.
True

False

7. The markup over cost under the absorption costing approach would increase if the
required rate of return increases, holding everything else constant.
True

False

AppA -5
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

8. In the absorption approach to cost-plus pricing, the anticipated markup in dollars is


NOT equal to the anticipated profit.
True

False

9. Under the absorption approach to costs-plus pricing described in the text, selling and
administrative costs are included in the cost base when computing a selling price.
True

False

10. If the formula for the markup percentage on absorption cost is used for setting prices,
then the company's desired return on investment (ROI) will not usually be attained
unless the assumed number of units sold is actually sold.
True

False

11. In target costing, the selling price is the starting point and the cost follows from the
selling price.
True

False

12. In target costing, effort is concentrated on effectively marketing the product to


maximize its selling price.
True

False

13. The formula for target cost is:


Target cost = Anticipated selling price + Desired profit
True

False

14. Target costing is the process of determining the maximum allowable cost for a new
product and then developing a prototype that can be profitably made for that
maximum cost figure.
True

False

15. Most of the opportunities to reduce the cost of a product come from designing the
product so that it is simple to make, uses inexpensive parts, and is robust and
reliable.
True

False

16. Pricing decisions are most difficult in those situations in which a company makes a
product that is in competition with other, identical products for which a market
already exists.
True

False

AppA -6
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

Multiple Choice Questions

17. Holding all other things constant, if the price elasticity of demand increases (i.e.,
becomes more negative), then the markup under the economists' approach to pricing
will:

A.
B.
C.
D.

increase.
decrease.
remain the same.
The effect cannot be determined.

18. Holding all other things constant, an increase in fixed production costs will affect:

A. the markup under the absorption costing approach to cost-plus pricing.


B. the markup used to compute the profit-maximizing price.
C. both the markup under the absorption costing approach to cost-plus pricing and
the markup used to compute profit-maximizing price.
D. neither the markup under the absorption costing approach to cost-plus pricing nor
the markup used to compute profit-maximizing price.
19. Holding all other things constant, an increase in the company's required return on
investment (ROI) will affect:

A. the selling price under the absorption costing approach to cost-plus pricing.
B.
the profit-maximizing price.
C. both the selling price under the absorption costing approach to cost-plus pricing
and the profit-maximizing price.
D. neither the selling price under the absorption costing approach to cost-plus pricing
nor the profit-maximizing price.
20. Holding all other things constant, an increase in how sensitive customers are to price
would affect:

A. the markup under the absorption costing approach to cost-plus pricing.


B. the markup used to compute the profit-maximizing price.
C. both the markup under the absorption costing approach to cost-plus pricing and
the markup used to compute profit-maximizing price.
D. neither the markup under the absorption costing approach to cost-plus pricing nor
the markup used to compute profit-maximizing price.

AppA -7
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

21. Holding all other things constant, an increase in variable selling costs will affect:

A. the selling price under the absorption costing approach to cost-plus pricing.
B.
the profit-maximizing price.
C. both the selling price under the absorption costing approach to cost-plus pricing
and the profit-maximizing price.
D. neither the selling price under the absorption costing approach to cost-plus pricing
nor the profit-maximizing price.
22. Which of the following items are included in calculating the markup percentage under
the absorption approach to cost-plus pricing described in the text?

A.
B.
C.
D.

Option A
Option B
Option C
Option D

23. When using the absorption approach to cost-plus pricing described in the text:

A.
all costs are included in the cost base.
B. the "plus" or markup figure contains fixed costs and desired profit.
C. the cost base is made up of the unit product cost.
D. only selling and administrative expenses are included in the cost base.
24. The formula for target cost is:

A. Target cost = Anticipated selling price - Desired profit.


B. Target cost = Unit cost + (Markup percentage Unit cost)
C. Target cost = Units sold Unit cost traceable to product
D. Target cost = (Desired return on assets employed + Selling and administrative
expenses) (Units sold Unit product cost)

AppA -8
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

25. Ingham Corporation recently changed the selling price of one of its products. Data
concerning sales for comparable periods before and after the price change are
presented below.

The product's variable cost is $16.40 per unit.


According to the formula in the text, the product's profit-maximizing price is closest
to:

A.
B.
C.
D.

$35.82
$32.89
$35.23
$20.74

26. Hanson Corporation recently changed the selling price of one of its products. Data
concerning sales for comparable periods before and after the price change are
presented below.

The product's price elasticity of demand as defined in the text is closest to:

A.
B.
C.
D.

-1.71
-1.65
-1.85
-2.45

27. Warvel Corporation's management has found that every 5% increase in the selling
price of one of the company's products leads to an 8% decrease in the product's total
unit sales. The variable production cost of the product is $18.00 per unit and the
variable selling and administrative cost is $12.00 per unit.
According to the formula in the text, the product's profit-maximizing price is closest
to:

A.
B.
C.
D.

$63.08
$72.31
$96.41
$58.67

AppA -9
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

28. Finn Corporation's management believes that every 5% increase in the selling price
of one of the company's products results in a 6% decrease in the product's total unit
sales. The variable production cost of this product is $38.30 per unit and the variable
selling and administrative cost is $1.00 per unit.
The product's profit-maximizing price according to the formula in the text is closest
to:

A.
B.
C.
D.

$43.62
$187.34
$41.55
$185.84

29. Gordy Corporation's management has found that every 3% increase in the selling
price of one of the company's products leads to a 6% decrease in the product's total
unit sales. The product's absorption costing unit product cost is $22.00. The variable
production cost of the product is $6.80 per unit and the variable selling and
administrative cost is $2.40 per unit.
According to the formula in the text, the product's profit-maximizing price is closest
to:

A.
B.
C.
D.

$17.77
$31.39
$17.61
$42.12

30. Erdahl Corporation's management believes that every 7% increase in the selling price
of one of the company's products leads to a 11% decrease in the product's total unit
sales. The product's price elasticity of demand as defined in the text is closest to:

A.
B.
C.
D.

-1.72
-1.84
-1.05
-2.05

AppA -10
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

31. Minden Corporation estimates that the following costs and activity would be
associated with the manufacture and sale of product A:

If the company uses the absorption costing approach to cost-plus pricing described in
the text and desires a 25% rate of return on investment (ROI), the required markup
on absorption cost for Product A would be closest to:

A.
B.
C.
D.

12%
15%
17%
25%

32. Perwin Corporation estimates that an investment of $400,000 would be needed to


produce and sell 30,000 units of Product B each year. At this level of activity, the unit
product cost would be $25. Selling and administrative expenses would total $350,000
each year. The company uses the absorption costing approach to cost-plus pricing
described in the text. If a 15% rate of return on investment is desired, then the
required markup for Product B would be closest to:

A.
B.
C.
D.

15%
49%
55%
58%

33. Lacy Corporation uses the absorption costing approach to cost-plus pricing described
in the text to set prices for its products. Based on budgeted sales of 86,000 units next
year, the unit product cost of a particular product is $81.60. The company's selling
and administrative expenses for this product are budgeted to be $1,247,000 in total
for the year. The company has invested $360,000 in this product and expects a
return on investment of 12%.
The markup on absorption cost for this product would be closest to:

A.
B.
C.
D.

12.0%
18.4%
29.8%
17.8%

AppA -11
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

34. Surent Corporation has the following information available on Product K:

The company uses the absorption costing approach to cost-plus pricing described in
the text and a 50% markup. Based on these data, the company's total selling and
administrative expenses associated with Product K each year are:

A.
B.
C.
D.

$80,000
$200,000
$920,000
$800,000

35. Magner, Inc., uses the absorption costing approach to cost-plus pricing described in
the text to set prices for its products. Based on budgeted sales of 34,000 units next
year, the unit product cost of a particular product is $61.80. The company's selling
and administrative expenses for this product are budgeted to be $809,200 in total for
the year. The company has invested $400,000 in this product and expects a return on
investment of 9%.
The selling price for this product based on the absorption costing approach would be
closest to:

A.
B.
C.
D.

$86.66
$120.03
$67.36
$85.60

AppA -12
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

36. Joeston Corporation makes a product with the following costs:

The company uses the absorption costing approach to cost-plus pricing described in
the text. The pricing calculations are based on budgeted production and sales of
14,000 units per year. The company has invested $540,000 in this product and
expects a return on investment of 10%. The markup on absorption cost would be
closest to:

A.
B.
C.
D.

27.1%
124.2%
34.2%
10.0%

37. Kircher, Inc., manufactures a product with the following costs:

The company uses the absorption costing approach to cost-plus pricing described in
the text. The pricing calculations are based on budgeted production and sales of
81,000 units per year.
The company has invested $220,000 in this product and expects a return on
investment of 15%.
The selling price based on the absorption costing approach would be closest to:

A.
B.
C.
D.

$71.90
$72.31
$53.29
$93.67

AppA -13
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

38. The Sloan Corporation must invest $120,000 to produce and market 16,000 units of
Product X each year. The company uses the absorption costing approach to cost-plus
pricing described in the text to set prices for its products. Other cost information
regarding Product X is as follows:

If Sloan Corporation requires a 15% return on investment, then the markup


percentage on absorption cost for Product X (rounded to the nearest percent) would
be:

A.
B.
C.
D.

41%
16%
29%
22%

39. The following information is available on Browning Inc.'s Product A:

The company uses the absorption costing approach to cost-plus pricing described in
the text. Based on these data, the total selling and administrative expenses each
year are:

A.
B.
C.
D.

$720,000
$480,000
$640,000
$400,000

AppA -14
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

40. Simmons Corporation estimated that the following costs and activity would be
associated with Product T:

If the company uses the absorption costing approach to cost-plus pricing described in
the text and desires a 20% ROI, the selling price for Product T would be:

A.
B.
C.
D.

$37.25
$38.75
$42.00
$44.75

41. The management of Brockington Corporation is considering introducing a new


product--a compact barbecue. At a selling price of $80 per unit, management
projects sales of 70,000 units. Launching the barbecue as a new product would
require an investment of $400,000. The desired return on investment is 15%. The
target cost per barbecue is closest to:

A.
B.
C.
D.

$79.14
$92.00
$91.01
$80.00

42. Timax Corporation, a manufacturer of moderate-priced time pieces, would like to


introduce a new electronic watch. To compete effectively, the watch could not be
priced at more than $50. The company requires a return on investment of 25% on all
new products. The plan is to produce and sell 20,000 watches each year. This would
require a $500,000 investment. The target cost per watch would be:

A.
B.
C.
D.

$64.00
$25.00
$43.75
$39.00

AppA -15
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

43. Aldot Candy Corporation is implementing a target costing approach for its latest new
product, the "Big Glob" candy bar. The following information relates to the Big Glob:

Based on this information, what is Aldot's target selling price per bar for the Big
Glob?

