Sunday, September 18, 2011

Life-cycle budgeting is particularly important when

ACCOUNTING

Multiple Choice

Life-cycle budgeting is particularly important when

a. the development period for R&D is short and inexpensive.

b. there are significant nonproduction costs.

c. most costs are locked in during production.

d. a low percentage of costs are incurred before any revenues are received.

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An understanding of life-cycle costs can lead to

ACCOUNTING

Multiple Choice

An understanding of life-cycle costs can lead to

a. additional costs during the manufacturing cycle.

b. less need for evaluation of the competition.

c. cost effective product designs that are easier to service.

d. mutually beneficial relationships between buyers and sellers.

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Life-cycle costing is the name given to

ACCOUNTING

Multiple Choice

Life-cycle costing is the name given to

a. a method of cost planning to reduce manufacturing costs to targeted levels.

b. the process of examining each component of a product to determine whether its cost can be reduced.

c. the process of managing all costs along the value chain.

d. a system that focuses on reducing costs during the manufacturing cycle.

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The markup percentage for setting prices as a percentage of the full cost of the product is

ACCOUNTING

Multiple Choice

Meyer Corporation budgeted the following costs for the production of its one and only product for the next fiscal year:



Direct materials $ 562,500

Direct labor 390,000

Manufacturing overhead

Variable 420,000

Fixed 322,500

Selling and administrative

Variable 180,000

Fixed 240,000

Total costs $2,115,000



Meyer has an annual target operating income of $450,000.



The markup percentage for setting prices as a percentage of the full cost of the product is

a. 328%.

b. 36%.

c. 228%.

d. 21%.

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The markup percentage for setting prices as a percentage of the variable cost of the product is

ACCOUNTING

Multiple Choice

Meyer Corporation budgeted the following costs for the production of its one and only product for the next fiscal year:



Direct materials $ 562,500

Direct labor 390,000

Manufacturing overhead

Variable 420,000

Fixed 322,500

Selling and administrative

Variable 180,000

Fixed 240,000

Total costs $2,115,000



Meyer has an annual target operating income of $450,000.



The markup percentage for setting prices as a percentage of the variable cost of the product is

a. 328%.

b. 36%.

c. 228%.

d. 65%.

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The markup percentage for setting prices as a percentage of variable manufacturing costs is

ACCOUNTING

Multiple Choice

Meyer Corporation budgeted the following costs for the production of its one and only product for the next fiscal year:



Direct materials $ 562,500

Direct labor 390,000

Manufacturing overhead

Variable 420,000

Fixed 322,500

Selling and administrative

Variable 180,000

Fixed 240,000

Total costs $2,115,000



Meyer has an annual target operating income of $450,000.



The markup percentage for setting prices as a percentage of variable manufacturing costs is

a. 54%.

b. 87%.

c. 169%.

d. 122%.

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The markup percentage for setting prices as a percentage of total manufacturing costs is

ACCOUNTING

Multiple Choice

Meyer Corporation budgeted the following costs for the production of its one and only product for the next fiscal year:



Direct materials $ 562,500

Direct labor 390,000

Manufacturing overhead

Variable 420,000

Fixed 322,500

Selling and administrative

Variable 180,000

Fixed 240,000

Total costs $2,115,000



Meyer has an annual target operating income of $450,000.



The markup percentage for setting prices as a percentage of total manufacturing costs is

a. 51%.

b. 125%.

c. 185%.

d. 245%.

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What is the cost base of each juicer machine for Grant Company?

ACCOUNTING

Multiple Choice

Grant Company has invested $1,000,000 in a plant to make commercial juicer machines. The target operating income desired from the plant is $180,000 annually. The company plans annual sales of 7,000 juicer machines at a selling price of $200 each.



What is the cost base of each juicer machine for Grant Company?

a. $174

b. $162

c. $169

d. $152

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What is the markup percentage as a percentage of cost for Grant Company?

ACCOUNTING

Multiple Choice

Grant Company has invested $1,000,000 in a plant to make commercial juicer machines. The target operating income desired from the plant is $180,000 annually. The company plans annual sales of 7,000 juicer machines at a selling price of $200 each.



What is the markup percentage as a percentage of cost for Grant Company?

a. 22.0%

b. 18.0%

c. 14.8%

d. 12.9%

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What is the target rate of return on investment for Grant Company?

ACCOUNTING

Multiple Choice

Grant Company has invested $1,000,000 in a plant to make commercial juicer machines. The target operating income desired from the plant is $180,000 annually. The company plans annual sales of 7,000 juicer machines at a selling price of $200 each.



What is the target rate of return on investment for Grant Company?

a. 22.0%

b. 18.0%

c. 14.8%

d. 12.9%

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What is the cost base of each vending machine for Timothy Company?

ACCOUNTING

Multiple Choice

Timothy Company has invested $2,000,000 in a plant to make vending machines. The target operating income desired from the plant is $300,000 annually. The company plans annual sales of 1,500 vending machines at a selling price of $2,000 each.



