What is the primary disadvantage of basing the costplus pricing formula on absorption cost?

Q: What is target costing and how is it different from the usual process of setting prices?

A: The price of a product is set on the basis of the cost of the product. The price of the product is…

Q: Is

A:

Q: how does the contribution margin pricing method differ from ratio pricing method?

A: The question is based on the concept of pricing policy and methods. The product's price can be…

Q: What is cost-plus pricing? Who uses it?

A:

Q: What is lower of cost/market, and why is it used? Provide an example.

A: Inventory is a term which depicts the amount of finished goods prevailing in the business. The…

Q: Why would someone use variable costing over absorption Costing ?

A: The variable costing method is the method that only includes the variable costing whereas,…

Q: What effect do minor deviations from the EOQ have on totalinventory cost?

A: Minor variations from the EOQ will not in general highly affect the total inventory cost except if…

Q: Can a company use a target pricing model without a follow-on cost-savings sharing agreement? Why or…

A: Target price is the price at which the stock future price is estimated grounded on earnings…

Q: How can the WACC be both an average cost and a marginal cost?

A: Weighted average cost of capital is the aggregated cost of capital with respect to the weights or…

Q: Explain the difference between market-based transfer prices and cost-based transfer prices.

A: Market based Transfer Price and Cost Based Transfer Price: Transfer pricing refers to the rules and…

Q: Understand and apply the lower-of-cost-or-net realizable value rule.

A:

Q: How is target costing different from the usual process of setting prices?

A: The price of a product is set on the basis of the cost of the product. The price of the product is…

Q: Why do proponents of variable costing prefer variable costing when making pricing decisions?

A: Definition:   Variable costing: It refers to the method of product costing in which the price of the…

Q: lower-of-cost-or-market approach,

A: It is pertinent to note that inventory need to be valued at cost of net realizable value whichever…

Q: Why do proponents of absorption costing argue that absorption costing is preferable as the basis for…

A: The absorption costing argue that absorption costing is preferable as the basis for pricing…

Q: Determining the best approach to pricing requires a cost-benefit trade-off. Explain.

A: The best approach to pricing requires the cost benefit trade-off is explained as below, The Best…

Q: What are the various levels of aggregation to which the lower of cost and net realizable value rule…

A: LCNRV (Lower of Cost or Net Realizable Value) approach: It is an approach that compares the cost of…

Q: The lower-of-cost-or-market rule can be applied to which of the following?

A: The lower of cost or market rule can be applied on the following: 1. Major classes or categories of…

Q: According to our authors, explain the concept of “lower-of-cost-or-market.”

A: When a company prepares its financial statement, it reports certain items in the financial statement…

Q: Given the weaknesses of cost-based pricing, why wouldany company use this method?

A: Cost-based pricing means setting prices based on the cost of goods and services.  The major…

Q: Describe and apply the lower-of-cost-or-market rule.

A: Cost:   It is the economic value incurred by an organization to produce a product or render a…

Q: What are the advantages and disadvantages of target pricing versus cost-based pricing?

A: Advantages of target pricing are as follows: It help in controlling in cost It provide profit with…

Q: What the strategy of types of internal failuer cost?

A: Internal failure costs are those costs that are caused by products or services not conforming to…

Q: Why is an incremental analysis necessary when conducting a rate of return analysis for cost…

A: Incremental analysis considers only the relevant cash flows and it does not consider the…

Q: What circumstances might create distortions where estimated costs are not an accurate representation…

A: The estimated costs are the costs determined through the estimation process on past…

Q: What is an outlier? List some possible causes of outliers. How should outliers be handled in cost…

A: Outlier: An outlier is a data point that falls far away from the other points in the scatter diagram…

Q: Why is there often a conflict between the performance evaluation and cost-minimization objectives of…

A: SOLUTION- TRANSFER PRICING   IS THE ACCOUNTING PRACTICE THAT REPRESENTS THE PRICE THAT ONE DIVISION…

Q: What are the advantages and disadvantages of ABC relative to the step-down method of cost…

A: ABC means Activity Based Costing. Costs will be allocated based on the activities the organization…

Q: How are absorption costing and variable costing the same? How are they different?

A: Absorption Costing: "Absorption costing is a method that allocates "direct labor, direct materials,…

Q: From the standpoint of cost control, why is the FIFO method superior to the weighted-averagemethod?…

A: FIFO method is First in First out method in which inventory which is purchased first will be sold…

Q: What is the difference between absorption costing and variable costing?

A:

Q: What is one potential limitation of full-cost-based transfer prices?

A: Full cost based transfer pricing means transfer price based on total product cost per unit which…

Q: Which of the following is NOT considered in cost-volume-profit analysis?

A: Answer: opportunity costs.

Q: if we produce goods over the capacity, should we consider the fixed marketing cost and variable…

A: Fixed marketing costs is fixed costs related with the marketing of the product and this will not be…

Q: Describe Estimating Supplier Costs Using Reverse Price Analysis?

A: Reverse pricing analysis is a pricing model which allows its consumers in order to establish the…

Q: what consequences can broad averaging have on costs?

A: Broad Averaging: Broad averaging is also known as peanut butter cost is a costing approach of…

Q: What is a mixed cost? Give an example.

A: Cost: The amount paid to purchase the asset, install it, and put it into operations, is referred to…

Q: In order to draw a basic break-even chart, which of the following information would you not require?…

A: The break even sales are the sales where business earns no profit no loss during the period.  The…

Q: Identify the relative advantages and disadvantages of basing transfer prices on total costs,…

A: Please find the answers to the above questions below:

Q: What is the differential cost to produce product Zeta?

A: Given information is: Cost of producing Alpha = $23 per unit Additional cost of producing Zeta = $25…

Q: Explain the behavioral problem that can result when cost-plus prices are based on variable cost.

A: Following is the answer to the given question

Q: Which one of the following may not be considered a cost driver?

A: Under activity based costing, activities and cost allocation basis (cost drivers) are used to…

Pricing

Pricing is used as a term in finance and economics, pricing is the process of fixing a value for a product or a service. Pricing establishes a value for a product or service that the customer has to pay. A business can choose from different strategies while deciding to set prices.