A.
B.
C.
D.

$0.48
$0.50
$0.64
$0.70

44. Pedrotti Corporation would like to use target costing for a new product it is
considering introducing. At a selling price of $28 per unit, management projects sales
of 30,000 units. The new product would require an investment of $300,000. The
desired return on investment is 17%. The target cost per unit is closest to:

A.
B.
C.
D.

$32.76
$26.30
$28.00
$30.77

45. A new product, an automated crepe maker, is being introduced at Miyake


Corporation. At a selling price of $73 per unit, management projects sales of 20,000
units. Launching the crepe maker as a new product would require an investment of
$400,000. The desired return on investment is 17%. The target cost per crepe maker
is closest to:

A.
B.
C.
D.

$69.60
$85.41
$81.43
$73.00

AppA -16
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

46. Sawit Corporation, a manufacturer of woodworking tools, wants to introduce a new


power screwdriver. To compete effectively, the screwdriver cannot be priced at more
than $14. The company requires a 15% rate of return on investment on all new
products. In order to produce and sell 80,000 screwdrivers each year, the company
will need to make an investment of $800,000. The target cost per screwdriver would
be:

A.
B.
C.
D.

$15.50
$1.50
$14.00
$12.50

Bluhm Corporation's management believes that every 2% increase in the selling price
of one of the company's products would lead to a 4% decrease in the product's total
unit sales. The product's variable cost is $17.50 per unit.
47. The product's price elasticity of demand as defined in the text is closest to:

A.
B.
C.
D.

-1.75
-2.22
-2.06
-1.07

48. The product's profit-maximizing price according to the formula in the text is closest
to:

A.
B.
C.
D.

$259.84
$33.99
$40.89
$31.81

Clulow Corporation recently changed the selling price of one of its products. Data
concerning sales for comparable periods before and after the price change are
presented below.

The product's variable cost is $10.50 per unit.

AppA -17
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

49. The product's price elasticity of demand as defined in the text is closest to:

A.
B.
C.
D.

-3.19
-2.02
-2.70
-4.13

50. The product's profit-maximizing price according to the formula in the text is closest
to:

A.
B.
C.
D.

$15.31
$16.67
$20.79
$13.86

Alley Corporation's vice president in charge of marketing believes that every 8%


increase in the selling price of one of the company's products would lead to a 13%
decrease in the product's total unit sales. The product's absorption costing unit
product cost is $17.40. The variable production cost is $4.10 per unit and the variable
selling and administrative cost is $4.80 per unit.
51. The product's price elasticity of demand as defined in the text is closest to:

A.
B.
C.
D.

-2.13
-1.47
-1.57
-1.81

52. The product's profit-maximizing price according to the formula in the text is closest
to:

A.
B.
C.
D.

$10.73
$38.89
$9.16
$19.89

AppA -18
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

Dickson Corporation makes a product with the following costs:

The company uses the absorption costing approach to cost-plus pricing described in
the text. The pricing calculations are based on budgeted production and sales of
60,000 units per year.
The company has invested $320,000 in this product and expects a return on
investment of 15%.
Direct labor is a variable cost in this company.
53. The markup on absorption cost is closest to:

A.
B.
C.
D.

96.5%
15.0%
31.2%
30.0%

54. The selling price based on the absorption costing approach is closest to:

A.
B.
C.
D.

$85.28
$84.50
$110.89
$56.95

55. If every 10% increase in price leads to a 14% decrease in quantity sold, the profitmaximizing price is closest to:

A.
B.
C.
D.

$84.50
$124.25
$120.90
$117.91

AppA -19
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

Eakins Corporation has just developed a new product. At an expected sales level of
60,000 units per year, the company anticipates that the following costs will be
incurred:

Eakins Corporation uses the absorption costing approach to cost-plus pricing as


described in the text.
56. The new product would require an investment of $1,200,000 on which the company
would like to earn a return of 22 percent. The markup using the absorption costing
approach would be:

A.
B.
C.
D.

93.8%
32.6%
71.3%
57.5%

57. Assume that after introducing the new product, the company finds that it has excess
capacity. A foreign dealer has offered to purchase 2,000 units at a special price of
$36 per unit. This sale would not disturb regular business. If the special price is
accepted on the 2,000 units, the company's overall net income for the year should:

A.
B.
C.
D.

decrease by $24,000
increase by $20,000
increase by $8,000
increase by $32,000

AppA -20
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

The management of Kizer Corporation would like to set the selling price on a new
product using the absorption costing approach to cost-plus pricing. The company's
accounting department has supplied the following estimates for the new product:

Management plans to produce and sell 8,000 units of the new product annually. The
new product would require an investment of $1,580,000 and has a required return on
investment of 10%.
58. The absorption costing unit product cost is:

A.
B.
C.
D.

$59
$86
$55
$75

59. The markup percentage on absorption cost is closest to:

A.
B.
C.
D.

25%
10%
15%
41%

60. The unit target selling price using the absorption costing approach is closest to:

A.
B.
C.
D.

$105.75
$83.33
$121.50
$86.00

Eckert Corporation uses the absorption costing approach to cost-plus pricing as


described in the text to set prices for its products. Based on budgeted sales of 18,000
units next year, the unit product cost of a particular product is $60.40. The
company's selling and administrative expenses for this product are budgeted to be
$370,800 in total for the year. The company has invested $260,000 in this product
and expects a return on investment of 11%.

AppA -21
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

61. The markup on absorption cost for this product would be closest to:

A.
B.
C.
D.

45.1%
36.7%
11.0%
34.1%

62. The selling price based on the absorption costing approach for this product would be
closest to:

A.
B.
C.
D.

$110.76
$81.00
$67.04
$82.59

Merced Corporation estimates that an investment of $600,000 would be necessary to


produce and sell 50,000 units of a new product each year. Other costs associated
with the new product would be:

The company requires a 15% return on the investment in all products. The company
uses the absorption costing approach costing to pricing as described in the text.
63. The markup percentage on the new product would be closest to:

A.
B.
C.
D.

15.0%
46.6%
31.6%
50.0%

64. The selling price would be closest to:

A.
B.
C.
D.

$28.71
$26.50
$22.00
$32.67

AppA -22
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

The management of Rispoli Corporation is considering introducing a new product--a


compact lawn blower. At a selling price of $38 per unit, management projects sales of
10,000 units. The lawn blower would require an investment of $700,000. The desired
return on investment is 11%.
65. The desired profit according to the target costing calculations is:

A.
B.
C.
D.

$380,000
$303,000
$41,800
$77,000

66. The target cost per lawn blower is closest to:

A.
B.
C.
D.

$33.63
$30.30
$38.00
$42.18

Samples Corporation would like to use target costing for a new product it is
considering introducing. At a selling price of $21 per unit, management projects sales
of 20,000 units. The new product would require an investment of $400,000. The
desired return on investment is 12%.
67. The desired profit according to the target costing calculations is:

A.
B.
C.
D.

$420,000
$50,400
$48,000
$372,000

68. The target cost per unit is closest to:

A.
B.
C.
D.

$21.00
$18.60
$23.52
$20.83

Essay Questions

AppA -23
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

69. Okamoto Corporation's management believes that every 7% increase in the selling
price of one of the company's products would lead to a 10% decrease in the product's
total unit sales. The variable cost per unit of this product is $69.20.
Required:
a. Compute the product's price elasticity of demand as defined in the text to two
decimal places.
b. Compute the product's profit-maximizing price according to the formula in the
text.

AppA -24
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

70. Pashicke Corporation recently changed the selling price of one of its products. Data
concerning sales for comparable periods before and after the price change are
presented below.

The product's variable cost is $17.10 per unit.


Required:
a Compute the product's price elasticity of demand as defined in the text to two
decimal places.
b. Compute the product's profit-maximizing price according to the formula in the
text.

AppA -25
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

71. Gillis Corporation's marketing manager believes that every 10% increase in the
selling price of one of the company's products would lead to a 15% decrease in the
product's total unit sales. The product's absorption costing unit product cost is
$20.00. The variable production cost is $6.00 per unit and the variable selling and
administrative cost is $3.00. The fixed selling and administrative expense averages
$0.50 per unit.
Required:
a. Compute the product's price elasticity of demand as defined in the text to two
decimal places.
b. Compute the product's profit-maximizing price according to the formula in the
text.

