CH 14

Segmenting customers as a result of customer profitability analysis would be done by which of the following groupings?

operating income

How is value-engineering relevant to a well done customer profitability analysis, especially when an ABC system is utilized to calculate customer profits (or losses)?

ABC offers the opportunity to analyze the costs of activities assigned to each customer and to determine if improvements can be made to optimize profits

________ categorizes costs related to customers into different cost pools on the basis of either different classes of cost drivers or different degrees of difficulty in determining the cause-and-effect (or benefits-received) relationships.

Customer cost hierarchy

The sales-volume variance is the difference between:

a flexible-budget amount and the corresponding static-budget amount

An unfavorable sales-mix variance would most likely be caused by which of the following? A) a new competitor providing better service in the high-margin product sector B) a competitor having distribution problems with high-margin products C) the company offering low-margin products at a higher price D) the company experiencing quality-control problems that get negative media coverage of low-margin products

a new competitor providing better service in the high-margin product sector

The sales-quantity variance will be favorable when which of the following occurs? A) sales-volume variance and flexible-budget variance are favorable B) actual units of all products sold exceed budgeted units of all products sold C) the actual sales mix shifts towards the more profitable units D) static-budget variance and flexible-budget variance are favorable

actual units of all products sold exceed budgeted units of all products sold

What might explain why some managers advocate fully allocating all costs, including corporate costs to distribution channels and to customers?

all costs are incurred to support sales of products to customers

While allocating corporate costs to divisions:

allocate both variable and fixed costs to divisions then to customers

The static-budget variance is the difference between:

an actual result and the corresponding budgeted amount in the static budget

Which of the following is true of corporate-sustaining costs? A) are common to all individual customers B) have a clear cause-and-effect relationship with several cost-allocation bases C) should be allocated for decisions regarding reducing customer costs D) evaluates the effectiveness of sales personnel

are common to all individual customers

Which of the following is true about the process of making cost allocations? A) the costs of designing and implementing a cost allocation system are less visible than the benefits of such a system B) a cost benefit-analysis cannot be performance on cost allocation systems because the benefits are difficult to estimate C) the costs of cost allocation systems is mostly the cost of collection D) as the cost of collecting and processing cost allocation information decreases, it becomes more economically feasible to provide more detailed cost allocations

as the cost of collecting and processing cost allocation information decreases, it becomes more economically feasible to provide more detailed cost allocations

A company sets up cost pools for indirect cost allocation. Management sees clear cause-and-effect relationships between the incurrence of costs and the chosen the cost-allocation base. What other common relationships or basis with a cost allocation base might management utilize to allocate costs?

benefits-received

Flexible budget contribution margin is equal to:

budgeted contribution margin per unit times actual units sold of each product

To guide cost allocation decisions, the fairness or equity criterion:

considers reasonableness as a matter of judgment rather than an operational criterion

Which of the following is a corporate-sustaining cost? A) design costs B) corporate brand advertising C) shipment costs D) research and development costs

corporate brand advertising

Salary of top management and general-administration costs is an example of which of the following? A) customer output unit-level costs B) customer batch-level costs C) distribution-channel costs D) corporate-sustaining costs

corporate-sustaining costs

Which of the following classifications would be the most relevant for the costs incurred to process orders? A) customer output unit-level cost B) customer batch-level cost C) customer-sustaining cost D) corporate-sustaining cost

customer batch-level cost

Which of the following classifications would costs incurred to handle each unit sold fit into? A) customer output unit-level cost B) customer batch-level cost C) customer-sustaining cost D) corporate-sustaining cost

customer output unit-level cost

Which of the following classifications of costs in the customer-cost hierarchy would be most appropriate for the costs of activities to sell each unit to a customer? A) customer-sustaining costs B) division-sustaining costs C) customer output unit-level costs D) distribution-channel costs

customer output unit-level costs

Which of the following classifications would the cost of visiting customers would most likely fit into? A) customer output unit-level cost B) customer batch-level cost C) customer-sustaining cost D) corporate-sustaining cost

customer-sustaining cost

Managers use a customer-profitability analysis report to ensure that:

customers making large contributions to the operating income of a company receive a high level of attention from the company

The sales-mix variance is calculated by

deducting budgeted contribution margin based on actual units at budgeted mix from budgeted contribution margin based on actual units sold at the actual mix

