1. Which of the following statements about prices and profit is true?

Higher prices always lead to higher profits.

Higher prices always lead to lower demand and lower profits.

Higher prices combine with lower demand to change the level of profits.

Higher prices will be offset by lower demand so profits will stay constant.

2. Which is the proper order of steps in the target costing process?

Analyze customer needs and wants, determine the desired profit, find the target cost, and design the product.

Design the product, analyze customer needs and wants, determine the desired profit, find the target cost.

Analyze customer needs and wants, find the target cost, design the product, determine the desired profit.

Analyze customer needs and wants, determine the desired profit, design the product, find the target cost.

3. Wharton Company has the capacity to produce 50,000 units per year. The company sells each unit for $125. Budgeted information is as follows:

Revenues

$5,612,000

Direct materials	$1,932,000
Direct labor	552,000
Manufacturing overhead (fixed)	276,000

Manufacturing overhead (variable)

552,000

3,312,000

Total

$2,300,000

A special order has been received for 5,000 units to be sold for $80 per unit. The company would incur an additional $60,000 in total fixed costs in order to lease a special machine in order to make a slight modification to the original product. Should the company accept the special order?

No, accepting this order would decrease profits to $2,263,600.

No, total costs would increase by $303,600.

Yes, the revenue will increase substantially.

Yes, profit will increase by $36,400.

4. Core Manufacturing makes a single product. Budget information regarding the current period is given below:

Revenue (100,000 units at $8.00)

$800,000

Direct materials	$170,000
Direct labor	125,000
Variable manufacturing overhead	235,000

Fixed manufacturing overhead	110,000	640,000
Net income		$160,000

Deer Company approaches Core with a special order for 15,000 units at a price of $8.50 per unit. Variable costs will be the same as the current production and accepting the special order will not have any impact on the rest of the company's orders. However, Core is operating at capacity and will incur an additional $55,000 in fixed manufacturing overhead if the order is accepted. What is the incremental cost associated with accepting the special order?

$134,500

$79,500

$7,000

$55,000

5. Core Manufacturing makes a single product. Budget information regarding the current period is given below:

Revenue (100,000 units at $8.00)

$800,000

Direct materials	$170,000
Direct labor	125,000
Variable manufacturing overhead	235,000

Fixed manufacturing overhead	110,000	640,000
Net income		$160,000

Deer Company approaches Core with a special order for 15,000 units at a price of $8.50 per unit. Variable costs will be the same as the current production and accepting the special order will not have any impact on the rest of the company's orders. However, Core is operating at capacity and will incur an additional $55,000 in fixed manufacturing overhead if the order is accepted. What is the incremental revenue associated with accepting the special order?

($7,000)

$927,500

$47,500

$127,500