72. Nguyen Corporation's marketing manager believes that every 8% increase in the
selling price of one of the company's products would lead to a 15% decrease in the
product's total unit sales. The product's absorption costing unit product cost is
$19.40. The variable production cost is $5.40 per unit and the variable selling and
administrative cost is $2.20.
Required:
a. Compute the product's price elasticity of demand as defined in the text to two
decimal places.
b. Compute the product's profit-maximizing price according to the formula in the
text.

AppA -26
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

73. Qualls Corporation makes a product that has the following costs:

The company uses the absorption costing approach to cost-plus pricing as described
in the text. The pricing calculations are based on budgeted production and sales of
48,000 units per year.
The company has invested $360,000 in this product and expects a return on
investment of 15%.
Required:
a. Compute the markup on absorption cost.
b. Compute the selling price of the product using the absorption costing approach.
c. Assume that every 10% increase in price leads to a 13% decrease in quantity sold.
Assuming no change in cost structure and that direct labor is a variable cost,
compute the profit-maximizing price.

AppA -27
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

74. Green Hornet Corporation is contemplating the introduction of a new product. The
company has gathered the following information concerning the product:

The company uses the absorption costing approach to cost-plus pricing as described
in the text.
Required:
a. Compute the markup on absorption cost.
b. Compute the selling price.

AppA -28
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

75. The management of Archut Corporation would like to set the selling price on a new
product using the absorption costing approach to cost-plus pricing. The company's
accounting department has supplied the following estimates for the new product:

Management plans to produce and sell 9,000 units of the new product annually. The
new product would require an investment of $3,002,400 and has a required return on
investment of 10%.
Required:
a. Determine the unit product cost for the new product.
b. Determine the markup percentage on absorption cost for the new product.
c. Determine the selling price for the new product using the absorption costing
approach.

AppA -29
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

76. Trepan Corporation is contemplating the introduction of a new product. The company
has gathered the following information concerning the product:

The company uses the absorption costing approach to cost-plus pricing as described
in the text.
Required:
a. Compute the markup on absorption cost.
b. Compute the selling price.
c. If the price computed in "b" above is charged, and costs turn out as projected, can
the company be assured that no loss will be sustained on the new product? Explain.

AppA -30
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

77. Ritchie Corporation manufactures a product that has the following costs:

The company uses the absorption costing approach to cost-plus pricing as described
in the text. The pricing calculations are based on budgeted production and sales of
37,000 units per year. The company has invested $160,000 in this product and
expects a return on investment of 15%.
Required:
a. Compute the markup on absorption cost.
b. Compute the selling price of the product using the absorption costing approach.

AppA -31
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

78. Desalvo Corporation is introducing a new product whose direct materials cost is $41
per unit, direct labor cost is $20 per unit, variable manufacturing overhead is $5 per
unit, and variable selling and administrative expense is $4 per unit. The annual fixed
manufacturing overhead associated with the product is $120,000 and its annual fixed
selling and administrative expense is $8,000. Management plans to produce and sell
8,000 units of the new product annually. The new product would require an
investment of $2,192,000 and has a required return on investment of 10%.
Management would like to set the selling price on a new product using the absorption
costing approach to cost-plus pricing.
Required:
a. Determine the unit product cost for the new product.
b. Determine the markup percentage on absorption cost for the new product.
c. Determine the selling price for the new product using the absorption costing
approach.

79. The management of Featherston, Inc., is considering a new product that would have
a selling price of $77 per unit and projected sales of 50,000 units. The new product
would require an investment of $100,000. The desired return on investment is 20%.
Required:
Determine the target cost per unit for the new product.

AppA -32
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

80. Loyola International, Inc. is considering adding a portable CD player to its product
line. Management believes that in order to be competitive, the CD player cannot be
priced above $79. The company requires a minimum return of 20% on its
investments. Launching the new product would require an investment of
$20,000,000. Sales are expected to be 250,000 units of the CD player per year.
Required:
Compute the target cost of a CD player.

81. Hepler Corporation would like to use target costing for a new product that is under
consideration. At a selling price of $76 per unit, management projects sales of 50,000
units. The new product would require an investment of $400,000. The desired return
on investment is 12%.
Required:
Determine the target cost per unit for the new product.

AppA -33
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

82. Management of Daubert Corporation is considering a new product, an outdoor


speaker that would have a selling price of $43 per unit and projected sales of 60,000
units. Launching the new product would require an investment of $300,000. The
desired return on investment is 13%.
Required:
Determine the target cost per unit for the outdoor speaker.

AppA -34
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

Appendix A Pricing Products and Services Answer Key

True / False Questions

1.

If the unit sales for one product are more sensitive to price increases than another
product, then its markup over variable cost should be less than for the other
product if the company wants to maximize profit.
TRUE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: AppA-01 Compute the profit-maximizing price of a product or service using the price
elasticity of demand and variable cost.

2.

Price elasticity measures the degree to which consumers resent an increase in


price.
FALSE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: AppA-01 Compute the profit-maximizing price of a product or service using the price
elasticity of demand and variable cost.

3.

If a product is price inelastic, then only a very large change in selling price will
result in a substantial change in the volume of units sold.
TRUE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: AppA-01 Compute the profit-maximizing price of a product or service using the price
elasticity of demand and variable cost.

AppA -35
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

4.

The price elasticity of demand is NOT used to determine the markup over cost
when computing the profit-maximizing price.
FALSE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: AppA-01 Compute the profit-maximizing price of a product or service using the price
elasticity of demand and variable cost.

5.

The price elasticity of demand is NOT used in the absorption costing approach to
cost-plus pricing to determine the markup over cost.
TRUE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: AppA-01 Compute the profit-maximizing price of a product or service using the price
elasticity of demand and variable cost.
Learning Objective: AppA-02 Compute the selling price of a product using the absorption costing approach.

6.

The markup over cost under the absorption costing approach would increase if
selling and administrative expenses increase, holding everything else constant.
TRUE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: AppA-02 Compute the selling price of a product using the absorption costing approach.

7.

The markup over cost under the absorption costing approach would increase if the
required rate of return increases, holding everything else constant.
TRUE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: AppA-02 Compute the selling price of a product using the absorption costing approach.

AppA -36
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

8.

In the absorption approach to cost-plus pricing, the anticipated markup in dollars is


NOT equal to the anticipated profit.
TRUE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: AppA-02 Compute the selling price of a product using the absorption costing approach.

9.

Under the absorption approach to costs-plus pricing described in the text, selling
and administrative costs are included in the cost base when computing a selling
price.
FALSE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: AppA-02 Compute the selling price of a product using the absorption costing approach.

10.

If the formula for the markup percentage on absorption cost is used for setting
prices, then the company's desired return on investment (ROI) will not usually be
attained unless the assumed number of units sold is actually sold.
TRUE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: AppA-02 Compute the selling price of a product using the absorption costing approach.

11.

In target costing, the selling price is the starting point and the cost follows from
the selling price.
TRUE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: AppA-03 Compute the target cost for a new product or service.

AppA -37
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

12.

In target costing, effort is concentrated on effectively marketing the product to


maximize its selling price.
FALSE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: AppA-03 Compute the target cost for a new product or service.

13.

The formula for target cost is:


Target cost = Anticipated selling price + Desired profit
FALSE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: AppA-03 Compute the target cost for a new product or service.

14.

Target costing is the process of determining the maximum allowable cost for a new
product and then developing a prototype that can be profitably made for that
maximum cost figure.
TRUE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: AppA-03 Compute the target cost for a new product or service.

15.

Most of the opportunities to reduce the cost of a product come from designing the
product so that it is simple to make, uses inexpensive parts, and is robust and
reliable.
TRUE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: AppA-03 Compute the target cost for a new product or service.

AppA -38
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

16.

Pricing decisions are most difficult in those situations in which a company makes a
product that is in competition with other, identical products for which a market
already exists.
FALSE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: Other topics

Multiple Choice Questions

17.

Holding all other things constant, if the price elasticity of demand increases (i.e.,
becomes more negative), then the markup under the economists' approach to
pricing will:

A.
B.
C.
D.

increase.
decrease.
remain the same.
The effect cannot be determined.

AACSB: Reflective Thinking


AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 3 Hard
Learning Objective: AppA-01 Compute the profit-maximizing price of a product or service using the price
elasticity of demand and variable cost.

18.

Holding all other things constant, an increase in fixed production costs will affect:

A. the markup under the absorption costing approach to cost-plus pricing.


B. the markup used to compute the profit-maximizing price.
C. both the markup under the absorption costing approach to cost-plus pricing and
the markup used to compute profit-maximizing price.
D. neither the markup under the absorption costing approach to cost-plus pricing
nor the markup used to compute profit-maximizing price.
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 3 Hard
Learning Objective: AppA-01 Compute the profit-maximizing price of a product or service using the price
AppA -39
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

elasticity of demand and variable cost.


Learning Objective: AppA-02 Compute the selling price of a product using the absorption costing approach.

19.

Holding all other things constant, an increase in the company's required return on
investment (ROI) will affect:

A. the selling price under the absorption costing approach to cost-plus pricing.
B.
the profit-maximizing price.
C. both the selling price under the absorption costing approach to cost-plus pricing
and the profit-maximizing price.
D. neither the selling price under the absorption costing approach to cost-plus
pricing nor the profit-maximizing price.
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 3 Hard
Learning Objective: AppA-01 Compute the profit-maximizing price of a product or service using the price
elasticity of demand and variable cost.
Learning Objective: AppA-02 Compute the selling price of a product using the absorption costing approach.

20.

