What Is the Critical Assumption When Using Target Profit Pricing

question 267

Multiple Choice

What is the critical assumption when using target profit pricing?

• A)a higher average price will usually cause the demand to fall
• B)a higher average price will always cause the demand to fall
• C)profit is relative to the current value of the dollar so this form of pricing is extremely risky
• D)a higher average price will not cause the demand to fall
• E)if the average price is increased,all a firm's competitors will do the same

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Definitions:

Labor Rate Variance

A measure used in cost accounting to analyze the difference between the actual labor cost incurred and the standard labor cost for the actual labor hours worked.

Variable Overhead Efficiency Variance

Refers to the difference between the standard cost of variable overheads for the actual production level and the actual variable overheads incurred.

Labor Rate Variance

The difference between the actual cost of labor and the budgeted cost, indicating how well a company has controlled its labor costs.

Labor Efficiency Variance

The difference between the actual hours worked by employees to produce goods and the expected hours, used to measure workforce efficiency.