The pricing strategy that begins with the determination of a price at which a pr

Question

The pricing strategy that begins with the determination of a price at which a product will sell and then focuses on developing a cost structure for the product that will yield a profit is known as:

cost-plus pricing.

prestige pricing.

Developmental pricing

target costing.

Chester Company plans to introduce a new product. A market research specialist claims that 20,000 units can be sold at a $100 selling price. Assuming the company desires a profit margin of 22% of sales, what is the target cost per unit?

$128.21

$78

$80

$20

Acme Company has variable costs equal to 30% of sales. The company is considering a proposal that will increase sales by $10,000 and total fixed costs by $7,000. By what amount will net income increase?

$0

$3,000

$7,000

$4,000

How does the cost-volume-profit model accommodate non-linear costs and revenues?

Non-linear costs and revenues are ignored by the model.

Inventory levels are segregated into distinct ranges within which a linear relationship is expected to approximate the actual cost or revenue behavior.

It is not a problem since non-linear costs and revenues do not exist in practice.

None of these is correct.

Explanation / Answer

1)correct option is "D" -target costing.

Under target costing ,A markup %on selling price is determined to determine the cost per unit

2)correct option is "B -78

cost : price [1- markup%]

       = [100(1-.22)] = 78

3)correct option is "A" -0

Increase in contribution = Sales [1-variable cost %]

           = 10000[1-.30]

           = 7000

Increase in net income : 7000 -7000 fixed cost =0

4)correct option is "B" -

Inventory levels are segregated into distinct ranges within which a linear relationship is expected to approximate the actual cost or revenue behavior.

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