1. How is activity-based costing useful for pricing decisions?

A. It helps managers to manage costs during value engineering by identifying the cost impact of eliminating, reducing, or changing various activities.

B. It gives managers more accurate product-cost information for making pricing decisions.

C. It allows managers to focus on locked-in costs, that, if eliminated would not reduce the actual value or utility customers gain from using the product or service.

D. Both A and B are correct.

2. What is a target cost per unit?

A. The estimated cost for a product that potential customers are willing to pay.

B.The estimated long-run cost per unit of a product (or service) that, when sold at the target price, enables the company to achieve the targeted operating income per unit.

C. The estimated short-run cost per unit of a product (or service) that, when sold at the target price, enables the company to achieve the targeted operating income per unit.

D. A cost that customers perceive as adding value, or utility, to a product or service. The added charge for the value enables the company to achieve the targeted operating income.