Holding all other things constant, an increase in how sensitive customers are to
price would affect:

A. the markup under the absorption costing approach to cost-plus pricing.


B. the markup used to compute the profit-maximizing price.
C. both the markup under the absorption costing approach to cost-plus pricing and
the markup used to compute profit-maximizing price.
D. neither the markup under the absorption costing approach to cost-plus pricing
nor the markup used to compute profit-maximizing price.
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 3 Hard
Learning Objective: AppA-01 Compute the profit-maximizing price of a product or service using the price
elasticity of demand and variable cost.
Learning Objective: AppA-02 Compute the selling price of a product using the absorption costing approach.

AppA -40
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

21.

Holding all other things constant, an increase in variable selling costs will affect:

A. the selling price under the absorption costing approach to cost-plus pricing.
B.
the profit-maximizing price.
C. both the selling price under the absorption costing approach to cost-plus pricing
and the profit-maximizing price.
D. neither the selling price under the absorption costing approach to cost-plus
pricing nor the profit-maximizing price.
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: AppA-01 Compute the profit-maximizing price of a product or service using the price
elasticity of demand and variable cost.
Learning Objective: AppA-02 Compute the selling price of a product using the absorption costing approach.

22.

Which of the following items are included in calculating the markup percentage
under the absorption approach to cost-plus pricing described in the text?

A.
B.
C.
D.

Option A
Option B
Option C
Option D

AACSB: Reflective Thinking


AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: AppA-02 Compute the selling price of a product using the absorption costing approach.

23.

When using the absorption approach to cost-plus pricing described in the text:

A.
all costs are included in the cost base.
B. the "plus" or markup figure contains fixed costs and desired profit.
C.
the cost base is made up of the unit product cost.
D. only selling and administrative expenses are included in the cost base.
AACSB: Reflective Thinking
AppA -41
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

AICPA BB: Critical Thinking


AICPA FN: Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: AppA-02 Compute the selling price of a product using the absorption costing approach.

24.

The formula for target cost is:

A. Target cost = Anticipated selling price - Desired profit.


B. Target cost = Unit cost + (Markup percentage Unit cost)
C. Target cost = Units sold Unit cost traceable to product
D. Target cost = (Desired return on assets employed + Selling and administrative
expenses) (Units sold Unit product cost)
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: AppA-03 Compute the target cost for a new product or service.

AppA -42
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

25.

Ingham Corporation recently changed the selling price of one of its products. Data
concerning sales for comparable periods before and after the price change are
presented below.

The product's variable cost is $16.40 per unit.


According to the formula in the text, the product's profit-maximizing price is
closest to:

A.
B.
C.
D.

$35.82
$32.89
$35.23
$20.74

% change in quantity sold = (5,090 - 4,300)/4,300 = +18.37%


% change in price = ($11 - $12)/$12 = -8.11%
d = ln(1 + % change in quantity sold)/ln(1 + % change in price)
= ln(1 + (0.1837))/ln(1 + (-0.0811)) = -1.99
Profit-maximizing markup on variable cost = -1/(1 + d)
= -1/(1 + (-1.99)) = 1.01
Profit-maximizing price = (1 + Profit-maximizing markup on variable cost)
Variable cost per unit
= (1 + 1.01) $16.40 = $32.96 (the exact answer without rounding error is
$32.89)

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: AppA-01 Compute the profit-maximizing price of a product or service using the price
elasticity of demand and variable cost.

AppA -43
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

26.

Hanson Corporation recently changed the selling price of one of its products. Data
concerning sales for comparable periods before and after the price change are
presented below.

The product's price elasticity of demand as defined in the text is closest to:

A.
B.
C.
D.

-1.71
-1.65
-1.85
-2.45

d = ln(1 + % change in quantity sold)/ln(1 + % change in price)


= ln(1 + (5,000 - 5,200)/5,200)/ln(1 + ($63 - $62)/$62) = -2.45

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: AppA-01 Compute the profit-maximizing price of a product or service using the price
elasticity of demand and variable cost.

AppA -44
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

27.

Warvel Corporation's management has found that every 5% increase in the selling
price of one of the company's products leads to an 8% decrease in the product's
total unit sales. The variable production cost of the product is $18.00 per unit and
the variable selling and administrative cost is $12.00 per unit.
According to the formula in the text, the product's profit-maximizing price is
closest to:

A.
B.
C.
D.

$63.08
$72.31
$96.41
$58.67

d = ln(1 + % change in quantity sold)/ln(1 + % change in price)


= ln(1 + (-0.08))/ln(1 + 0.05) = -1.71
Profit-maximizing markup on variable cost = -1/(1 + d)
= -1/(1 + (-1.71)) = 1.41
Profit-maximizing price = (1 + Profit-maximizing markup on variable cost)
Variable cost per unit
= (1 + 1.41) ($18.00 + $12.00) = $72.30 (the answer is $72.31 without
rounding error)

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: AppA-01 Compute the profit-maximizing price of a product or service using the price
elasticity of demand and variable cost.

AppA -45
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

28.

Finn Corporation's management believes that every 5% increase in the selling


price of one of the company's products results in a 6% decrease in the product's
total unit sales. The variable production cost of this product is $38.30 per unit and
the variable selling and administrative cost is $1.00 per unit.
The product's profit-maximizing price according to the formula in the text is closest
to:

A.
B.
C.
D.

$43.62
$187.34
$41.55
$185.84

d = ln(1 + % change in quantity sold)/ln(1 + % change in price)


= ln(1 + (-0.06))/ln(1 + 0.05) = -1.27
Profit-maximizing markup on variable cost = -1/(1 + d)
= -1/(1 + (-1.27)) = 3.70
Profit-maximizing price = (1 + Profit-maximizing markup on variable cost)
Variable cost per unit
= (1 + 3.70) ($38.30 + $1.00) = $184.71 (the exact answer without rounding
error is $185.84)

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: AppA-01 Compute the profit-maximizing price of a product or service using the price
elasticity of demand and variable cost.

AppA -46
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

29.

Gordy Corporation's management has found that every 3% increase in the selling
price of one of the company's products leads to a 6% decrease in the product's
total unit sales. The product's absorption costing unit product cost is $22.00. The
variable production cost of the product is $6.80 per unit and the variable selling
and administrative cost is $2.40 per unit.
According to the formula in the text, the product's profit-maximizing price is
closest to:

A.
B.
C.
D.

$17.77
$31.39
$17.61
$42.12

d = ln(1 + % change in quantity sold)/ln(1 + % change in price)


= ln(1 + (-0.06))/ln(1 + 0.03) = -2.09
Profit-maximizing markup on variable cost = -1/(1 + d)
= -1/(1 + (-2.09)) = 0.92
Profit-maximizing price = (1 + Profit-maximizing markup on variable cost)
Variable cost per unit
= (1 + 0.92) ($6.80 + $2.40) = $17.66 (the exact answer without rounding error
is $17.61)

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: AppA-01 Compute the profit-maximizing price of a product or service using the price
elasticity of demand and variable cost.

30.

Erdahl Corporation's management believes that every 7% increase in the selling


price of one of the company's products leads to a 11% decrease in the product's
total unit sales. The product's price elasticity of demand as defined in the text is
closest to:

A.
B.
C.
D.

-1.72
-1.84
-1.05
-2.05

d = ln(1 + % change in quantity sold)/ln(1 + % change in price)


= ln(1 + (0.07))/ln(1 + (-0.11)) = -1.72

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
AppA -47
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

Difficulty: 1 Easy
Learning Objective: AppA-01 Compute the profit-maximizing price of a product or service using the price
elasticity of demand and variable cost.

31.

Minden Corporation estimates that the following costs and activity would be
associated with the manufacture and sale of product A:

If the company uses the absorption costing approach to cost-plus pricing described
in the text and desires a 25% rate of return on investment (ROI), the required
markup on absorption cost for Product A would be closest to:

A.
B.
C.
D.

12%
15%
17%
25%

Markup percentage on absorption cost = [(Required ROI Investment) + Selling


and administrative expenses] (Unit product cost Unit sales)
= [(25% $400,000) + $300,000] ($30 per unit 80,000 units)
= [($100,000) + $300,000] $2,400,000
= $400,000 $2,400,000 = 17% (rounded)

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: AppA-02 Compute the selling price of a product using the absorption costing approach.

AppA -48
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

32.

Perwin Corporation estimates that an investment of $400,000 would be needed to


produce and sell 30,000 units of Product B each year. At this level of activity, the
unit product cost would be $25. Selling and administrative expenses would total
$350,000 each year. The company uses the absorption costing approach to costplus pricing described in the text. If a 15% rate of return on investment is desired,
then the required markup for Product B would be closest to:

A.
B.
C.
D.

15%
49%
55%
58%

Markup percentage on absorption cost = [(Required ROI Investment) + Selling


and administrative expenses] (Unit product cost Unit sales)
= [(15% $400,000) + $350,000] ($25 per unit 30,000 units)
= [($60,000) + $350,000] ($750,000)
= $410,000 $750,000 = 0.55 (rounded)

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: AppA-02 Compute the selling price of a product using the absorption costing approach.

33.

Lacy Corporation uses the absorption costing approach to cost-plus pricing


described in the text to set prices for its products. Based on budgeted sales of
86,000 units next year, the unit product cost of a particular product is $81.60. The
company's selling and administrative expenses for this product are budgeted to be
$1,247,000 in total for the year. The company has invested $360,000 in this
product and expects a return on investment of 12%.
The markup on absorption cost for this product would be closest to:

A.
B.
C.
D.

12.0%
18.4%
29.8%
17.8%

Markup percentage on absorption cost = [(Required ROI Investment) + Selling


and administrative expenses] (Unit product cost Unit sales)
= [(12% $360,000) + $1,247,000] ($81.60 per unit 86,000 units)
= ($43,200 + $1,247,000) $7,017,600
= $1,290,200 $7,017,600 = 18.4% (rounded)

AACSB: Analytic
AICPA BB: Critical Thinking
AppA -49
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

AICPA FN: Measurement


Blooms: Apply
Difficulty: 1 Easy
Learning Objective: AppA-02 Compute the selling price of a product using the absorption costing approach.

