7) Eliminating non-value added activities by reducing their cost drivers, is referred to as

A) value-added pricing.

B) value-added activity base pricing.

C) cost incurrence costing.

D) price engineering.

E) value engineering.


8) When are a product's direct materials cost most likely to be locked in?

A) when the product is designed

B) when purchasing commits to buying the materials

C) when the bill for the materials is paid

D) when the materials are used in production

E) when materials are received from the supplier


9) In a graph with cumulative costs per unit as the Y-axis, with two curves, one being the cumulative costs locked-in, and a second curve showing the cumulative costs per unit incurred in different business functions, which of the following is true?

A) The graph will show the divergence between the amount of locked-in costs and costs incurred, by the end of the production cycle.

B) Locked-in costs rise much slower initially than the incurred cost, but joining the incurred cost line at the completion of the value chain functions.

C) The two cost lines will run parallel.

D) No differences unless the product is manufactured inefficiently.

E) Both curves deal with the same cumulative cost per unit.

10) Which of the following is true concerning value-engineering?

A) The goal of value-engineering is to eliminate locked-in costs.

B) After a product's design has been value-engineered, costs are difficult to influence.

C) When and how costs are locked in are more important than when and how costs are incurred.

D) Value-engineering does not work when dealing with direct costs.

E) Value-engineering activities reduce both value-added and non-value-added costs.


11) For setting long-term prices a company should use full product costs. Full product costs for pricing purposes

A) include direct costs only.

B) include all manufacturing costs only.

C) does not include fixed overhead.

D) equals manufacturing and selling costs.

E) include all direct costs plus an appropriate allocation of the indirect costs of all business functions.


12) A company uses a long-run time horizon to price its product, an electronic component used in aircraft. To produce a normal production run for a year of 100,000 units direct materials are $90,000; direct labour is $180,000; and, rent on leased equipment is $106,000 per year. Currently re-work is running at 4% of production, after testing. The company has the capacity to test 10 units per hour.  Manufacturing Overhead has two cost drivers: testing (cost driver is testing hours at $2.50 per hour); and, rework (cost driver is units reworked at $80 per unit re-worked).

Calculate current total manufacturing costs for 100,000 units.

A) $320,000

B) $376,000

C) $396,000

D) $401,000

E) $721,000

13) Which of the following is true of alternative long-run pricing approaches?

A) A market-based approach only considers how customers will react.

B) A cost-based approach only considers how customers will react.

C) A market-based approach only considers costs.

D) A market-based approach is more logical in a competitive market.

E) In cost-plus pricing, selling price ignores market forces when setting the markup.


14) Most of a product's life-cycle costs are locked in by decisions made during the ________ business function of the value chain.

A) design

B) manufacturing

C) customer-service

D) marketing

E) research


15) Survey evidence suggest that most companies use which type of cost when making pricing decisions?

A) cost-plus

B) absorption product costing

C) variable product costs

D) variable manufacturing costs

E) manufacturing function costs

16) Valley West Amusement Park is evaluating its ticket prices. It is open during the summer months for 15 weeks. The following information pertains to last year's tourist season.

Costs are expected to remain the same for this year.


Average tourists per day on Friday thru Tuesday2,500

Average tourists per day on Wednesday and Thursday1,000

Variable operating costs per day when open$4,100

Fixed overhead costs per year$180,000

Marketing costs per year$62,500

Customer service costs per year$5,000



What is the unit cost when establishing a long-run price for tour tickets?



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