Question 1

GoGo Company is currently pricing its main product, a flash drive for data storage.

Per unit information is as follows:

Direct materials - $8

Direct labor - $2

Variable overhead - $3

Fixed overhead (estimated) - $2

GoGo managers usually markup their products by 10%.

What will the price be if GoGo managers use full cost as the basis for the pricing decision?

$16.50

$14.30

$11

$15

Question 2

BeBops Group sells lawn furniture. They are part of a very competitive market in which customers have a number of different options for lawn furniture. Thus, BeBops managers usually adhere to market prices.

The market price for one of BeBops main products is $25.

Per unit cost information is as follows:

Direct materials - $10

Direct labor - $3

Variable overhead - $4

Fixed overhead (estimated) - $2

BeBops target a profit margin of 20% on products of this type.

Which of the following statements are true? (Check all that apply.)

A. Managers will likely look for ways to cut costs before selling this product.

B. The current market price, cost estimates, and desired profit margin suggest that this product is feasible.

C. Target costing is not useful in this scenario, as BeBops must adhere to the market price.

D. Costs could be increased by $1 and the desired profit is still feasible.

Question 3

Aggregate Industries is comprised of many individual, wholly-owned subsidiaries, many of which engage in transactions with each other involving the transfer of goods and services. Aggregate adopts a heavily decentralized approach, allowing subsidiary managers to decide whether to engage in internal transactions and decide the price on a case-by-case basis.

One such transfer involves Standard Division and Bubble Division. Standard produces electrical components, some of which Bubble uses in the production of its circuit boards. Both Standard and Bubble have the opportunities to transact with other entities, outside of Aggregate.

Currently, Standard can produce 10,000 components per month. The normal selling price is $10 per component. Variable costs amount to $6 per unit, and fixed costs per unit (estimated) amount to $1 per unit.

Bubble can purchase the component from an outside supplier at $11 per component. Its monthly needs are 2,000 components per month, all from the same supplier.

Assume that Standard currently has orders for 10,000 components.

Given this information, which of the following statements are true? (Check all that apply.)

A. If Standard reduces costs by $2 as a result of selling internally, they will be willing to accept a price of $8 per unit.

B. The internal transfer will take place at a price of no more than $11.

C. The internal transfer will take place at a price of $9.

D. The internal transfer will take place at a price of at least $10.

Question 4

Total Corporation is comprised of many individual, wholly-owned subsidiaries, many of which engage in transactions with each other involving the transfer of goods and services.

Total adopts a heavily decentralized approach, allowing subsidiary managers to decide whether to engage in internal transactions and decide the price on a case-by-case basis.

One such transfer involves Super Division and Byer Division.

Super Division produces plastics, some of which Byer uses in its various products, which are then sold to customers outside of Total Corp. Both Super and Byer have opportunities to transact with other entities, outside of Total.

Currently, Super can produce 1,000 kilograms of plastics per month. The normal selling price is $5 per kilogram. Variable costs amount to $2 per unit, and fixed costs per unit (estimated) amount to $1 per unit. Byer can purchase similar plastics from an outside supplier at $4 per kilogram. Its monthly needs are 300 kilograms per month, all from the same supplier. Assume that Super currently has orders for 700 kilograms.

Given this information, which of the following statements are true? (Check all that apply.)

A. The minimum price the internal transfer will take place at is $2 per kilogram.

B. The minimum price the internal transfer will take place at is $3 per kilogram.

C. The internal transfer will take place at a price of no more than $4 per kilogram.

D. The internal transfer will take place at a price of at least $5 per kilogram.