Which of the following is the formula for the sales-quantity variance? A) deducting budgeted contribution margin based on actual units at actual mix from budgeted contribution margin based on actual units sold at the actual mix B) deducting budgeted contribution margin based on actual units at actual mix from budgeted contribution margin based on actual units sold at the budgeted mix C) deducting budgeted contribution margin based on budgeted units at actual mix from budgeted contribution margin based on actual units sold at the budgeted mix D) deducting budgeted contribution margin based on budgeted units at budgeted mix from budgeted contribution margin based on actual units sold at the budgeted mix

deducting budgeted contribution margin based on budgeted units at budgeted mix from budgeted contribution margin based on actual units sold at the budgeted mix

Which of the following classifications would be the most appropriate for the cost of the manager of a retail distribution channel? A) customer-sustaining cost B) distribution-channel cost C) customer batch-level cost D) corporate-sustaining cost

distribution-channel cost

To reduce distribution-channel costs, a company could:

eliminate distribution to retailers and only service wholesalers

Dropping an unprofitable customer will:

eliminate most short-run costs assigned to that customer

When corporate-sustaining costs are fully allocated to distribution channels, then the sum of the operating income from each distribution-channel is:

equal to company wide operating income

Corporate administrative costs allocated to a division cost pool are most likely to be:

facility-sustaining costs

If deciding whether to eliminate a distribution channel, allocating corporate-sustaining costs to distribution channels:

gives the misleading impression of potential cost savings

To allocate corporate costs to divisions, the ideal situation would be for the allocation base to

have the best cause-and effect relationship with the costs

To guide cost allocation decisions, the cause-and-effect criterion:

is the primary criterion used in activity-based costing

A customer cost hierarchy categorizes costs related to customers into different cost pools on the basis of different:

levels of cause-and-effect relationships

The sales-quantity variance can be decomposed into:

market-share variance and market-size variance

To guide cost allocation decisions, the benefits-received criterion:

may use an allocation base of division revenues to allocate advertising costs

Homogeneous cost pool leads to which of the following? A) more accurate costs of a given cost object B) more resources being assigned to that cost object C) the need for more cost drivers D) the need for different cost allocation bases to allocate the costs

more accurate costs of a given cost object

Allocation of corporate-sustaining costs is useful for which of the following? A) evaluating the performance of salespersons with individual customer accounts B) motivating distribution-channel management C) focusing on the cause-and-effect relationships with the cost-allocation bases D) motivating division managers to examine how corporate costs are planned and controlled

motivating division managers to examine how corporate costs are planned and controlled

In cost allocation, R&D costs are used to:

provide information for economic decisions

Customers making large contributions to the profitability of the company should:

receive a higher level of attention from the company than less profitable customers

Which of the following is an example of division-sustaining costs? A) research and development cost B) corporate administration costs C) corporate brand advertising D) shipment costs

research and development cost

To guide cost allocation decisions, the ability to bear criterion:

results in subsidizing products that are not profitable

A company has two distribution channels: wholesale and business sales. Which of the following costs would be allocated as distribution-channel-level costs when analyzing the profitability of customer distribution channels? A) sales order costs B) customer visit costs C) salary of the wholesale distribution channel manager D) corporate adminstration costs

salary of the wholesale distribution channel manager

The difference between budgeted contribution margin per composite unit for the actual mix and the budgeted contribution margin per composite unit for the budgeted mix is the:

sales-mix variance

The sales-volume variance is subdivided into:

sales-mix variance and sales-quantity variance

For companies in which full allocation is not followed, which of the following is true of corporate sustaining costs?

subtracted as a lump-sum amount after aggregating operating incomes of the divisions

Which cost-allocation criterion is most likely to subsidize poor performers at the expense of the best performers? A) the fairness or equity criterion B) the benefits-received criterion C) the ability to bear criterion D) the cause-and-effect criterion

the ability to bear criterion

Which of the following criteria has the presumption that the more-profitable divisions have a greater ability to absorb corporate administration costs? A) the fairness or equity criterion B) the ability to bear criterion C) the cause-and-effect criterion D) the benefits-received criterion

the ability to bear criterion

The sales-quantity variance results from a difference between:

the actual quantity of units sold and the budgeted quantity of unit sales in the static budget

The sales-mix variance will be unfavorable when which of the following occurs?

the actual sales mix shifts toward the less profitable units

The sales-quantity variance will be unfavorable when which of the following occurs? A) the composite unit for the actual mix is less than for the budgeted mix B) the actual unit sales are less than the budgeted unit sales C) the actual contribution margin per unit is less than the static-budget contribution margin D) the actual sales mix shifts toward the less profitable units

the actual unit sales are less than the budgeted unit sales

Which of the following customer related costs are NOT economically feasible to trace but are related to a customer? A) the additional cost of selling one more unit to a new customer who has never done business with the firm before B) the direct material costs of a product that a customer has purchased C) the allocation of the cost of travel, lodgings, and meals that result from visiting customers at their locations D) the shipping costs that result from shipping a package by Fed Ex to a customer when the technology allows a direct match of that cost to the direct material and direct labor costs of the product

the allocation of the cost of travel, lodgings, and meals that result from visiting customers at their locations

