Test Bank of Managerial Accounting 15th Edition

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

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