Question

1.Diamond Brands manufactures rice, wheat, and oat cereals. Sanders Company has approached Diamond Brands with a proposal to sell the company the rice cereals at a price of $22,000 for 20,000 pounds. The following costs are associated with production of 20,000 pounds of rice cereal: Direct material $13,000 Direct labor 5,000 Manufacturing overhead 7,000 Total $25,000 The manufacturing overhead consists of $2,000 of variable costs with the balance being allocated fixed costs. Should Diamond Brands make or buy the rice cereal?

Select one: a. Buy them to save $4,000. b. Continue to make them because the incremental cost of buying is $2,000. c. Buy them to save $2,000. d. Continue to make them because the incremental cost of buying is $22,000

2. Which one of the following does economic theory suggest?

Select one:

a. Set a price that allows profit maximization

b. Set a price that allows the minimum number of units to be sold at the highest unit price

c. Set a price that will maximize revenues

d. Set a price that will maximize market share

3.The target costing process for a new product

Select one:

a. starts with the features that customers want and the price customers are willing to pay.

b. is applied after the product has been designed.

c. focuses on creating products that include all possible product features to broaden the company’s market share.

d. adds a markup percentage for profit once the price of the product has been determined.

4. What is the basic premise of target costing?

Select one:

a. Products should be designed to meet customer needs at a price customers are willing to pay that allows the company to make a reasonable profit.

b. Products should be designed at the least cost possible to enable the lowest price in the market.

c. Products should be designed based on features that competitors’ products include to enhance the company’s ability to compete more effectively.

d. The price with the highest profit should always be selected.

5 A company believes it can sell 2,000,000 units of its proposed new bottle stopper at a price of $16.00 each. If the company desires to make a profit of $3,000,000 on the bottle stopper, what is the target cost for each bottle stopper?

Select one:

a. $14.50

b. $16.00

c. $17.50

d. $9.67

Answer 1

Answer - 1

The total manufacturing cost is $23,000 and the purchasing cost is $22,000. The difference between the both is very small. So the answer is d

D. Continue to make them because the incremental cost of buying is $22,000

Answer -2

A. Set a price that allows profit maximization

Answer -3

C. Focuaes on creating products that include all possible product features to broaden the company market share

Answer - 4

A. Product should be designed to meet customer needs at a price customers are willing to pay that allows the company to make a reasonable profit

Answer - 5

Profit per bottle = profit / no. Of bottles = 3,000,000/ 2,000,000

= 1.50 per bottle

The target cost for each bottle stopper is $17.50