Ch7 - TB managerial accounting - an introduction to concepts methods and uses - Copy PDF

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TB managerial accounting - an introduction to concepts methods and uses - Copy...

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Chapter 7--Differential Cost Analysis for Operating Decisions Student: ___________________________________________________________________________ 1. A differential cost is a cost that changes (differs) as a result of changing which of the following? A. products or levels of products. B. departments or levels of departments. C. batches or levels of batches. D. activities or levels of activities.

2. What is the analysis of differences among particular alternative actions called? A. incremental analysis. B. marginal analysis. C. differential analysis. D. All of the answers are correct.

3. A cost that changes as a result of changing activitiesor levels of activities is called which of the following? A. product cost. B. department cost. C. batch cost. D. differential cost.

4. A cost or revenue is _________ if the change results in a difference between alternatives. A. relevant B. differential C. effective D. strategic

5. Differential analysis focuses mostly on which of the following? A. opportunity costs B. cash outflows only. C. both cash inflows and outflows. D. accrual accounting.

6. Which of the following represent the three major influences on pricing decisions? A. customers, competitors, and costs. B. controls, customer, and competitors. C. costs, competitors, and controls. D. costs, controls, and customers.

7. How do customers influence pricing decisions? A. By substituting a more expensive product. B. By using credit cards instead of cash. C. By substituting a less expensive product. D. None of the answers is correct.

8. The internal focus on continuous improvement is the key to which of the following? A. cutting costs. B. increasing employee morale. C. profit maximization. D. cutting profits.

9. Customer costs generally fall under several categories, including A. cost to acquire the customer and cost to provide goods and services. B. cost to maintain customers. C. cost to retain customers. D. All of the answers are correct.

10. Customer costs generally fall under several categories. Which is not one of these categories? A. Cost to acquire the customer B. Cost to provide goods and services C. Cost to maintain customers D. Cost to terminate customers

11. The short-run differential costs of a product are $25. Fixed costs are $5 per unit based on 10,000 units produced during this period. The company has adequate capacity to accept a special order of 1,000 units. What is the minimum price that could be charged using the differential approach to pricing? A. $ 5.00 B. $20.00 C. $25.00 D. $30.00

12. In the short run, which element is critical to product choice decisions? A. Contribution margin per unit B. Fixed costs per unit C. Fixed costs associated with product lines D. Contribution margin per unit of scarce resource

13. The Fast Trax Company manufactures adding machines. The company's capacity is 5,000 units per month; however, it currently is selling only 3,000 units per month. Company X has asked Fast Trax to sell 1,000 adding machines at $25 each. Normally, Fast Trax sells its product for $35. The company records report each adding machine's full absorption costs are $30 which includes fixed costs of $20. If Fast Trax was to accept Company X's offer, what would be the impact on Fast Trax's operating income? A. Additional profit of $15,000 B. Additional profit of $25,000 C. A loss of $5,000 on this order D. A loss of $10,000 on this order

14. Sebastian Enterprises sells a product for $25 per unit and has the following costs for the product

Direct Materials Direct Labor Variable Overhead Fixed Overhead Total

$10 5 3 2 $20

The company received a special order for 100 units of the product. The order would require rental of a special tool which costs $200. What is the minimum price per unit that Sebastian Enterprises should charge for this special order if they wish to earn a $300 profit on this order? Assume there is sufficient idle capacity to accept this order.

A. $18 B. $20 C. $23 D. $25 15. Kandy Corporation sells a product for $25 per unit and has the following costs for the product

Direct Materials Direct Labor Variable Overhead Fixed Overhead Total

$10 5 3 2 $20

Kandy received a special order for 100 units of the product. The order would require rental of a special tool which costs $200. What is the minimum price per unit the company should charge for this special order if they wish to earn a $600 profit? Assume Kandy is currently producing and selling at maximum capacity.

