Assessment Number 2

THEORIES
1. Which of the following can influence a company's pricing decisions?
a. Manufacturing costs.
b. Competitors.
c. Customer demand.
d. Pricing laws.
e. All of the above.
2. Goal congruence exists when
a. the goals of the company harmonize with each other.
b. the company's managers are pursuing their own goals effectively.
c. the company's managers are pursuing the goals of the company.
d. all of the above are true.
3. Which of the following is not a major influence on pricing decisions?
a. Planning and control policies of the firm.
b. Customer demand.
c. Costs.
d. Competitors.
e. Political, legal, and image-related issues.
4. In responsibility accounting the most relevant classification of costs is
a. fixed and variable.
b. incremental and nonincremental.
c. discretionary and committed.
d. controllable and noncontrollable.
5. Which of the following is critically important for a responsibility accounting system to be effective?
a. Each employee should receive a separate performance report.
b. Service department costs should be allocated to the operating departments that use the service.
c. Each manager should know the criteria used for evaluating his or her performance.
d. The details on the performance reports for individual managers should add up to the totals on the report to
their supervisor.
6. Which of the following items is LEAST likely to appear on the performance report of the manager of a product line?
a. Variable manufacturing costs for products in the line.
b. Selling expenses for the line.
c. A share of company-wide advertising.
d. Revenues from the line.
7. The sequence that reflects increasing breadth of responsibility is
a. cost center, investment center, profit center.
b. cost center, profit center, investment center.
 c. profit center, cost center, investment center.
d. investment center, cost center, profit center
8. The criteria used for evaluating performance
a. should be designed to help achieve goal congruence.
b. can be used only with profit centers and investment centers.
c. should be used to compare past performance with current performance.
d. motivate people to work in the company's best interests.
9. Consider the following statements about pricing:
I. Prices are often determined by the market, subject to the constraint that costs must be covered in the
long run.
II. Prices are often based on costs, subject to the constraint that customers and competitors will exert an
influence.
III. A balance of market forces and cost is important when making pricing decisions.
IV. Which of the above statements is (are) true?
a. I only.
b. II only.
c. I and III.
d. II and III.
e. I, II, and III.
10. The curve that shows the relationship between the sales price and quantity sold is called the:
a. marginal revenue curve.
b. average cost curve.
c. profit curve.
d. demand curve.
e. revenue curve.
11. On a graph where the horizontal axis represents quantity sold and the vertical axis represents selling price, the
basic demand curve in a competitive market can be graphed:
a. as a horizontal line.
b. as a vertical line.
c. as a downward sloping line to the right.
d. as an upward sloping line to the right.
e. in the same manner as the total revenue curve.
12. The curve that shows the change in total revenue that accompanies a change in quantity sold is called the:
a. marginal revenue curve.
b. average cost curve.
c. profit curve.
d. demand curve.
e. revenue curve.
13. From an economic perspective, a company's profit-maximizing quantity is found where:
a. the total cost curve intersects with the marginal cost curve.
 b. the total revenue curve intersects with the average revenue curve.
c. the marginal revenue curve intersects with the demand curve.
d. the marginal revenue curve intersects with the marginal cost curve.
e. the marginal cost curve intersects with the demand curve.
14. If the volume sold reacts strongly to changes in price, demand:
a. has no elasticity.
b. has negative elasticity.
c. is inelastic.
d. is elastic.
e. is unrealistic.
15. A profit center is a responsibility center
a. that sells its output outside the company.
b. whose manager is responsible for both revenues and costs.
c. that provides a service to other responsibility centers.
d. within an investment center.

PROBLEMS

1. The following data pertain to Polar Company's commercial snow thrower:

Variable manufacturing cost $400
Applied fixed manufacturing cost 160
Variable selling and administrative cost 60
Allocated fixed selling and administrative cost 25

Required:
For each of the following cost bases, determine the appropriate percentage markup that will result in a price of $980
for the snow thrower. (Round percentages to nearest one-hundredth of a percent.)
A. Variable manufacturing cost.
B. Absorption manufacturing cost.
C. Total cost.
D. Total variable cost.
 2. Hirsh, Inc., sells a single product. The following information relates to the year just ended:

Number of units sold: 40,000

Variable cost per unit: $200
Total fixed cost: $2,400,000
Operating income: $3,800,000

Required:
A. Compute the company's selling price.
B. Compute the percentage markup on total cost. Round your answer to two decimal places.
C. Assume that Hirsh desired to change its practice of computing a markup on total cost to a markup on
variable cost. If the company wants to hold selling price constant, would the markup percentage increase or
decrease? By how much?