What is the cost base of each vending machine for Timothy Company?

a. $1,739

b. $1,802

c. $1,700

d. $1,780

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What is the markup percentage as a percentage of cost for Timothy Company?

ACCOUNTING

Multiple Choice

Timothy Company has invested $2,000,000 in a plant to make vending machines. The target operating income desired from the plant is $300,000 annually. The company plans annual sales of 1,500 vending machines at a selling price of $2,000 each.



What is the markup percentage as a percentage of cost for Timothy Company?

a. 15.0%

b. 17.6%

c. 10.0%

d. 11.1%

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What is the target rate of return on investment for Timothy Company?

ACCOUNTING

Multiple Choice

Timothy Company has invested $2,000,000 in a plant to make vending machines. The target operating income desired from the plant is $300,000 annually. The company plans annual sales of 1,500 vending machines at a selling price of $2,000 each.



What is the target rate of return on investment for Timothy Company?

a. 15.0%

b. 17.6%

c. 10.0%

d. 11.1%

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Advantages of using the full cost of the product as the cost base include all EXCEPT

ACCOUNTING

Multiple Choice

Advantages of using the full cost of the product as the cost base include all EXCEPT

a. that managers are informed regarding the minimum long-run cost they need to recover to stay in business.

b. that it limits the ability of a salesperson to cut prices.

c. that fixed cost allocations can be arbitrary.

d. that it does not require a detailed analysis of cost behavior for computations.

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Which of the following statements is FALSE regarding cost-plus pricing?

ACCOUNTING

Multiple Choice

Which of the following statements is FALSE regarding cost-plus pricing?

a. A company selects a cost base that it regards as reliable.

b. A company uses a markup percentage that estimates a product price that covers full product costs and earns the required return on investment.

c. The selling price computed is only a prospective price.

d. The cost-plus price chosen has already been studied for customer reaction to the price.

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The markup percentage is usually higher if the cost base used is

ACCOUNTING

Multiple Choice

The markup percentage is usually higher if the cost base used is

a. the full cost of the product.

b. the variable cost of the product.

c. variable manufacturing costs.

d. total manufacturing costs.

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The amount of markup percentage is usually higher if

ACCOUNTING

Multiple Choice

The amount of markup percentage is usually higher if

a. there is idle capacity.

b. demand is strong.

c. competition is intense.

d. demand is elastic.

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__________ starts with estimated product costs and next adds desired operating income

ACCOUNTING

Multiple Choice

__________ starts with estimated product costs and next adds desired operating income

a. Cost-plus pricing

b. Target costing

c. Kaizen costing

d. Life-cycle budgeting

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Erickson Company is considering pricing its 5,000-gallon petroleum tanks using either variable manufacturing or full product costs as the base

ACCOUNTING

Multiple Choice

Erickson Company is considering pricing its 5,000-gallon petroleum tanks using either variable manufacturing or full product costs as the base. The variable cost base provides a prospective price of $3,000 and the full cost base provides a prospective price of $3,050. The difference between the two prices is

a. the estimated amount of profit.

b. that the variable cost base estimates fixed costs in the markup percentage while the full cost base includes an amount for fixed costs.

c. known as price discrimination.

d. caused by the inability of most companies to estimate fixed cost per unit with any degree of reliability.

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A product's markup percentage needs to cover operating profits when the cost base is

ACCOUNTING

Multiple Choice

A product's markup percentage needs to cover operating profits when the cost base is

a. the full cost of the product.

b. the variable cost of the product.

c. variable manufacturing costs.

d. any of the above cost bases.

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Saturday, September 17, 2011

A product's markup percentage needs to cover nonmanufacturing variable costs when the cost base is

ACCOUNTING

Multiple Choice

A product's markup percentage needs to cover nonmanufacturing variable costs when the cost base is

a. the full cost of the product.

b. the variable cost of the product.

c. variable manufacturing costs.

d. any of the above cost bases.

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In cost-plus pricing, the markup component

ACCOUNTING

Multiple Choice

In cost-plus pricing, the markup component

a. is a rigid number.

b. is ultimately determined by the market.

c. provides a means to calculate the actual selling price.

d. is the end rather than the start of pricing decisions.

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The cost-plus pricing approach is generally in the form:

ACCOUNTING

Multiple Choice

The cost-plus pricing approach is generally in the form:

a. Cost base + Markup component = Prospective selling price.

b. Prospective selling price - Cost base = Markup component.

c. Cost base + Gross margin = Prospective selling price.

d. Variable cost + Fixed cost + Contribution margin = Prospective selling price.

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Value engineering can reduce costs by all EXCEPT

ACCOUNTING

Multiple Choice

Value engineering can reduce costs by all EXCEPT

a. simplifying the design and thereby decreasing the number of component parts.

b. reducing the number of features offered.

c. redesigning alternative options over and over until the wishes of all cross-functional team members are accommodated.

d. building efficiencies into value-added costs.