A. $23 B. $24 C. $26 D. $28 16. In considering a special order that will enable a company to make use of presently idle capacity, which of the following costs would be irrelevant? A. Materials B. Depreciation C. Direct Labor D. Variable Overhead

17. Short-run decisions include pricing for a special order with no long-term implications. Typically the time horizon is A. six months or less. B. over six months but less than a year. C. one to two years. D. over two years.

18. Which statement is true concerning long-run decisions? A. Long-run decisions include pricing a minor product in a minor market. B. Long-run decisions include pricing a minor product in a major market. C. Long-run decisions include pricing a main product in a minor market. D. Long-run decisions include pricing a main product in a major market.

19. Short-run decisions include pricing for which of the following? A. a special order with no long-term implications. B. a special order with long-term implications. C. a main product in a major market. D. a period greater than six months.

20. What does the differential approach to pricing presume? A. The price must be less than the differential cost of producing and selling the product. B. The price must at least equal the differential cost of producing and selling the product. C. The price must equal the market price. D. The price must equal full costs plus a profit margin.

21. In the short run, the practice of setting price so that it must at least equal the differential cost of producing and selling the product will result in which of the following? A. predatory pricing violation. B. anti-trust violation. C. dumping. D. positive contribution to covering fixed costs and generating profit.

22. In the long run, the practice of setting price so that it must at least equal the differential cost of producing and selling the product will cover all costs because A. fixed costs are differential in the long run. B. variable costs are differential in the long run. C. fixed and variable costs are differential in the long run. D. fixed and variable costs are discretionary in the long run.

23. Which of the following cost allocation methods would be used to determine the lowest price that could be quoted for a special order that would utilize idle capacity within a production area? A. Job order B. Process C. Variable D. Standard

24. Mitch’s Microbrew's regular selling price for a case of its product is $6. Variable costs are $4 per case. Fixed costs total $1 per case based on 100,000 cases, and remain unchanged within the relevant range of 50,000 cases to total capacity of 200,000 cases. After sales of 80,000 cases were projected for the year, a special order was received for an additional 10,000 cases. What is the minimum selling price for the special order? A. $3. B. $4. C. $5. D. $6.

25. Grizzly Company Grizzly Company manufactures footballs. The forecasted income statement for the year before any special orders is as follows:

Sales Manufacturing CGS Gross Profit Selling Expenses Operating Income

Amount $4,000,000 3,200,000 800,000 300,000 $ 500,000

Per Unit $10.00 8.00 2.00 0.75 $ 1.25

Refer to Grizzly Company. Fixed costs included in the above forecasted income statement are $1,200,000 in manufacturing CGS and $100,000 in selling expenses. Grizzly received a special order offering to buy 50,000 footballs for $7.50 each. There will be no additional selling expenses if Grizzly accepts. Assume Grizzly has sufficient capacity to manufacture 50,000 more footballs. The unit relevant cost for Grizzly's decision is

A. $8.00 B. $5.00 C. $8.75 D. $5.75

26. Grizzly Company Grizzly Company manufactures footballs. The forecasted income statement for the year before any special orders is as follows:

Sales Manufacturing CGS Gross Profit Selling Expenses Operating Income

Amount $4,000,000 3,200,000 800,000 300,000 $ 500,000

Per Unit $10.00 8.00 2.00 0.75 $ 1.25

Refer to Grizzly Company. By what amount would operating income of Grizzly be increased or decreased as a result of accepting the special order?

A. $25,000 decrease B. $62,500 decrease C. $100,000 increase D. $125,000 increase 27. Which of the following influences should not be considered in short-run pricing decisions? A. The value customers place on the product B. The pricing strategies of competitors C. The costs of the product D. Total fixed costs allocated to the specific product

28. Which statement is true with regards to differential pricing? A. Only fixed costs become differential costs in the long run. B. Both fixed and variable costs become differential costs in the long run. C. Fixed costs are never differential costs. D. When considering a special order all costs become differential costs.