34.

Surent Corporation has the following information available on Product K:

The company uses the absorption costing approach to cost-plus pricing described
in the text and a 50% markup. Based on these data, the company's total selling
and administrative expenses associated with Product K each year are:

A.
B.
C.
D.

$80,000
$200,000
$920,000
$800,000

Markup percentage on absorption cost = [(Required ROI Investment) + Selling


and administrative expenses] (Unit product cost Unit sales)
0.50 = [(20% $400,000) + Selling and administrative expenses] ($25 per unit
80,000 units)
0.50 = [($80,000) + Selling and administrative expenses] ($2,000,000)
($80,000) + Selling and administrative expenses = 0.50 $2,000,000
$80,000 + Selling and administrative expenses = $1,000,000
Selling and administrative expenses = $1,000,000 - $80,000 = $920,000

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: AppA-02 Compute the selling price of a product using the absorption costing approach.

AppA -50
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

35.

Magner, Inc., uses the absorption costing approach to cost-plus pricing described
in the text to set prices for its products. Based on budgeted sales of 34,000 units
next year, the unit product cost of a particular product is $61.80. The company's
selling and administrative expenses for this product are budgeted to be $809,200
in total for the year. The company has invested $400,000 in this product and
expects a return on investment of 9%.
The selling price for this product based on the absorption costing approach would
be closest to:

A.
B.
C.
D.

$86.66
$120.03
$67.36
$85.60

Markup percentage on absorption cost = [(Required ROI Investment) + Selling


and administrative expenses] (Unit product cost Unit sales)
= [(9% $400,000) + $809,200] ($61.80 per unit 34,000 units)
= [$36,000 + $809,200] $2,101,200
= $845,200 $2,101,200 = 40.22
Absorption cost based selling price = (1 + Markup percentage on absorption cost)
Unit product cost
= (1 + 0.4022) $61.80 = $86.66

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: AppA-02 Compute the selling price of a product using the absorption costing approach.

AppA -51
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

36.

Joeston Corporation makes a product with the following costs:

The company uses the absorption costing approach to cost-plus pricing described
in the text. The pricing calculations are based on budgeted production and sales of
14,000 units per year. The company has invested $540,000 in this product and
expects a return on investment of 10%. The markup on absorption cost would be
closest to:

A.
B.
C.
D.

27.1%
124.2%
34.2%
10.0%

Selling and administrative expenses = ($3.00 per unit 14,000 units) + $163,800
= $205,800

Markup percentage on absorption cost = [(Required ROI Investment) + Selling


and administrative expenses] (Unit product cost Unit sales)
= [(10% $540,000) + $205,800] ($54.30 per unit 14,000 units)
= [$54,000 + $205,800] $760,200
= $259,800 $760,200 = 34.2% (rounded)

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: AppA-02 Compute the selling price of a product using the absorption costing approach.

AppA -52
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

37.

Kircher, Inc., manufactures a product with the following costs:

The company uses the absorption costing approach to cost-plus pricing described
in the text. The pricing calculations are based on budgeted production and sales of
81,000 units per year.
The company has invested $220,000 in this product and expects a return on
investment of 15%.
The selling price based on the absorption costing approach would be closest to:

A.
B.
C.
D.

$71.90
$72.31
$53.29
$93.67

Selling and administrative expenses = $2.00 per unit 81,000 units + $1,166,400
= $1,328,400
Markup percentage on absorption cost = [(Required ROI Investment) + Selling
and administrative expenses] (Unit product cost Unit sales)
= [(15% $220,000) + $1,328,400] ($55.50 per unit 81,000 units)
= [$33,000 + $1,328,400] $4,495,500
= [$1,361,400] $4,495,500 = 30.28%
Absorption cost based selling price = (1 + Markup percentage on absorption cost)
Unit product cost
= (1 + 0.3028) $55.50 = $72.31

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
AppA -53
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

Learning Objective: AppA-02 Compute the selling price of a product using the absorption costing approach.

38.

The Sloan Corporation must invest $120,000 to produce and market 16,000 units
of Product X each year. The company uses the absorption costing approach to
cost-plus pricing described in the text to set prices for its products. Other cost
information regarding Product X is as follows:

If Sloan Corporation requires a 15% return on investment, then the markup


percentage on absorption cost for Product X (rounded to the nearest percent)
would be:

A.
B.
C.
D.

41%
16%
29%
22%

Selling and administrative expenses = ($3 per unit 16,000 units) + $72,000
= $48,000 + $72,000 = $120,000
Markup percentage on absorption cost = [(Required ROI Investment) + Selling
and administrative expenses] (Unit product cost Unit sales)
= [(15% $120,000) + $120,000] ($21 per unit 16,000 units)
= [$18,000 + $120,000] $336,000
= $138,000 $336,000 = 41% (rounded)

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: AppA-02 Compute the selling price of a product using the absorption costing approach.
AppA -54
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

39.

The following information is available on Browning Inc.'s Product A:

The company uses the absorption costing approach to cost-plus pricing described
in the text. Based on these data, the total selling and administrative expenses
each year are:

A.
B.
C.
D.

$720,000
$480,000
$640,000
$400,000

Absorption cost based selling price = (1 + Markup percentage on absorption cost)


Unit product cost
$96 per unit = (1 + Markup percentage on absorption cost) $60 per unit
(1 + Markup percentage on absorption cost) = $96 per unit $60 per unit
(1 + Markup percentage on absorption cost) = 1.6
Markup percentage on absorption cost = 0.6
Markup percentage on absorption cost = [(Required ROI Investment) + Selling
and administrative expenses] (Unit product cost Unit sales)
0.6 = [(16% $500,000) + Selling and administrative expenses] ($60 per unit
20,000 units)
0.6 = [($80,000) + Selling and administrative expenses] ($1,200,000)
[($80,000) + Selling and administrative expenses] = 0.6 $1,200,000
$80,000 + Selling and administrative expenses = $720,000
Selling and administrative expenses = $720,000 - $80,000 = $640,000

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: AppA-02 Compute the selling price of a product using the absorption costing approach.

AppA -55
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

40.

Simmons Corporation estimated that the following costs and activity would be
associated with Product T:

If the company uses the absorption costing approach to cost-plus pricing described
in the text and desires a 20% ROI, the selling price for Product T would be:

A.
B.
C.
D.

$37.25
$38.75
$42.00
$44.75

Markup percentage on absorption cost = [(Required ROI Investment) + Selling


and administrative expenses] (Unit product cost Unit sales)
= [(20% $900,000) + $600,000] ($35 per unit 80,000 units)
= [$180,000 + $600,000] ($2,800,000)
= 0.2786
Absorption cost based selling price = (1 + Markup percentage on absorption cost)
Unit product cost
= (1 + 0.2786) $35 per unit = 1.2786 $35 per unit = $44.75 per unit

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: AppA-02 Compute the selling price of a product using the absorption costing approach.

AppA -56
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

41.

The management of Brockington Corporation is considering introducing a new


product--a compact barbecue. At a selling price of $80 per unit, management
projects sales of 70,000 units. Launching the barbecue as a new product would
require an investment of $400,000. The desired return on investment is 15%. The
target cost per barbecue is closest to:

A.
B.
C.
D.

$79.14
$92.00
$91.01
$80.00

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: AppA-03 Compute the target cost for a new product or service.

42.

Timax Corporation, a manufacturer of moderate-priced time pieces, would like to


introduce a new electronic watch. To compete effectively, the watch could not be
priced at more than $50. The company requires a return on investment of 25% on
all new products. The plan is to produce and sell 20,000 watches each year. This
would require a $500,000 investment. The target cost per watch would be:

A.
B.
C.
D.

$64.00
$25.00
$43.75
$39.00

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: AppA-03 Compute the target cost for a new product or service.

AppA -57
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

43.

Aldot Candy Corporation is implementing a target costing approach for its latest
new product, the "Big Glob" candy bar. The following information relates to the Big
Glob:

Based on this information, what is Aldot's target selling price per bar for the Big
Glob?

A.
B.
C.
D.

$0.48
$0.50
$0.64
$0.70

$0.40 per unit = (500,000X - $120,000) 500,000 units


(500,000X - $120,000) = $0.40 per unit 500,000 units
500,000X - $120,000 = $200,000
500,000X = $200,000 + $120,000
500,000X = $320,000
X = $320,000 500,000
X = $0.64

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: AppA-03 Compute the target cost for a new product or service.

AppA -58
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

44.

Pedrotti Corporation would like to use target costing for a new product it is
considering introducing. At a selling price of $28 per unit, management projects
sales of 30,000 units. The new product would require an investment of $300,000.
The desired return on investment is 17%. The target cost per unit is closest to:

A.
B.
C.
D.

$32.76
$26.30
$28.00
$30.77

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: AppA-03 Compute the target cost for a new product or service.

45.

A new product, an automated crepe maker, is being introduced at Miyake


Corporation. At a selling price of $73 per unit, management projects sales of
20,000 units. Launching the crepe maker as a new product would require an
investment of $400,000. The desired return on investment is 17%. The target cost
per crepe maker is closest to:

A.
B.
C.
D.

$69.60
$85.41
$81.43
$73.00

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: AppA-03 Compute the target cost for a new product or service.

AppA -59
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

46.