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Graphic analysis of incurred and locked-in costs provides several insights as to how the different concepts influence decisions

ACCOUNTING

Multiple Choice

Graphic analysis of incurred and locked-in costs provides several insights as to how the different concepts influence decisions. Which of the following statements is FALSE?

a. Costs are generally locked in before they are incurred.

b. After a product's design has been approved, costs are difficult to influence.

c. When and how costs are locked in are more important than when and how costs are incurred.

d. Most costs are locked in during the manufacturing process.

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A graph comparing locked-in costs with incurred costs will have

ACCOUNTING

Multiple Choice

A graph comparing locked-in costs with incurred costs will have

a. locked-in costs rising much faster initially, but dropping to zero after the product is manufactured.

b. the two cost lines running parallel until the end of the process, when they join.

c. locked-in costs rising much faster initially than the incurred cost, but joining the incurred cost line at the completion of the value-chain functions.

d. no differences unless the product is manufactured inefficiently.

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Value engineering can reduce all EXCEPT

ACCOUNTING

Multiple Choice

Value engineering can reduce all EXCEPT

a. existing fixed manufacturing costs.

b. value-added costs.

c. nonvalue-added costs.

d. rework-hours.

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In some industries such as legal and consulting, most costs are locked in

ACCOUNTING

Multiple Choice

In some industries such as legal and consulting, most costs are locked in

a. when they are incurred.

b. during the design stage.

c. during the customer-service stage.

d. during the marketing stage.

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Cross-functional engineering teams may include

ACCOUNTING

Multiple Choice

Cross-functional engineering teams may include

a. marketing managers.

b. suppliers.

c. management accountants.

d. all of the above.

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__________ focuses on reducing costs during the manufacturing stage

ACCOUNTING

Multiple Choice

__________ focuses on reducing costs during the manufacturing stage

a. Target costing

b. Kaizen costing

c. Cost-plus pricing

d. Life-cycle costing

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For most products, the majority of costs are incurred during the __________ business function of the value chain

ACCOUNTING

Multiple Choice

For most products, the majority of costs are incurred during the __________ business function of the value chain

a. design

b. manufacturing

c. customer-service

d. marketing

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Most of a product’s life-cycle costs are locked in by decisions made during the __________ business function of the value chain

ACCOUNTING

Multiple Choice

Most of a product’s life-cycle costs are locked in by decisions made during the __________ business function of the value chain

a. design

b. manufacturing

c. customer-service

d. marketing

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Cost accounting systems focus on when costs

ACCOUNTING

Multiple Choice

Cost accounting systems focus on when costs

a. are incurred.

b. are locked in.

c. are paid for.

d. are used for setting prices for products and services.

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Direct material costs are locked in when they are

ACCOUNTING

Multiple Choice

Direct material costs are locked in when they are

a. designed.

b. assembled.

c. sold.

d. delivered.

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Concerns about target costing include all EXCEPT

ACCOUNTING

Multiple Choice

Concerns about target costing include all EXCEPT

a. cross-functional teams may add too many features.

b. excessive pressure is put on suppliers.

c. development time may decrease.

d. burnout of design engineers.

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What is the target cost if the company wants to maintain its same income level, and marketing is correct (rounded to the nearest cent)?

ACCOUNTING

Multiple Choice

Frank’s Computer Monitors, Inc., currently sells 17” monitors for $270. It has costs of $210. A competitor is bringing a new 17” monitor to market that will sell for $225. Management believes it must lower the price to $225 to compete in the market for 17” monitors. Marketing believes that the new price will cause sales to increase by 10%, even with a new competitor in the market. Frank’s Computer Monitor, Inc.’s sales are currently 10,000 monitors per year.



What is the target cost if the company wants to maintain its same income level, and marketing is correct (rounded to the nearest cent)?

a. $168.75

b. $170.45

c. $185.00

d. $210.00)

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1. What is the change in operating income if marketing is correct and only the sales price is changed?

ACCOUNTING

Multiple Choice

Frank’s Computer Monitors, Inc., currently sells 17” monitors for $270. It has costs of $210. A competitor is bringing a new 17” monitor to market that will sell for $225. Management believes it must lower the price to $225 to compete in the market for 17” monitors. Marketing believes that the new price will cause sales to increase by 10%, even with a new competitor in the market. Frank’s Computer Monitor, Inc.’s sales are currently 10,000 monitors per year.



What is the change in operating income if marketing is correct and only the sales price is changed?

a. $165,000

b. $45,000

c. $(165,000)

d. $(435,000)

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What is the target cost if operating income is 25% of sales?

ACCOUNTING

Multiple Choice

Frank’s Computer Monitors, Inc., currently sells 17” monitors for $270. It has costs of $210. A competitor is bringing a new 17” monitor to market that will sell for $225. Management believes it must lower the price to $225 to compete in the market for 17” monitors. Marketing believes that the new price will cause sales to increase by 10%, even with a new competitor in the market. Frank’s Computer Monitor, Inc.’s sales are currently 10,000 monitors per year.



