# Multiple choice

The pricing objective of maximizing profits:

1 has not been affected by other, more socially focused concerns.

2 is to be implemented under any and all circumstances.

3 has not always been considered the underlying objective of any pricing policy.

4 must be considered when determining the price needed to increase market share.

To stay in business, a company must have a selling price that is:

1 acceptable to the customer.

2 able to recover the variable costs of production.

3 the highest in the marketplace.

4 equal to or lower than the company's costs per unit.

An internal issue to be considered when setting a price is:

1 whether the process is labor-intensive or automated.

2 the customer's preferences for quality versus price.

3 current prices of competing products or services.

4 the life of the product or service.

An external issue to be considered when setting a price is:

1 the variable costs of the product or service.

2 the desired rate of return.

3 the quality of materials and labor.

4 the number of competing products or services.

Fixed costs that change for activity outside the relevant range would include:

1 supervision costs.

2 electricity costs.

3 production supplies costs.

4 raw materials costs.

When gross margin pricing is used, the markup percentage includes:

1 desired profits plus total selling, general, and administrative expenses.

2 only the desired profit factor.

3 total costs and expenses.

4 desired profits plus total fixed production costs plus total selling, general, and administrative expenses.

The return on assets pricing method:

1 has very little appeal and support.

2 has a primary objective of earning a minimum rate of return on assets.

3 is a crude approach to pricing and should be used as a last resort.

4 replaces the desired rate of return used in cost-based pricing methods with a desired profit objective.

The pricing method that establishes selling prices based on a stipulated rate above total production costs is:

1 return on assets pricing.

2 target cost pricing.

3 gross margin pricing.

4 time and materials pricing.

A major advantage of the target costing approach to pricing is that target costing:

1 allows a company to analyze the potential profit of a product before spending money to produce the product.

2 is not dependent on customers' quality versus price decisions.

3 identifies unproductive assets.

4 anticipates the product's profitability midway through its life cycle.

Use of market transfer prices:

1 is the only acceptable approach in a free enterprise economy.

2 usually does not cause the selling division to ignore negotiating attempts by the buying division.

3 may cause an internal shortage of materials.

4 usually does not work against the operating objectives of the company as a whole.

The variables to be considered in the capital investment decision are:

1 expected life, estimated cash flow, and investment cost.

2 expected life, estimated cost, and projected capital budget.

3 estimated cash flow, investment cost, and corporate objectives.

4 economic conditions, economic policies, and corporate objectives.

Another term for the minimum rate of return is the:

1 payback rate.

2 discounted rate.

3 capital rate.

4 hurdle rate.

The after-tax amount is used for which of the following components of the cost of capital?

1 Cost of debt

2 Cost of common stock

3 Cost of preferred stock

4 Cost of retained earnings

Capital investment proposals should be ranked in decreasing order of:

1 length in years.

2 dollar amount required.

3 residual value expected.

4 rate of return.

Which of the following items is irrelevant to capital investment analysis?

1 Investment cost

2 Residual value

3 Carrying value

4 Net cash flows

The carrying value of a fixed asset is equal to its:

1 current disposal value.

2 current replacement cost.

3 original cost.

4 undepreciated balance.

Which of the following items can be described as a noncash expense?

1 Wages

2 Advertising

3 Income taxes

4 Depreciation

The time value of money concept is given consideration in long-range investment decisions by:

1 assuming equal annual cash flow patterns.

2 assigning greater value to more immediate cash flows.

3 weighting cash flows with subjective probabilities.

4 investing only in short-term projects.

The net present value method of evaluating proposed investments:

1 discounts cash flows at the minimum rate of return.

2 ignores cash flows beyond the payback period.

3 applies only to mutually exclusive investment proposals.

4 measures a project's time-adjusted rate of return.

The payback period is defined as the amount of time in years for the sum of:

1 future net incomes to equal the original investment.

2 net future cash inflows to equal the original investment.

3 net present value of future cash inflows to equal the original investment.

4 net future cash outflows to equal the original investment.

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#### Solution Summary

The solution explains some multiple choice questions relating to pricing methods, objectives, relevant range, markup percent and market