29. Which of the following is true about short-run and long-run pricing decisions? A. Short-run decisions include pricing for a special order with no long-term implications. B. Short-run decisions typically have a time horizon of six months or less. C. Long-run decisions include pricing a main product in a major market. D. All of the answers are correct.

30. Which of the following is true about short-run and long-run pricing decisions? A. Short-run decisions include pricing for a special order with no long-term implications. B. Short-run decisions typically have a time horizon of two years or more. C. Short-run decisions include pricing a main product in a major market. D. Long-run decisions include pricing for a special order with no short-term implications.

31. Which of the following is false about short-run and long-run pricing decisions? A. Short-run decisions include pricing for a special order with no long-term implications. B. Short-run decisions typically have a time horizon of six months or less. C. Long-run decisions include pricing a main product in a major market. D. Long-run decisions include pricing for a special order with no short-term implications.

32. In the short run, __________ limitations require choices among alternatives. A. capacity B. joint cost C. split-off point D. full cost

33. The value chain influences long-run pricing decisions because __________ cost is the total of all the costs incurred by the activities in the value chain. A. differential B. full C. marginal D. variable

34. The total of all the costs incurred by the activities in the value chain are A. variable costs. B. fixed costs. C. total costs. D. full costs.

35. Using full costs for pricing decisions can be justified in which of the following circumstances? A. When a firm enters into a long-term contractual relationship to supply a product. B. For development and production of customized products and contracts with the government. C. When managers initially set prices to cover full costs plus a profit then adjust to reflect market conditions. D. All of the answers are correct.

36. What costs can be justified when managers initially set prices to cover the costs plus a profit and then subsequently adjusts the prices to reflect market conditions? A. Variable costs B. Fixed costs C. Full costs D. Absorption costs

37. Which product pricing practice is used by the majority of Japanese companies in assembly-type operations (e.g. electronics and automobiles)? A. Variable costs, only B. Fixed costs, only C. Full costs D. Absorption costs

38. Which product pricing factor is primarily used by the majority of Japanese, Irish, and English companies? A. Market-based B. Cost-based C. Quality-based D. Quantity-based

39. Which product pricing factor is primarily used by the majority of American companies? A. Market-based B. Cost-based C. Quality-based D. Quantity-based

40. What costs can be justified when a firm enters into agreements for the development and production of customized products with the Federal government? A. Variable costs B. Fixed costs C. Full costs D. Absorption costs

41. What costs can be justified when a firm enters into a long-term contractual relationship to supply a product? A. Variable costs B. Fixed costs C. Full costs D. Absorption costs

42. Which statement is true with regards to the product lifecycle? A. The product life cycle is usually 10 to 20 years. B. Life-cycle costs should never been considered in short run pricing decisions. C. Life-cycle costs provide important information for pricing. D. Life-cycle costs are not relevant in differential analysis.

43. The product life cycle lasts from A. obtaining financing through paying off investors. B. product design through product termination. C. initial research and development through termination of customer support. D. None of the answers is correct.

44. When can using full costs for pricing decisions be justified? A. when a firm enters into a long-term contractual relationship to supply a product. B. when a firm enters into a short-term contractual relationship to supply a product. C. for development and production of standardized commercial products. D. when setting short-term market prices.

45. When can using full costs for pricing decisions be justified? A. when a firm enters into a short term contractual relationship to supply a product. B. for development and production of customized products and contracts with the government. C. when managers initially set prices to cover development costs and then adjust to reflect market conditions. D. for development and production of standardized commercial products.

46. When can a firm justify the use of full costs for pricing decisions? A. when a firm enters into a short term contractual relationship to supply a product. B. for development and production of standardized products. C. when managers initially set prices to cover full costs plus a profit then adjust to reflect market conditions. D. because they are required by generally accepted accounting principles.