Sawit Corporation, a manufacturer of woodworking tools, wants to introduce a new


power screwdriver. To compete effectively, the screwdriver cannot be priced at
more than $14. The company requires a 15% rate of return on investment on all
new products. In order to produce and sell 80,000 screwdrivers each year, the
company will need to make an investment of $800,000. The target cost per
screwdriver would be:

A.
B.
C.
D.

$15.50
$1.50
$14.00
$12.50

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: AppA-03 Compute the target cost for a new product or service.

Bluhm Corporation's management believes that every 2% increase in the selling


price of one of the company's products would lead to a 4% decrease in the
product's total unit sales. The product's variable cost is $17.50 per unit.
47.

The product's price elasticity of demand as defined in the text is closest to:

A.
B.
C.
D.

-1.75
-2.22
-2.06
-1.07

d = ln(1 + % change in quantity sold)/ln(1 + % change in price)


= ln(1 + (-0.04))/ln(1 + (+0.02)) = -2.06

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: AppA-01 Compute the profit-maximizing price of a product or service using the price
elasticity of demand and variable cost.

AppA -60
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

48.

The product's profit-maximizing price according to the formula in the text is closest
to:

A.
B.
C.
D.

$259.84
$33.99
$40.89
$31.81

d = ln(1 + % change in quantity sold)/ln(1 + % change in price)


= ln(1 + (-0.04))/ln(1 + (+0.02)) = -2.06
Profit-maximizing markup on variable cost = -1/(1 + d) = -1/(1 + (-2.06)) = 0.94
Profit-maximizing price = (1 + Profit-maximizing markup on variable cost)
Variable cost per unit
= (1 + 0.94) $17.50 = $33.95 (the exact answer, without rounding error, is
$33.99)

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: AppA-01 Compute the profit-maximizing price of a product or service using the price
elasticity of demand and variable cost.

Clulow Corporation recently changed the selling price of one of its products. Data
concerning sales for comparable periods before and after the price change are
presented below.

The product's variable cost is $10.50 per unit.

AppA -61
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

49.

The product's price elasticity of demand as defined in the text is closest to:

A.
B.
C.
D.

-3.19
-2.02
-2.70
-4.13

% change in price = ($31 - $34)/$34 = -8.82%


% change in quantity sold = (10,010 - 7,800)/7,800 = 28.33%
d = ln(1 + % change in quantity sold)/ln(1 + % change in price)
= ln(1 + (+0.2083))/ln(1 + (-0.0882)) = -2.70

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: AppA-01 Compute the profit-maximizing price of a product or service using the price
elasticity of demand and variable cost.

50.

The product's profit-maximizing price according to the formula in the text is closest
to:

A.
B.
C.
D.

$15.31
$16.67
$20.79
$13.86

% change in price = ($31 - $34)/$34 = -8.82%


% change in quantity sold = (10,010 - 7,800)/7,800 = 28.33%
d = ln(1 + % change in quantity sold)/ln(1 + % change in price)
= ln(1 + (+0.2083))/ln(1 + (-0.0882)) = -2.70
Profit-maximizing markup on variable cost = -1/(1 + d) = -1/(1 + (-2.70)) = 0.59
Profit-maximizing price = (1 + Profit-maximizing markup on variable cost)
Variable cost per unit
= (1 + 0.59) $10.50 = $16.70 (the exact answer, without rounding error, is
$16.67)

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
AppA -62
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

Learning Objective: AppA-01 Compute the profit-maximizing price of a product or service using the price
elasticity of demand and variable cost.

Alley Corporation's vice president in charge of marketing believes that every 8%


increase in the selling price of one of the company's products would lead to a 13%
decrease in the product's total unit sales. The product's absorption costing unit
product cost is $17.40. The variable production cost is $4.10 per unit and the
variable selling and administrative cost is $4.80 per unit.
51.

The product's price elasticity of demand as defined in the text is closest to:

A.
B.
C.
D.

-2.13
-1.47
-1.57
-1.81

d = ln(1 + % change in quantity sold)/ln(1 + % change in price)


= ln(1 + (-0.13))/ln(1 + (+0.08)) = -1.81

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: AppA-01 Compute the profit-maximizing price of a product or service using the price
elasticity of demand and variable cost.

52.

The product's profit-maximizing price according to the formula in the text is closest
to:

A.
B.
C.
D.

$10.73
$38.89
$9.16
$19.89

d = ln(1 + % change in quantity sold)/ln(1 + % change in price)


= ln(1 + (-0.13))/ln(1 + (+0.08)) = -1.81
Profit-maximizing markup on variable cost = -1/(1 + d) = -1/(1 + (-1.81)) = 1.23
Profit-maximizing price = (1 + Profit-maximizing markup on variable cost)
Variable cost per unit
= (1 + 1.23) ($4.10 + $4.80) = $19.85 (the exact answer, without rounding
error, is $19.89)

AACSB: Analytic
AICPA BB: Critical Thinking
AppA -63
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

AICPA FN: Measurement


Blooms: Apply
Difficulty: 2 Medium
Learning Objective: AppA-01 Compute the profit-maximizing price of a product or service using the price
elasticity of demand and variable cost.

Dickson Corporation makes a product with the following costs:

The company uses the absorption costing approach to cost-plus pricing described
in the text. The pricing calculations are based on budgeted production and sales of
60,000 units per year.
The company has invested $320,000 in this product and expects a return on
investment of 15%.
Direct labor is a variable cost in this company.
53.

The markup on absorption cost is closest to:

A.
B.
C.
D.

96.5%
15.0%
31.2%
30.0%

Selling and administrative expenses = ($1.10 per unit 60,000 units) +


$1,104,000 = $1,170,000
Markup percentage on absorption cost = [(Required ROI Investment) + Selling
and administrative expenses] (Unit product cost Unit sales)
= [(15% $320,000) + $1,170,000] ($65.00 per unit 60,000 units)
= [($48,000) + $1,170,000] ($3,900,000)
= [$1,218,000] $3,900,000 = 31.2%

AACSB: Analytic
AICPA BB: Critical Thinking
AppA -64
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

AICPA FN: Measurement


Blooms: Apply
Difficulty: 2 Medium
Learning Objective: AppA-02 Compute the selling price of a product using the absorption costing approach.

54.

The selling price based on the absorption costing approach is closest to:

A.
B.
C.
D.

$85.28
$84.50
$110.89
$56.95

Selling and administrative expenses = $1.10 per unit 60,000 units + $1,104,000
= $1,170,000
Markup percentage on absorption cost = [(Required ROI Investment) + Selling
and administrative expenses] (Unit product cost Unit sales)
= [(15% $320,000) + $1,170,000] ($65.00 per unit 60,000 units)
= [($48,000) + $1,170,000] ($3,900,000)
= [$1,218,000] $3,900,000 = 31.2%
Absorption cost based selling price = (1 + 0.312) $65.00 = $85.28

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: AppA-02 Compute the selling price of a product using the absorption costing approach.

AppA -65
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

55.

If every 10% increase in price leads to a 14% decrease in quantity sold, the profitmaximizing price is closest to:

A.
B.
C.
D.

$84.50
$124.25
$120.90
$117.91

d = ln(1 + % change in quantity sold)/ln(1 + % change in price)


= ln(1 + (-0.14))/ln(1 + (+0.10)) = -1.58
Profit-maximizing markup on variable cost = -1/(1 + d) = -1/(1 + (-1.58)) = 1.72

Profit-maximizing price = (1 + Profit-maximizing markup on variable cost)


Variable cost per unit
= (1 + 1.72) ($44.50) = $121.04 (the exact answer, without rounding error, is
$120.90)

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: AppA-01 Compute the profit-maximizing price of a product or service using the price
elasticity of demand and variable cost.

Eakins Corporation has just developed a new product. At an expected sales level of
60,000 units per year, the company anticipates that the following costs will be
incurred:

Eakins Corporation uses the absorption costing approach to cost-plus pricing as


described in the text.
AppA -66
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McGraw-Hill Education.

56.

The new product would require an investment of $1,200,000 on which the


company would like to earn a return of 22 percent. The markup using the
absorption costing approach would be:

A.
B.
C.
D.

93.8%
32.6%
71.3%
57.5%

Selling and administrative expenses = ($6 per unit 60,000 units) + $480,000 =
$840,000
Markup percentage on absorption cost = [(Required ROI Investment) + Selling
and administrative expenses] (Unit product cost Unit sales)
= [(22% $1,200,000) + $840,000] ($32 per unit 60,000 units)
= [($264,000) + $840,000] ($1,920,000)
= [$1,104,000] $1,920,000 = 57.5%

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: AppA-02 Compute the selling price of a product using the absorption costing approach.

AppA -67
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

57.

Assume that after introducing the new product, the company finds that it has
excess capacity. A foreign dealer has offered to purchase 2,000 units at a special
price of $36 per unit. This sale would not disturb regular business. If the special
price is accepted on the 2,000 units, the company's overall net income for the year
should:

A.
B.
C.
D.

decrease by $24,000
increase by $20,000
increase by $8,000
increase by $32,000

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: AppA-02 Compute the selling price of a product using the absorption costing approach.

The management of Kizer Corporation would like to set the selling price on a new
product using the absorption costing approach to cost-plus pricing. The company's
accounting department has supplied the following estimates for the new product:

Management plans to produce and sell 8,000 units of the new product annually.
The new product would require an investment of $1,580,000 and has a required
return on investment of 10%.

AppA -68
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

58.

The absorption costing unit product cost is:

A.
B.
C.
D.

$59
$86
$55
$75

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: AppA-02 Compute the selling price of a product using the absorption costing approach.

59.

