Q: In cost-plus pricing, the selling price is determined by which of the following formulas?

$$\text{Selling Price} = \text{Cost Base} + (\text{Markup Percentage} \times \text{Cost Base})$$

Question 1

Which of the following is NOT one of the three major influences on pricing decisions according to the study materials?

Accepted Answer

Government regulations

Question 2

IKEA sets target prices for new products by surveying competitors’ prices and then aims to set its prices 30% to 50% lower. What is the primary pricing strategy being used here?

Accepted Answer

Target pricing

Question 3

Astel Computers is considering a one-time special order to supply 5,000 computers. The relevant costs include direct materials at $$460 per computer, direct labor at 64 $$per computer, and additional fixed costs of $250,000. What is the relevant cost per computer for this order?

Accepted Answer

$574

Question 4

Which of the following best describes the effect of time horizon on pricing decisions?

Accepted Answer

Short-run pricing is opportunistic and based on current demand and competition, while long-run pricing aims for stable returns and includes all costs.

Question 5

If Astel Computers bids $$610 per computer for the special order, what is the expected profit from the order, given relevant costs of 2$$,870,000 for 5,000 computers?

Accepted Answer

$180,000

Question 6

Which of the following is a key advantage of shipping products unassembled in flat packages, as practiced by IKEA?

Accepted Answer

It reduces shipping costs by a significant factor compared to assembled products.

Question 7

In cost-plus pricing, the selling price is determined by which of the following formulas?

Accepted Answer

$$	ext{Selling Price} = 	ext{Cost Base} + (	ext{Markup Percentage} 	imes 	ext{Cost Base})$$

Question 8

Which of the following is most likely to be considered a relevant cost in a short-run pricing decision for a special order?

Accepted Answer

Direct materials required for the order

Question 9

Why might a company increase prices in the short run for new products or models?

Accepted Answer

Because strong demand or limited capacity allows the company to maximize what the market will bear

Question 10

Which of the following statements about cost management at IKEA is correct?

Accepted Answer

IKEA continuously applies cost management techniques, such as technical development projects, to reduce costs of existing products.

Question 11

Which of the following best describes the relationship between costs and supply in pricing decisions?

Accepted Answer

Lower production costs increase supply.

Question 12

A company is considering a special order that will not affect its existing sales. The relevant costs per unit are $$574, and the company is considering a bid of 610 $$per unit. What is the minimum price per unit the company should accept to avoid a loss on the order?

Accepted Answer

$574

Question 13

Which of the following is a characteristic of target pricing?

Accepted Answer

It is based on what customers are willing to pay, then works backward to achieve a target cost.

Question 14

If a company faces strong competition and weak demand, what is the most likely effect on its short-run pricing?

Accepted Answer

Prices will decrease.

Question 15

Which of the following is NOT a factor considered by IKEA when selecting store locations?

Accepted Answer

Historical cost of land

Question 16

A company is using cost-plus pricing with a cost base of $720 per unit and a markup of 12%. What is the selling price per unit?

Accepted Answer

$806.40

Question 17

Which of the following best explains why understanding competitors’ technologies and strategies is important in pricing decisions?

Accepted Answer

It helps anticipate competitor reactions and set competitive prices.

Question 18

Which pricing strategy is most appropriate for a company selling a commodity product in a highly competitive market?

Accepted Answer

Market-based pricing

Question 19

If a company’s relevant cost per unit for a special order is $$574 and it bids 610 $$per unit, what is the contribution margin per unit?

Accepted Answer

$36

Question 20

Which of the following is a reason why companies may use life-cycle pricing?

Accepted Answer

To include environmental costs of production, reclamation, recycling, and reuse in pricing decisions

Strategic Pricing and Cost Management: IKEA and Beyond

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