What is the target cost if operating income is 25% of sales?

a. $56.25

b. $67.50

c. $168.75

d. $202.50

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What is the target cost if the company wants to maintain its same income level, and marketing is correct?

ACCOUNTING

Multiple Choice

Sheltar’s TV currently sells small televisions for $180. It has costs of $140. A competitor is bringing a new small television to market that will sell for $150. Management believes it must lower the price to $150 to compete in the market for small televisions. Marketing believes that the new price will cause sales to increase by 10%, even with a new competitor in the market. Sheltar’s sales are currently 100,000 televisions per year



What is the target cost if the company wants to maintain its same income level, and marketing is correct?

a. $112.50

b. $113.64

c. $123.34

d. $140.00

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What is the change in operating income if marketing is correct and only the sales price is changed?

ACCOUNTING

Multiple Choice

Sheltar’s TV currently sells small televisions for $180. It has costs of $140. A competitor is bringing a new small television to market that will sell for $150. Management believes it must lower the price to $150 to compete in the market for small televisions. Marketing believes that the new price will cause sales to increase by 10%, even with a new competitor in the market. Sheltar’s sales are currently 100,000 televisions per year



What is the change in operating income if marketing is correct and only the sales price is changed?

a. $1,100,000

b. $300,000

c. $(1,100,000)

d. $(2,900,000)

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What is the target cost if target operating income is 25% of sales?

ACCOUNTING

Multiple Choice

Sheltar’s TV currently sells small televisions for $180. It has costs of $140. A competitor is bringing a new small television to market that will sell for $150. Management believes it must lower the price to $150 to compete in the market for small televisions. Marketing believes that the new price will cause sales to increase by 10%, even with a new competitor in the market. Sheltar’s sales are currently 100,000 televisions per year



What is the target cost if target operating income is 25% of sales?

a. $37.50

b. $45.00

c. $112.50

d. $135.00

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What is the target cost for each interior door?

ACCOUNTING

Multiple Choice

After conducting a market research study, Schultz Manufacturing decided to produce a new interior door to complement its exterior door line. It is estimated that the new interior door can be sold at a target price of $60. The annual target sales volume for interior doors is 20,000. Schultz has target operating income of 20% of sales.



What is the target cost for each interior door?

a. $48

b. $58

c. $60

d. $45

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What is the target cost?

ACCOUNTING

Multiple Choice

After conducting a market research study, Schultz Manufacturing decided to produce a new interior door to complement its exterior door line. It is estimated that the new interior door can be sold at a target price of $60. The annual target sales volume for interior doors is 20,000. Schultz has target operating income of 20% of sales.



What is the target cost?

a. $900,000

b. $960,000

c. $1,260,000

d. $1,008,000

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What is the target operating income?

ACCOUNTING

Multiple Choice

After conducting a market research study, Schultz Manufacturing decided to produce a new interior door to complement its exterior door line. It is estimated that the new interior door can be sold at a target price of $60. The annual target sales volume for interior doors is 20,000. Schultz has target operating income of 20% of sales.



What is the target operating income?

a. $240,000

b. $300,000

c. $192,000

d. $180,000

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What are target sales revenues?

ACCOUNTING

Multiple Choice

After conducting a market research study, Schultz Manufacturing decided to produce a new interior door to complement its exterior door line. It is estimated that the new interior door can be sold at a target price of $60. The annual target sales volume for interior doors is 20,000. Schultz has target operating income of 20% of sales.



What are target sales revenues?

a. $960,000

b. $2,000,000

c. $1,200,000

d. none of the above

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The product strategy in which companies first determine the price at which they can sell a new product and then design a product that can be produced

ACCOUNTING

Multiple Choice

The product strategy in which companies first determine the price at which they can sell a new product and then design a product that can be produced at a low enough cost to provide adequate operating income is referred to as

a. cost-plus pricing.

b. target costing.

c. kaizen costing.

d. full costing.

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When target costing and target pricing are used together,

ACCOUNTING

Multiple Choice

When target costing and target pricing are used together,

a. the target cost is established first, then the target price.

b. the target cost is the estimated long-run cost that enables a product or service to achieve a desired profit.

c. the focus of target pricing is to undercut the competition.

d. target costs are generally higher than current costs.

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All of the following are associated with target costing EXCEPT

ACCOUNTING

Multiple Choice

All of the following are associated with target costing EXCEPT

a. value engineering.

b. the markup component.

c. all value-chain business functions.

d. cross-functional teams.

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All of the following are true regarding target costing EXCEPT

ACCOUNTING

Multiple Choice

All of the following are true regarding target costing EXCEPT

a. improvements are implemented in small incremental amounts.

b. customer input is essential to the target costing process.

c. input is requested from suppliers and distributors.

d. a key goal is to minimize costs over the product’s useful life.

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To design costs out of products is a goal of

ACCOUNTING

Multiple Choice

To design costs out of products is a goal of

a. cost-plus pricing.

b. target costing.

c. kaizen costing.

d. peak-load costing.