The markup percentage on absorption cost is closest to:

A.
B.
C.
D.

25%
10%
15%
41%

Selling and administrative expenses = $4 per unit 8,000 units + $56,000 =


$88,000
Markup percentage on absorption cost = [(Required ROI Investment) + Selling
and administrative expenses] (Unit product cost Unit sales)
= [(10% $1,580,000) + $88,000] ($75 per unit 8,000 units)
= [($158,000) + $88,000] ($600,000)
= [$246,000] $600,000 = 41%

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
AppA -69
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McGraw-Hill Education.

Difficulty: 1 Easy
Learning Objective: AppA-02 Compute the selling price of a product using the absorption costing approach.

60.

The unit target selling price using the absorption costing approach is closest to:

A.
B.
C.
D.

$105.75
$83.33
$121.50
$86.00

Selling and administrative expenses = $4 per unit 8,000 units + $56,000 =


$88,000
Markup percentage on absorption cost = [(Required ROI Investment) + Selling
and administrative expenses] (Unit product cost Unit sales)
= [(10% $1,580,000) + $88,000] ($75 per unit 8,000 units)
= [($158,000) + $88,000] ($600,000)
= [$246,000] $600,000 = 41%
Absorption cost based selling price = (1 + Markup percentage on absorption cost)
Unit product cost
= (1 + 0.41) $75 = $105.75

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: AppA-02 Compute the selling price of a product using the absorption costing approach.

Eckert Corporation uses the absorption costing approach to cost-plus pricing as


described in the text to set prices for its products. Based on budgeted sales of
18,000 units next year, the unit product cost of a particular product is $60.40. The
company's selling and administrative expenses for this product are budgeted to be
$370,800 in total for the year. The company has invested $260,000 in this product
and expects a return on investment of 11%.

AppA -70
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

61.

The markup on absorption cost for this product would be closest to:

A.
B.
C.
D.

45.1%
36.7%
11.0%
34.1%

Markup percentage on absorption cost = [(Required ROI Investment) + Selling


and administrative expenses] (Unit product cost Unit sales)
= [(11% $260,000) + $370,800] ($60.40 18,000 units)
= [($28,600) + $370,800] ($1,087,200)
= [$399,400] $1,087,200 = 36.7% (rounded)

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: AppA-02 Compute the selling price of a product using the absorption costing approach.

62.

The selling price based on the absorption costing approach for this product would
be closest to:

A.
B.
C.
D.

$110.76
$81.00
$67.04
$82.59

Markup percentage on absorption cost = [(Required ROI Investment) + Selling


and administrative expenses] (Unit product cost Unit sales)
= [(11% $260,000) + $370,800] ($60.40 18,000 units)
= [($28,600) + $370,800] ($1,087,200)
= [$399,400] $1,087,200 = 36.7% (rounded)
Absorption cost based selling price = (1 + Markup percentage on absorption cost)
Unit product cost
= (1 + 1.367) $60.40 = $82.59 (rounded)

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: AppA-02 Compute the selling price of a product using the absorption costing approach.

AppA -71
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McGraw-Hill Education.

Merced Corporation estimates that an investment of $600,000 would be necessary


to produce and sell 50,000 units of a new product each year. Other costs
associated with the new product would be:

The company requires a 15% return on the investment in all products. The
company uses the absorption costing approach costing to pricing as described in
the text.
63.

The markup percentage on the new product would be closest to:

A.
B.
C.
D.

15.0%
46.6%
31.6%
50.0%

Selling and administrative expenses = ($4 per unit 50,000 units) + $200,000 =
$400,000
Markup percentage on absorption cost = [(Required ROI Investment) + Selling
and administrative expenses] (Unit product cost Unit sales)
= [(15% $600,000) + $400,000] ($31.00 per unit 50,000 units)
= [($90,000) + $400,000] ($1,550,000)
= [$490,000] $1,550,000 = 31.6% (rounded)

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: AppA-02 Compute the selling price of a product using the absorption costing approach.

AppA -72
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McGraw-Hill Education.

64.

The selling price would be closest to:

A.
B.
C.
D.

$28.71
$26.50
$22.00
$32.67

Selling and administrative expenses = ($4 per unit 50,000 units) + $200,000 =
$400,000
Markup percentage on absorption cost = [(Required ROI Investment) + Selling
and administrative expenses] (Unit product cost Unit sales)
= [(15% $600,000) + $400,000] ($31.00 per unit 50,000 units)
= [($90,000) + $400,000] ($1,550,000)
= [$490,000] $1,550,000 = 31.6% (rounded)
Absorption cost based selling price = (1 + Markup percentage on absorption cost)
Unit product cost
= (1 + 0.316) $31.00 = $48.80 (rounded)

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: AppA-02 Compute the selling price of a product using the absorption costing approach.

The management of Rispoli Corporation is considering introducing a new product-a compact lawn blower. At a selling price of $38 per unit, management projects
sales of 10,000 units. The lawn blower would require an investment of $700,000.
The desired return on investment is 11%.

AppA -73
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McGraw-Hill Education.

65.

The desired profit according to the target costing calculations is:

A.
B.
C.
D.

$380,000
$303,000
$41,800
$77,000

Desired profit = 11% $700,000 = $77,000

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: AppA-03 Compute the target cost for a new product or service.

66.

The target cost per lawn blower is closest to:

A.
B.
C.
D.

$33.63
$30.30
$38.00
$42.18

Target cost = Anticipated selling price - Desired profit


= $38.00 per unit - ($77,000 10,000 units)
= $38.00 per unit - $7.70 per unit = $30.30 per unit

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: AppA-03 Compute the target cost for a new product or service.

Samples Corporation would like to use target costing for a new product it is
considering introducing. At a selling price of $21 per unit, management projects
sales of 20,000 units. The new product would require an investment of $400,000.
The desired return on investment is 12%.

AppA -74
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

67.

The desired profit according to the target costing calculations is:

A.
B.
C.
D.

$420,000
$50,400
$48,000
$372,000

Desired profit = 12% $400,000 = $48,000

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: AppA-03 Compute the target cost for a new product or service.

68.

The target cost per unit is closest to:

A.
B.
C.
D.

$21.00
$18.60
$23.52
$20.83

Target cost = Anticipated selling price - Desired profit


= $21.00 per unit - ($48,000 20,000 units)
= $21.00 per unit - $2.40 per unit = $18.60 per unit

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: AppA-03 Compute the target cost for a new product or service.

Essay Questions

AppA -75
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McGraw-Hill Education.

69.

Okamoto Corporation's management believes that every 7% increase in the selling


price of one of the company's products would lead to a 10% decrease in the
product's total unit sales. The variable cost per unit of this product is $69.20.
Required:
a. Compute the product's price elasticity of demand as defined in the text to two
decimal places.
b. Compute the product's profit-maximizing price according to the formula in the
text.

a. d= ln(1 + % change in quantity sold)/ln(1 + % change in price)


= ln(1 + (-10%))/ln(1 + 7%) = -1.56
b. Profit-maximizing markup on variable cost = -1/(1 + d) = -1/(1 + (-1.56)) =
1.79
Profit-maximizing price = (1 + Profit-maximizing markup on variable cost)
Variable cost per unit
= (1 + 1.79) $69.20 = (2.79) $69.20 = $193.07 (The answer without rounding
error is $193.38.)

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: AppA-01 Compute the profit-maximizing price of a product or service using the price
elasticity of demand and variable cost.

AppA -76
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

70.

Pashicke Corporation recently changed the selling price of one of its products. Data
concerning sales for comparable periods before and after the price change are
presented below.

The product's variable cost is $17.10 per unit.


Required:
a Compute the product's price elasticity of demand as defined in the text to two
decimal places.
b. Compute the product's profit-maximizing price according to the formula in the
text.

a. % change in quantity = (7,840 - 7,300) 7,300 = 7.40%


% change in price = ($44 - $46) $46 = -4.35%
d = ln(1 + % change in quantity sold)/ln(1 + % change in price)
= ln(1 + 7.40%)/ln(1 + (-4.35%)) = -1.61
b. Profit-maximizing markup on variable cost = -1/(1 + d) = -1/(1 + (-1.61)) =
1.64
Profit-maximizing price = (1 + Profit-maximizing markup on variable cost)
Variable cost per unit
= (1 + 1.64) $17.10 = (2.64) $17.10 = $45.14 (The answer without rounding
error is $45.34.)

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: AppA-01 Compute the profit-maximizing price of a product or service using the price
elasticity of demand and variable cost.

AppA -77
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McGraw-Hill Education.

71.

Gillis Corporation's marketing manager believes that every 10% increase in the
selling price of one of the company's products would lead to a 15% decrease in the
product's total unit sales. The product's absorption costing unit product cost is
$20.00. The variable production cost is $6.00 per unit and the variable selling and
administrative cost is $3.00. The fixed selling and administrative expense
averages $0.50 per unit.
Required:
a. Compute the product's price elasticity of demand as defined in the text to two
decimal places.
b. Compute the product's profit-maximizing price according to the formula in the
text.

a. d= ln(1 + % change in quantity sold)/ln(1 + % change in price)


= ln(1 + (-15%))/ln(1 + 10%) = -1.71
b. Profit-maximizing markup on variable cost = -1/(1 + d) = -1/(1 + (-1.71)) =
1.41
Profit-maximizing price = (1 + Profit-maximizing markup on variable cost)
Variable cost per unit
= (1 + 1.41) ($6.00 +$3.00) = (2.41) $9.00 = $21.69 (The answer without
rounding error is $21.76.)

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: AppA-01 Compute the profit-maximizing price of a product or service using the price
elasticity of demand and variable cost.

AppA -78
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

72.

