Author Question: Which of the following is an advantage of using full cost of the product as the cost base? (Read 103 times)

rayancarla1 · **on:** Mar 6, 2021

Question 1

Which of the following can be used to determine markup percentage in the case of cost-plus pricing?
◦ Target annual operating income / Invested capital
◦ Estimated annual dividend / Invested capital
◦ Target sales revenue / Target annual operating income
◦ Estimated annual dividend / Target annual operating income

Question 2

Which of the following is an advantage of using full cost of the product as the cost base?
◦ Managers are informed regarding the minimum long-run cost they need to recover to stay in business.
◦ Using the full cost of the product as a basis for pricing increases the temptation to cut prices below full costs.
◦ Fixed cost allocations can be arbitrary while using full cost of the product as the cost base.
◦ It requires a detailed analysis of cost behavior for computations and hence promotes a better understanding of the cost behavior.

manuelcastillo · **Reply #1 on:** Mar 6, 2021

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