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Value-added costs

ACCOUNTING

Multiple Choice

Value-added costs

a. are costs that a customer is unwilling to pay for.

b. include maintenance and repairs of the manufacturing equipment.

c. are reduced through improved efficiencies.

d. if eliminated increase profitability.

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Value engineering may result in all of the following EXCEPT

ACCOUNTING

Multiple Choice

Value engineering may result in all of the following EXCEPT

a. improved product design.

b. changes in materials specifications.

c. increases in the quantity of nonvalue-added cost drivers.

d. the evaluation of all business functions within the value chain.

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Place the following steps for the implementation of target costing in order:

ACCOUNTING

Multiple Choice

Place the following steps for the implementation of target costing in order:

A = Derive a target cost

B = Develop a target price

C = Perform value engineering

D = Determine target operating income

a. B D A C

b. B A D C

c. A D B C

d. A B C D

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Relevant costs for target pricing are

ACCOUNTING

Multiple Choice

Relevant costs for target pricing are

a. variable manufacturing costs.

b. variable manufacturing and variable nonmanufacturing costs.

c. all fixed costs.

d. all future costs, both variable and fixed.

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The department usually in the best position to identify customers’ needs is the

ACCOUNTING

Multiple Choice

The department usually in the best position to identify customers’ needs is the

a. production department.

b. sales and marketing department.

c. design department.

d. distribution department.

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To understand how competitors might price competing products a company

ACCOUNTING

Multiple Choice

To understand how competitors might price competing products a company

a. needs to understand the competitor’s technologies and financial conditions.

b. may get information from suppliers that service the competitor.

c. may use reverse engineering.

d. may do all of the above.

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Target pricing

ACCOUNTING

Multiple Choice

Target pricing

a. is used for short-term pricing decisions.

b. is one form of cost-based pricing.

c. estimate is based on customers’ perceived value of the product.

d. relevant costs are all variable costs.

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For long-run pricing of the coffee tables, what price will MOST likely be used by Berryman?

ACCOUNTING

Multiple Choice

Berryman Products manufactures coffee tables. Berryman Products has a policy of adding a 20% markup to full costs and currently has excess capacity. The following information pertains to the company's normal operations per month:



Output units 30,000 tables

Machine-hours 8,000 hours

Direct manufacturing labor-hours 10,000 hours



Direct materials per unit $50

Direct manufacturing labor per hour $6

Variable manufacturing overhead costs $161,250

Fixed manufacturing overhead costs $600,000

Product and process design costs $450,000

Marketing and distribution costs $562,500



For long-run pricing of the coffee tables, what price will MOST likely be used by Berryman?

a. $67.38

b. $80.85

c. $111.13

d. $133.35

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Berryman Products is approached by an overseas customer to fulfill a one-time-only special order for 2,000 units

ACCOUNTING

Multiple Choice

Berryman Products manufactures coffee tables. Berryman Products has a policy of adding a 20% markup to full costs and currently has excess capacity. The following information pertains to the company's normal operations per month:



Output units 30,000 tables

Machine-hours 8,000 hours

Direct manufacturing labor-hours 10,000 hours



Direct materials per unit $50

Direct manufacturing labor per hour $6

Variable manufacturing overhead costs $161,250

Fixed manufacturing overhead costs $600,000

Product and process design costs $450,000

Marketing and distribution costs $562,500



Berryman Products is approached by an overseas customer to fulfill a one-time-only special order for 2,000 units. All cost relationships remain the same except for a one-time setup charge of $20,000. No additional design, marketing, or distribution costs will be incurred. What is the minimum acceptable bid per unit on this one-time-only special order?

a. $67.38

b. $77.38

c. $111.13

d. $80.85

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If the European customer wanted a long-term commitment for supplying this product, what price would MOST likely be quoted?

ACCOUNTING

Multiple Choice

Welch Manufacturing is approached by a European customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers. Welch Manufacturing has a policy of adding a 10% markup to full costs and currently has excess capacity. The following per unit data apply for sales to regular customers:



Variable costs:

Direct materials $30

Direct labor 10

Manufacturing overhead 15

Marketing costs 5

Fixed costs:

Manufacturing overhead 100

Marketing costs 20

Total costs 180

Markup (10%) 18

Estimated selling price $198



If the European customer wanted a long-term commitment for supplying this product, what price would MOST likely be quoted?

a. $66.00

b. $180.00

c. $198.00

d. $217.80

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Monday, September 12, 2011

1. What is the full cost of the product per unit?

ACCOUNTING

Multiple Choice

Welch Manufacturing is approached by a European customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers. Welch Manufacturing has a policy of adding a 10% markup to full costs and currently has excess capacity. The following per unit data apply for sales to regular customers:



Variable costs:

Direct materials $30

Direct labor 10

Manufacturing overhead 15

Marketing costs 5

Fixed costs:

Manufacturing overhead 100

Marketing costs 20

Total costs 180

Markup (10%) 18

Estimated selling price $198



What is the full cost of the product per unit?

a. $60

b. $180

c. $198

d. $66

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For Welch Manufacturing, what is the minimum acceptable price of this one-time-only special order?

