Practice Test Geeks(CPP) Certified Pricing Professional Practice Test
← All CPP Flashcard Decks

Costing and Profitability Analysis Flashcards

7 cards from real CPP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Costing and Profitability Analysis flashcards as text

  1. Which of the following BEST describes the concept of 'economic profit' in pricing decisions?

    Answer: Revenue minus all explicit and implicit (opportunity) costs

    Economic profit subtracts both explicit costs and the opportunity cost of capital employed, providing a true measure of value creation.

  2. A pricing analyst wants to determine the point at which a new product recovers its development costs over time. This analysis is BEST described as:

    Answer: Payback period analysis

    Payback period analysis calculates how long it takes for cumulative cash inflows to recover the initial investment or development cost.

  3. Under the lifecycle costing concept, which phase typically incurs the HIGHEST cumulative costs over the entire product lifecycle?

    Answer: Use and maintenance by the customer

    Lifecycle costing shows that customer use and maintenance costs often dwarf production and purchase costs over the total ownership period.

  4. A company allocates overhead using a plantwide rate based on direct labor hours. An ABC analysis reveals Product X consumes far more machine setups than Product Y. Switching to ABC will MOST likely:

    Answer: Increase Product X's cost and decrease Product Y's cost

    ABC reveals that high-overhead-consuming products like Product X are undercosted under plantwide rates, while simpler products like Product Y are overcosted.

  5. Which of the following is a key limitation of using fully allocated cost as the basis for pricing decisions?

    Answer: It can trigger a death spiral when volume declines raise unit costs

    The cost-plus death spiral occurs when declining volume raises fixed cost per unit, forcing price increases that further reduce volume.

  6. A software firm has a 70% gross margin on licenses but only a 15% gross margin on professional services. Which profitability measure would BEST guide the sales force on deal mix?

    Answer: Gross margin by product line

    Gross margin by product line directly shows relative profitability of each component, guiding reps to prioritize high-margin license revenue.

  7. A manufacturer's fixed costs are $600,000, variable cost per unit is $30, and selling price is $50. How many units must be sold to break even?

    Answer: 30,000 units

    Break-even units = Fixed Costs ÷ Contribution Margin per unit = $600,000 ÷ ($50 − $30) = 30,000 units.