Chapter 25

Hill Co. can further process Product O to produce Product P. Product O is currently selling for $60 per pound and costs $42 per pound to produce. Product P would sell for $82 per pound and would require an additional cost of $13 per pound to produce.

False

Opportunity cost is the amount of increase or decrease in cost that would result from the best available alternative to the proposed use of cash or its equivalent.

False

The costs of initially producing an intermediate product should be considered in deciding whether to further process a product, even though the costs will not change, regardless of the decision.

False

The lowest contribution margin per scarce resource is the most profitable.

False

A bottleneck begins when demand for the company's product exceeds the ability to produce the product.

True

Activity-based costing is determined by charging products for only the services (activities) they used during production.

True

Cost-plus methods determine the normal selling price by estimating a cost amount per unit and adding a markup.

True

Manufacturers must conform to the Robinson-Patman Act, which prohibits price discrimination within the United States unless differences in prices can be justified by different costs of serving different customers.

True

The theory of constraints is a manufacturing strategy that focuses on reducing the influence of bottlenecks on a process.

True

The amount of increase or decrease in revenue that is expected from a particular course of action as compared with an alternative is

differential revenue

The product cost concept includes all manufacturing costs plus selling and administrative expenses in the cost amount to which the markup is added to determine product price.

false

Which of the following is not a cost concept commonly used in applying the cost-plus approach to product pricing?

fixed cost concept

The target cost approach assumes that: Question options: 1) markup is added to product cost 2) markup is added to variable cost 3) the selling price is set by the marketplace 4) markup is added to total cost

3

Which of the following reasons would cause a company to reject an offer to accept business at a special price?

The additional sales will increase fixed expenses.