ACCOUNTING

Multiple Choice

Welch Manufacturing is approached by a European customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers. Welch Manufacturing has a policy of adding a 10% markup to full costs and currently has excess capacity. The following per unit data apply for sales to regular customers:



Variable costs:

Direct materials $30

Direct labor 10

Manufacturing overhead 15

Marketing costs 5

Fixed costs:

Manufacturing overhead 100

Marketing costs 20

Total costs 180

Markup (10%) 18

Estimated selling price $198



For Welch Manufacturing, what is the minimum acceptable price of this one-time-only special order?

a. $40

b. $55

c. $60

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If Ms. Yukki wanted a long-term commitment for supplying this product, what price would MOST likely be quoted?

ACCOUNTING

Multiple Choice

Rogers’ Heaters is approached by Ms. Yukki, a new customer, to fulfill a large one-time-only special order for a product similar to one offered to regular customers. Rogers’ Heaters has excess capacity. The following per unit data apply for sales to regular customers:



Direct materials $200

Direct manufacturing labor 60

Variable manufacturing support 30

Fixed manufacturing support 100

Total manufacturing costs 390

Markup (30%) 117

Estimated selling price $507



If Ms. Yukki wanted a long-term commitment for supplying this product, what price would MOST likely be quoted?

a. $290

b. $390

c. $260

d. $507

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Before accepting this one-time-only special order, Rogers’ Heaters should consider the impact on

ACCOUNTING

Multiple Choice

Rogers’ Heaters is approached by Ms. Yukki, a new customer, to fulfill a large one-time-only special order for a product similar to one offered to regular customers. Rogers’ Heaters has excess capacity. The following per unit data apply for sales to regular customers:



Direct materials $200

Direct manufacturing labor 60

Variable manufacturing support 30

Fixed manufacturing support 100

Total manufacturing costs 390

Markup (30%) 117

Estimated selling price $507



Before accepting this one-time-only special order, Rogers’ Heaters should consider the impact on

a. current plant capacity.

b. long-term customers.

c. competitors.

d. all of the above.

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For Rogers’ Heaters, what is the minimum acceptable price of this one-time-only special order?

ACCOUNTING

Multiple Choice

Rogers’ Heaters is approached by Ms. Yukki, a new customer, to fulfill a large one-time-only special order for a product similar to one offered to regular customers. Rogers’ Heaters has excess capacity. The following per unit data apply for sales to regular customers:



Direct materials $200

Direct manufacturing labor 60

Variable manufacturing support 30

Fixed manufacturing support 100

Total manufacturing costs 390

Markup (30%) 117

Estimated selling price $507



For Rogers’ Heaters, what is the minimum acceptable price of this one-time-only special order?

a. $290

b. $390

c. $260

d. $507

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1. A large hotel chain is currently expanding and has decided to decorate all new hotels using the rustic style

ACCOUNTING

Multiple Choice

Northwoods manufactures rustic furniture. The cost accounting system estimates manufacturing costs to be $120 per table, consisting of 60% variable costs and 40% fixed costs. The company has surplus capacity available. It is Northwoods’ policy to add a 50% markup to full costs.


A large hotel chain is currently expanding and has decided to decorate all new hotels using the rustic style. Northwoods is invited to submit a bid to the hotel chain. What per unit price will Northwoods MOST likely bid on this long-term order?

a. $72 per unit

b. $108 per unit

c. $180 per unit

d. $120 per unit

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Northwoods is invited to bid on a one-time-only special order to supply 200 rustic tables

ACCOUNTING

Multiple Choice

Northwoods manufactures rustic furniture. The cost accounting system estimates manufacturing costs to be $120 per table, consisting of 60% variable costs and 40% fixed costs. The company has surplus capacity available. It is Northwoods’ policy to add a 50% markup to full costs.


Northwoods is invited to bid on a one-time-only special order to supply 200 rustic tables. What is the lowest price Northwoods should bid on this special order?

a. $21,600

b. $7,200

c. $12,000

d. $14,400

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For pricing decisions, full product costs

ACCOUNTING

Multiple Choice

For pricing decisions, full product costs

a. include all costs that are traceable to the product.

b. include all manufacturing and selling costs.

c. include all direct costs plus an appropriate allocation of the indirect costs of all business functions.

d. allow for the highest possible product prices.

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A price-bidding decision for a one-time-only special order includes an analysis of

ACCOUNTING

Multiple Choice

A price-bidding decision for a one-time-only special order includes an analysis of

a. all manufacturing costs.

b. all cost drivers related to the product.

c. all direct and indirect variable costs of each function in the value chain.

d. all fixed manufacturing costs.