47. What is term used to describe the pricing practice in effect when a business deliberately prices below its costs in an effort to drive out competitors? A. competitive pricing. B. cost-based pricing. C. target pricing. D. predatory pricing.

48. Predatory pricing A. occurs when a business deliberately prices below its costs in an effort to drive out competitors. B. occurs when a business unintentionally prices below its costs which results in driving out competitors. C. is legal in all 50 States. D. is generally accepted in the United States.

49. Which statement is true concerning target costing? A. Target costing is setting price below costs in the short run to drive out competitors. B. Target costing is the systematic evaluation of all costs relevant to a decision. C. Target costing is the concept of price-based costing. D. None of the answers is correct.

50. Which statement is true concerning target pricing? A. Target pricing is based on customers' perceived value for the product. B. Target pricing is illegal under Federal law. C. Target pricing is anti-competitive. D. Target pricing is the same as predatory pricing.

51. Target costs equal which of the following? A. target prices minus target profits. B. fixed costs plus variable costs. C. prime costs plus conversion costs. D. opportunity cost plus cost of capital.

52. Which of the following terms describes the systematic evaluation of all aspects of research and development, design of products and processes, production, marketing, distribution, and customer service? A. quality engineering. B. incremental engineering. C. systems engineering. D. value engineering.

53. What is the objective of value engineering? A. to increase quality in order to satisfy customer needs. B. to reduce quality while satisfying customer needs. C. to increase profits while satisfying customer needs. D. to reduce costs while satisfying customer needs.

54. What is the first step in value engineering? A. an analysis of the value-chain activities. B. developing a product that satisfies the needs of potential customers. C. choosing a target price based on customers’ perceived value for the product and the competitors’ prices. D. reducing costs while satisfying customer needs.

55. Under United States laws, dumping occurs when A. when a business deliberately prices below its costs in an effort to drive out competitors. B. when a business unintentionally prices below its costs which results in driving out competitors. C. when a foreign company sells a product in the United States at a price below the market value in the country of its creation, and this action materially injuries (or threatens to materially injure) an industry in the United States. D. when a U.S. company sells a product in a foreign country at a price below the market value in the U.S., and this action materially injuries (or threatens to materially injure) an industry in the foreign country.

56. Using activity-based costing to analyze customer profitability requires the analyst to determine the cost to acquire the customer, which includes such activities as A. promoting the product. B. conducting a campaign to win back lost customers. C. running advertising campaigns. D. All of the answers are correct.

57. Using activity-based costing to analyze customer profitability requires the analyst to determine the cost to provide goods and services, which includes such activities as A. order processing. B. product delivery. C. processing returns. D. All of the answers are correct.

58. Using activity-based costing to analyze customer profitability requires the analyst to determine the cost to maintain customers, which includes such activities as A. billing customers. B. processing payments. C. issuing refunds. D. All of the answers are correct.

59. Using activity-based costing to analyze customer profitability requires the analyst to determine the cost to retain customers,which includes such activities as A. follow-up calls. B. conducting campaign to win back customers. C. promoting the product. D. All of the answers are correct.

60. Using activity-based costing to analyze customer profitability requires the analyst to determine the cost to maintain customers, which includes such activities as A. billing customers B. follow up calls C. process returns D. run advertising campaigns

61. Using activity-based costing to analyze customer profitability requires the analyst to determine the cost to acquire customers, which includes such activities as A. process payments B. conduct campaign to win back lost customers C. issue refunds D. deliver products

62. Which of the following statements is true when there is only one scarce resource? A. Choose the product that gives the largest contribution per unit of the scarce resource used. B. Choose the product that gives the smallest contribution per unit of the scarce resource used. C. Choose the product that gives the largest contribution per unit of all of the resources used. D. Choose the product that gives the smallest contribution per unit of all of the resources used.

63. Which of the following is a mathematical tool for solving such multiply-constrained decision problems? A. curvi-linear program...