Which of the following is a challenge to using cost-benefit criteria for allocating costs? A) the costs of designing and implementing complex cost allocations are not readily apparent B) the benefits of making better-informed pricing decisions are difficult to measure C) cost systems are being simplified and fewer multiple cost-allocation bases are being used D) the costs of collecting and processing information keep spiraling upward

the benefits of making better-informed pricing decisions are difficult to measure

The sales-mix variance will be favorable when:

the budgeted contribution margin for actual sales mix is greater than for the budgeted mix

When the purpose of cost allocation is to provide information for economic decisions or to motivate managers and employees, which of the following would be the best criteria? A) the cause-and-effect and the ability-to bear criteria B) the cause-and-effect and the benefits-received criteria C) the benefits-received and the fairness criteria D) the fairness and the ability-to-bear criteria

the cause-and-effect and the benefits-received criteria

When individual activities within a cost pool have a similar relationship with the cost driver, which of the following could be said about the cost pool? A) the costs accumulated in the cost pool are not used for customer-profitability analysis B) there is a need for need multiple cost drivers to allocate costs from the pool to customers C) the cost pool is considered a homogeneous cost pool D) the cost pool is considered contains only direct variable costs

the cost pool is considered a homogeneous cost pool

When the cost pools are homogeneous which of the following will be true? A) the number of needed cost pools will be more B) the costs in the cost pool have a similar cause-and-effect or benefits-received relationship with the cost-allocation base C) managers should not allocate both variable costs and costs that are fixed in the short-run D) there will be a greater variety of cause-and-effect, benefits-received, or fair-and-equitable relationship with the cost-allocation base

the costs in the cost pool have a similar cause-and-effect or benefits-received relationship with the cost-allocation base

The static-budget variance will be favorable, when:

the flexible-budget and the sales-volume variance are favorable

More insight into the static-budget variance can be gained by subdividing it into:

the flexible-budget variance and the sales-volume variance

More insight into the sales-volume variance can be gained by subdividing it into:

the sales-mix variance and the sales-quantity variance

NOT allocating some corporate costs to divisions and products results in which of the following? A) an increase in overall corporate profitability B) the sum of individual product profitability being less than overall company profitability C) the sum of individual product profitability being greater than overall company profitability D) a decrease in overall corporate profitability

the sum of individual product profitability being greater than overall company profitability

Price discounts are influenced by

the volume of product purchased

To improve customer profitability, companies should track which of the following? A) only the final invoice price of a sale B) the volume of the products purchased by each customer C) the location of each customer D) the customer profile

the volume of the products purchased by each customer

Which of the following is a reason to gather data, associate revenues with each customer and develop a system of allocating costs to each customer? A) GAAP requirements for external reporting including 10K disclosures B) to assure that highly profitable customers get the appropriate level of care and attention C) ABC systems cannot be implemented without customer-profitability reporting D) to assure that more resources are committed to loss-making customers in an attempt to retain all customers

to assure that highly profitable customers get the appropriate level of care and attention

Which purpose of cost allocation is used to encourage sales representatives to push high-margin products or services? A) to provide information for economic decisions B) to motivate managers and other employees C) to justify costs or compute reimbursement D) to measure income and assets for reporting to external parties

to motivate managers and other employees

Which of the following illustrates a purpose for allocating costs to cost objects? A) to provide information for cost-control and pricing decisions B) to provide information to customers C) to determine marginal cost D) to measure capital expenditure

to provide information for cost-control and pricing decisions

The budgeted contribution margin per composite unit for the budgeted sales mix can be computed by dividing the:

total budgeted contribution margin by the total budgeted units

A shift towards a higher proportion of sales of products with a lower contribution margin per unit will most likely result in a(n):

unfavorable sales-mix variance

Which of the following is true about discontinuing an unprofitable customer? A) will eliminate all corporate costs assigned to and may result in losing more revenues relative to costs saved B) will eliminate all costs assigned to and may result in gaining more revenues relative to costs saved C) will not eliminate all costs assigned to and may result in losing more revenues relative to costs saved D) will not eliminate all corporate costs assigned to and may result in gaining more revenues relative to costs saved

will not eliminate all costs assigned to and may result in losing more revenues relative to costs saved