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For long-run pricing decisions, using stable prices has the advantage of

ACCOUNTING

Multiple Choice

For long-run pricing decisions, using stable prices has the advantage of

a. minimizing the need to monitor competitors' prices frequently.

b. reducing the need to change cost structures frequently.

c. reducing competition.

d. helping build buyer-seller relationships.

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Long-run pricing

ACCOUNTING

Multiple Choice

Long-run pricing

a. needs to cover only incremental costs.

b. only utilizes the market-based approach to pricing and not the cost-based approach.

c. is a strategic decision.

d. strives for flexible pricing that can respond to temporary changes in demand.

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Which of the following factors should NOT be considered when pricing a special order?

ACCOUNTING

Multiple Choice

Which of the following factors should NOT be considered when pricing a special order?

a. The likely bids of competitors

b. The incremental cost of one unit of product

c. Revenues that will be lost on existing sales if prices are lowered

d. Stable pricing to earn the desired long-run return

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Relevant costs for pricing a special order include

ACCOUNTING

Multiple Choice

Relevant costs for pricing a special order include

a. existing fixed manufacturing overhead.

b. nonmanufacturing costs that will not change even if the special order is accepted.

c. additional setup costs for the special order.

d. all of the above costs.

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Short-term pricing decisions

ACCOUNTING

Multiple Choice

Short-term pricing decisions

a. use costs that may be irrelevant for long-term pricing decisions.

b. are more opportunistic.

c. tend to decrease prices when demand is strong.

d. have a time horizon of more than one year.

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Long-run pricing decisions

ACCOUNTING

Multiple Choice

Long-run pricing decisions

a. have a time horizon of less than one year.

b. include adjusting product mix in a competitive environment.

c. and short-run pricing decisions generally have the same relevant costs.

d. use prices that include a reasonable return on investment.

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Three major influences on pricing decisions are

ACCOUNTING

Multiple Choice

Three major influences on pricing decisions are

a. competition, costs, and customers.

b. competition, demand, and production efficiency.

c. continuous improvement, customer satisfaction, and supply.

d. variable costs, fixed costs, and mixed costs.

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In a competitive market with differentiated products like cameras, the key factor(s) affecting pricing decisions is/are

ACCOUNTING

Multiple Choice

In a competitive market with differentiated products like cameras, the key factor(s) affecting pricing decisions is/are

a. the customer’s willingness to pay.

b. the price charged for alternative products.

c. the cost of producing and delivering the product.

d. all of the above.

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In a noncompetitive environment, the key factor affecting pricing decisions is

ACCOUNTING

Multiple Choice

In a noncompetitive environment, the key factor affecting pricing decisions is

a. the customer’s willingness to pay.

b. the price charged for alternative products.

c. the cost of producing and delivering the product.

d. all of the above.

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The cost of producing a product

ACCOUNTING

Multiple Choice

The cost of producing a product

a. is an important influence on pricing.

b. affects the willingness of a company to supply a product.

c. for pricing decisions includes manufacturing costs, but not product design costs.

d. in highly competitive markets controls pricing.

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Fluctuations in exchange rates between different currencies can influence

ACCOUNTING

Multiple Choice

Fluctuations in exchange rates between different currencies can influence

a. the cost of products using foreign suppliers.

b. the pricing of alternative products offered by foreign competitors.

c. the demand for products of foreign competitors.

d. all of the above.

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Competitors

ACCOUNTING

Multiple Choice


Competitors

a. with alternative products can force a company to lower its prices.

b. can gain a competitive pricing advantage with knowledge of your costs and operating policies.

c. may span international borders.

d. may be all of the above.


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Companies must ALWAYS examine pricing

ACCOUNTING

Multiple Choice


Companies must ALWAYS examine pricing

a. based on the supply of the product.

b. based on the cost of producing the product.

c. through the eyes of their customers.

d. through the eyes of their competitors.


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Too high a price may

ACCOUNTING

Multiple Choice

Too high a price may

a. deter a customer from purchasing a product.

b. increase demand for the product.

c. indicate supply is too plentiful.

d. decrease a competitor’s market share.

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Companies should ONLY produce and sell units as long as

ACCOUNTING

Multiple Choice

Companies should ONLY produce and sell units as long as

a. there is customer demand for the product.

b. the competition allows it.

c. the revenue from an additional unit exceeds the cost of producing it.

d. there is a generous supply of low-cost direct materials.