Nguyen Corporation's marketing manager believes that every 8% increase in the


selling price of one of the company's products would lead to a 15% decrease in the
product's total unit sales. The product's absorption costing unit product cost is
$19.40. The variable production cost is $5.40 per unit and the variable selling and
administrative cost is $2.20.
Required:
a. Compute the product's price elasticity of demand as defined in the text to two
decimal places.
b. Compute the product's profit-maximizing price according to the formula in the
text.

a. d= ln(1 + % change in quantity sold)/ln(1 + % change in price)


= ln(1 + (-15%))/ln(1 + 8%) = -2.11
b. Profit-maximizing markup on variable cost = -1/(1 + d) = -1/(1 + (-2.11)) =
0.90
Profit-maximizing price = (1 + Profit-maximizing markup on variable cost)
Variable cost per unit
= (1 + 0.90) ($2.20 +$5.40) = (1.90) $7.60 = $14.44

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: AppA-01 Compute the profit-maximizing price of a product or service using the price
elasticity of demand and variable cost.

AppA -79
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McGraw-Hill Education.

AppA -80
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McGraw-Hill Education.

73.

Qualls Corporation makes a product that has the following costs:

The company uses the absorption costing approach to cost-plus pricing as


described in the text. The pricing calculations are based on budgeted production
and sales of 48,000 units per year.
The company has invested $360,000 in this product and expects a return on
investment of 15%.
Required:
a. Compute the markup on absorption cost.
b. Compute the selling price of the product using the absorption costing approach.
c. Assume that every 10% increase in price leads to a 13% decrease in quantity
sold. Assuming no change in cost structure and that direct labor is a variable cost,
compute the profit-maximizing price.

a.

Selling and administrative expenses = ($2.00 48,000) + $907,200 = $1,003,200


Markup percentage on absorption cost = [(Required ROI Investment) + Selling
and administrative expenses] (Unit product cost Unit sales)
= [(15% $360,000) + $1,003,200] (48,000 $53.50)
= [($54,000) + $1,003,200] $2,568,000
= 41.17%
b. Absorption cost based selling price = (1 + Markup percentage on absorption
cost) Unit product cost
AppA -81
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McGraw-Hill Education.

= (1 + 0.4117) $53.50 = $75.53


c. d = ln(1 + % change in quantity sold)/ln(1 + % change in price)
= ln(1 + (-13%))/ln(1 + 10%) = -1.46
Profit-maximizing markup on variable cost = -1/(1 + d) = -1/(1 + (-1.46)) = 2.17
Profit-maximizing price = (1 + Profit-maximizing markup on variable cost)
Variable cost per unit
= (1 + 2.17) $36.40 = (3.17) $36.40 = $115.33

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: AppA-01 Compute the profit-maximizing price of a product or service using the price
elasticity of demand and variable cost.
Learning Objective: AppA-02 Compute the selling price of a product using the absorption costing approach.

AppA -82
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

74.

Green Hornet Corporation is contemplating the introduction of a new product. The


company has gathered the following information concerning the product:

The company uses the absorption costing approach to cost-plus pricing as


described in the text.
Required:
a. Compute the markup on absorption cost.
b. Compute the selling price.

a. Markup percentage on absorption cost = [(Required ROI Investment) + Selling


and administrative expenses] (Unit product cost Unit sales)
= [(Required ROI Investment) + Selling and administrative expenses] [Unit
product cost Unit sales]
= [(20% $400,000) + $100,000] [$30 16,000]
= $180,000 $480,000 = 37.5%
b.

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: AppA-02 Compute the selling price of a product using the absorption costing approach.

AppA -83
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McGraw-Hill Education.

AppA -84
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McGraw-Hill Education.

75.

The management of Archut Corporation would like to set the selling price on a new
product using the absorption costing approach to cost-plus pricing. The company's
accounting department has supplied the following estimates for the new product:

Management plans to produce and sell 9,000 units of the new product annually.
The new product would require an investment of $3,002,400 and has a required
return on investment of 10%.
Required:
a. Determine the unit product cost for the new product.
b. Determine the markup percentage on absorption cost for the new product.
c. Determine the selling price for the new product using the absorption costing
approach.

a. The unit product cost is:

b. Selling and administrative expenses = ($1.00 9,000) + $63,000 = $72,000


Markup percentage on absorption cost = [(Required ROI Investment) + Selling
and administrative expenses] [Unit product cost Units sales]
= [(10% $3,002,400) + ($72,000)] [9,000 $88]
= [$300,240 + $72,000] [$792,000]
= $372,240 $792,000
= 47%
c. The selling price is determined as follows:

AppA -85
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McGraw-Hill Education.

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: AppA-02 Compute the selling price of a product using the absorption costing approach.

AppA -86
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

76.

Trepan Corporation is contemplating the introduction of a new product. The


company has gathered the following information concerning the product:

The company uses the absorption costing approach to cost-plus pricing as


described in the text.
Required:
a. Compute the markup on absorption cost.
b. Compute the selling price.
c. If the price computed in "b" above is charged, and costs turn out as projected,
can the company be assured that no loss will be sustained on the new product?
Explain.

a. Markup percentage on absorption cost = [(Required ROI Investment) + Selling


and administrative expenses] [Unit product cost Unit sales]
= [(20% $300,000) + $90,000] [$30 25,000]
= $150,000 $750,000 = 20%
b.

c. No, sales volume may be less than the 25,000 units projected annually, resulting
in inadequate contribution margin to cover fixed costs, and a consequent loss for
the company on the product.

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: AppA-02 Compute the selling price of a product using the absorption costing approach.

AppA -87
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McGraw-Hill Education.

77.

Ritchie Corporation manufactures a product that has the following costs:

The company uses the absorption costing approach to cost-plus pricing as


described in the text. The pricing calculations are based on budgeted production
and sales of 37,000 units per year. The company has invested $160,000 in this
product and expects a return on investment of 15%.
Required:
a. Compute the markup on absorption cost.
b. Compute the selling price of the product using the absorption costing approach.

a.

Markup percentage on absorption cost = [(Required ROI Investment) + Selling


and administrative expenses] (Unit product cost Unit sales)
= [(15% $160,000) + ($4.10 37,000 + $691,900)] (37,000 $57.80)
= [($24,000) + ($843,600)] $2,138,600 = 40.57%
b. Absorption cost based selling price = (1 + Markup percentage on absorption
cost) Unit product cost
= (1 + 0.4057) $57.80 = $81.25

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: AppA-02 Compute the selling price of a product using the absorption costing approach.
AppA -88
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

78.

Desalvo Corporation is introducing a new product whose direct materials cost is


$41 per unit, direct labor cost is $20 per unit, variable manufacturing overhead is
$5 per unit, and variable selling and administrative expense is $4 per unit. The
annual fixed manufacturing overhead associated with the product is $120,000 and
its annual fixed selling and administrative expense is $8,000. Management plans
to produce and sell 8,000 units of the new product annually. The new product
would require an investment of $2,192,000 and has a required return on
investment of 10%. Management would like to set the selling price on a new
product using the absorption costing approach to cost-plus pricing.
Required:
a. Determine the unit product cost for the new product.
b. Determine the markup percentage on absorption cost for the new product.
c. Determine the selling price for the new product using the absorption costing
approach.

a. The unit product cost is:

b. Selling and administrative expenses = ($4.00 8,000) + $8,000 = $40,000


Markup percentage on absorption cost = [(Required ROI Investment) + Selling
and administrative expenses] [Unit product cost Units sales]
= [(10% $2,192,000) + ($40,000)] [$81 8,000]
= [$219,200 + $40,000] [$648,000]
= $259,200 $648,000
= 40%
c. Absorption cost based selling price = (1 + Markup percentage on absorption
cost) Unit product cost
= (1 + 0.40) $81 = $113.40

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: AppA-02 Compute the selling price of a product using the absorption costing approach.

AppA -89
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McGraw-Hill Education.

79.

The management of Featherston, Inc., is considering a new product that would


have a selling price of $77 per unit and projected sales of 50,000 units. The new
product would require an investment of $100,000. The desired return on
investment is 20%.
Required:
Determine the target cost per unit for the new product.

Target cost per unit ($3,830,000 50,000 units) = $76.60 per unit

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: AppA-03 Compute the target cost for a new product or service.

80.

Loyola International, Inc. is considering adding a portable CD player to its product


line. Management believes that in order to be competitive, the CD player cannot
be priced above $79. The company requires a minimum return of 20% on its
investments. Launching the new product would require an investment of
$20,000,000. Sales are expected to be 250,000 units of the CD player per year.
Required:
Compute the target cost of a CD player.

Target cost per unit = $15,750,000 250,000 units = $63 per unit

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: AppA-03 Compute the target cost for a new product or service.
AppA -90
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McGraw-Hill Education.

81.

Hepler Corporation would like to use target costing for a new product that is under
consideration. At a selling price of $76 per unit, management projects sales of
50,000 units. The new product would require an investment of $400,000. The
desired return on investment is 12%.
Required:
Determine the target cost per unit for the new product.

Target cost per unit ($3,752,000 50,000 units) = $75.04 per unit

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: AppA-03 Compute the target cost for a new product or service.

82.

Management of Daubert Corporation is considering a new product, an outdoor


speaker that would have a selling price of $43 per unit and projected sales of
60,000 units. Launching the new product would require an investment of
$300,000. The desired return on investment is 13%.
Required:
Determine the target cost per unit for the outdoor speaker.

Target cost per unit ($2,541,000 60,000 units) = $42.35 per unit

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
AppA -91
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McGraw-Hill Education.

Learning Objective: AppA-03 Compute the target cost for a new product or service.

AppA -92
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