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Collusive pricing occurs when companies in an industry conspire in their pricing and output decisions to achieve a price above the competitive price

ACCOUNTING

True or False

Collusive pricing occurs when companies in an industry conspire in their pricing and output decisions to achieve a price above the competitive price

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Price dumping occurs when a domestic company is trying to get rid of out-of-style products at a substantially reduced price

ACCOUNTING

True or False

Price dumping occurs when a domestic company is trying to get rid of out-of-style products at a substantially reduced price

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A business that engages in predatory pricing violates various U.S. antitrust laws

ACCOUNTING

True or False

A business that engages in predatory pricing violates various U.S. antitrust laws

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Price discrimination is only illegal if the intent is to destroy competition

ACCOUNTING

True or False

Price discrimination is only illegal if the intent is to destroy competition

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Price discrimination laws apply only to manufacturers

ACCOUNTING

True or False

Price discrimination laws apply only to manufacturers

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When demand is strong, firms usually increase markups

ACCOUNTING

True or False

When demand is strong, firms usually increase markups

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Price discrimination is the illegal practice of charging some customers a higher price than is charged to other customers

ACCOUNTING

True or False

Price discrimination is the illegal practice of charging some customers a higher price than is charged to other customers

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When demand is elastic, an increase in price will lead to an increase in profits

ACCOUNTING

True or False

When demand is elastic, an increase in price will lead to an increase in profits

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When price discrimination is effective, cost is not a major factor in setting prices

ACCOUNTING

True or False

When price discrimination is effective, cost is not a major factor in setting prices

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Customer life-cycle costs focus on total costs incurred by the customer from purchase to disposal

ACCOUNTING

True or False

Customer life-cycle costs focus on total costs incurred by the customer from purchase to disposal

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Many companies use life-cycle budgeting to determine target prices

ACCOUNTING

True or False

Many companies use life-cycle budgeting to determine target prices

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Life-cycle budgeting is particularly important when nonproduction costs are significant

ACCOUNTING

True or False

Life-cycle budgeting is particularly important when nonproduction costs are significant

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To be profitable, a company must generate revenues to cover costs incurred in all six business functions

ACCOUNTING

True or False

To be profitable, a company must generate revenues to cover costs incurred in all six business functions

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A full-cost base rather than a variable-cost base is a better guide for discounting decisions that may affect long-term customers

ACCOUNTING

True or False

A full-cost base rather than a variable-cost base is a better guide for discounting decisions that may affect long-term customers

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The full-cost formula for pricing is relatively simple to use because it does not require a detailed analysis of cost behavior

ACCOUNTING

True or False

The full-cost formula for pricing is relatively simple to use because it does not require a detailed analysis of cost behavior

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Markups tend to be lower in more competitive markets

ACCOUNTING

True or False

Markups tend to be lower in more competitive markets

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Sunday, September 11, 2011

Cost bases that include fewer costs also have lower markups

ACCOUNTING

True or False

Cost bases that include fewer costs also have lower markups

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The target rate of return on investment is another way of referring to the markup percentage

ACCOUNTING

True or False

The target rate of return on investment is another way of referring to the markup percentage

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In cost-plus pricing, the markup is a rigid number that determines the actual selling price

ACCOUNTING

True or False

In cost-plus pricing, the markup is a rigid number that determines the actual selling price

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Kaizen costing focuses on improving productivity and eliminating waste through continuous improvements

ACCOUNTING

True or False

Kaizen costing focuses on improving productivity and eliminating waste through continuous improvements

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Spending more on the design phase of a new product usually reduces subsequent product-related costs

ACCOUNTING

True or False

Spending more on the design phase of a new product usually reduces subsequent product-related costs

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One goal of target costing is to design costs out of products

ACCOUNTING

True or False

One goal of target costing is to design costs out of products

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For manufacturing firms, product costs are generally locked in during the manufacturing stage

ACCOUNTING

True or False

For manufacturing firms, product costs are generally locked in during the manufacturing stage

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Locked-in costs have already been incurred

ACCOUNTING

True or False

Locked-in costs have already been incurred

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Costs may be locked in before they are incurred

ACCOUNTING

True or False

Costs may be locked in before they are incurred

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Suppliers play a key role in the success of target costing

ACCOUNTING

True or False

Suppliers play a key role in the success of target costing

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Value engineering seeks to reduce value-added costs as well as nonvalue-added costs

ACCOUNTING

True or False

Value engineering seeks to reduce value-added costs as well as nonvalue-added costs

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It is always clear which activities add value and which do not add value to a product

ACCOUNTING

True or False

It is always clear which activities add value and which do not add value to a product

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Rework is an example of a value-added cost

ACCOUNTING

True or False

Rework is an example of a value-added cost

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Value engineering has the objective of reducing costs while still satisfying customer needs

ACCOUNTING

True or False

Value engineering has the objective of reducing costs while still satisfying customer needs

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The first step in target pricing is to determine the target cost of the product

ACCOUNTING

True or False

The first step in target pricing is to determine the target cost of the product

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Target pricing is a form of cost-based pricing

ACCOUNTING

True or False

Target pricing is a form of cost-based pricing

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Product cost analysis is important even if market forces set prices

ACCOUNTING

True or False

Product cost analysis is important even if market forces set prices

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Customers prefer stable and predictable prices over a long time horizon

ACCOUNTING

True or False

Customers prefer stable and predictable prices over a long time horizon

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Relevant costs of a bidding decision should exclude revenues lost on lower-priced sales to existing customers

ACCOUNTING

True or False

Relevant costs of a bidding decision should exclude revenues lost on lower-priced sales to existing customers

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