Managerial ACC ch 13

Which of the following BEST describes the price elasticity of demand?

This is the degree to which a change in price affects the unit sales of a product

It is assumed under the ___ ____ approach that customers are required to buy a product at whatever price the seller deems appropriate

absorption costing

A business segment should only be dropped if a company can avoid more in fixed costs than it gives up in ______

contribution margin

Miracle Clean's variable costs are $3.00 per bottle and Fixed Expenses are $350,000 per year. The company currently sells 150,000 bottles for $6.50 which results in profit of $175,000. The company is considering raising the selling price to $7.00 per bottle which is expected to decrease sales by 20%. If the price is raised profits are expected to ___ (increase/decrease) by $___ per year

decrease; $45,000

The first step in decision making is to ______

define the alternatives

A future cost that is not the same between any two alternatives is known as a(n) ___ , incremental, or avoidable cos

differential

In general, the more sensitive customers are to price, the ______ the optimal selling price will be

lower

A decision to carry out one of the activities in the value chain internally rather than to buy externally from a supplier is a ______ decision

make or buy

Determining whether to carry out an activity in the value chain internally or use a supplier is a ______ decision

make or buy

When making a decision only ______ costs and benefits should to be included in the analysis

relevant

A one-time order that is NOT considered part of the company's normal ongoing business is called a ______ order

special

T/F - Mingling irrelevant and relevant costs may cause confusion and distract attention from critical information

true

Being less dependent on suppliers and making profits on both parts and the final product are advantages of ___ ___

vertical integration

Less dependence on suppliers is an advantage of ______

vertical integration

When a resource, such as space in the factory, has no alternative use, its opportunity cost is ______

zero

In order to prevent confusion and keep attention focused on critical information, it is desirable to ______

isolate relevant costs from irrelevant costs

Two or more products that are produced from a common input are known as ___ products

joint

Two or more products produced from a common input are called ______

joint products

If, by dropping a product line, a company CANNOT avoid as much in fixed costs as it loses in contribution margin, the company should ______ the product line

keep

When a product has an established ___ price, customers will not pay more for it and there is no reason for a supplier to charge less

market

Product markup is generally expressed as a(n) ___ of cost

percentage

The costs provided by a well-designed activity-based costing system are ______ relevant to a decision

potentially

The degree to which a change in price affects unit sales of a product or service is the ___ ___ of ___

price elasticity of demand

A one-time sale that is not considered part of the company's normal ongoing business is referred to as a(n) ___ ___ decision

special order

Costs that have already been incurred and CANNOT be avoided regardless of what a manager decides to do are ______ costs

sunk

Costs that have no impact on future cash flows and are irrelevant to decisions are ______ costs

sunk

When making a decision, irrelevant items are included in the analysis of both alternatives when using ______

the total cost approach only

The formula used to calculate markup percentage on absorption cost includes ______

- selling, general and administrative expenses - required ROI multiplied by investment - unit product cost multiplied by unit sales

When planning a trip and deciding whether to drive or fly, the ______ is a sunk cost and should be ignored

original cost of the car

A product's markup is the difference between its selling ___ and its ___

price; cost

An increase in cost between two alternatives is a(n) ___ cost

incremental/differential

When a product is past the split-off point, but is not yet a finished product, it is called a(n) ___ product

intermediate

As it applies to sell or process further decisions, which term refers to a product that is in the process of being made?

intermediate product

Costs and benefits that should be ignored when making decisions are called ______ costs and benefits

irrelevant

Future costs and benefits that do not differ between alternatives are ______ costs to the decision-making process

irrelevant

If a cost is traced to a segment using activity-based costing, it ______

may or may not be an avoidable cost of the segment

The potential benefit given up when selecting one alternative over another is a(n) ______ cost

opportunity

Space being used that would otherwise be idle has a(n) ___ cost of zero

opportunity/relevant

When considering decision alternatives, both relevant and irrelevant costs are included when using the ___ ___ approach

total cost

Which of the following may be an advantage of making a part rather than buying it?

- A smoother flow of parts and materials for production - Less dependence on outside suppliers

Which of the following should NOT be included in the analysis when making a decision?

- Non-differential future costs - Sunk costs

Factors in determining the markup percentage using the absorption costing approach to cost-plus pricing include: ______

- adequate return on investment - absorption costing unit product cost - selling, general, and administrative expenses

Potential advantages of dropping a product line or other segment include:

- an overall increase in net operating income - avoiding more fixed costs than the company loses in contribution margin

When a product has an established market price ______

- consumers will not pay more than the established price - there is no reason for suppliers to charge less than the established price

Steps in the absorption costing approach are ______

- multiply unit product cost by 1 + markup percentage - determine markup percentage on absorption cost - calculate unit product costs

The absorption costing approach to cost-plus pricing ______

- relies on forecasted unit sales - assumes that customers will pay whatever price the company decides to charge

A company is considering buying a component part that they currently make. Which of the following items related to the equipment currently being used to make the component are relevant to the decision?

- salvage value - alternative uses for the equipment

Which of the following can make a product line look less profitable than it really is?

Allocated common fixed costs

Andrews Co. can purchase 20,000 units of Part XYZ from a supplier for $18 per part. Andrews' per unit manufacturing costs for 20,000 units is ______. Cost Per Unit Total Variable manufacturing cost $12 $240,000 Supervisor salary $3 $60,000 Depreciation $1 $20,000 Allocated fixed overhead $7 $140,000 If the part is purchased, the supervisor position would be eliminated. The special equipment has no other use and no salvage value. Total allocated fixed overhead would be unaffected by the decision. Should the company buy the part or continue to make it?

continue to make — $60,000 advantage (The avoidable costs of making the product are the variable costs plus the supervisor salary or $15 per unit. The total savings is $60,000 ($18 buy price - $12 variable cost - $3 supervisor salary = $3 advantage to make X 20,000 units) )

T/F - Depreciation of existing assets is relevant to decisions

false

T/F - In the absorption approach to cost-plus pricing, the cost base is the variable costing unit product cost

false

T/F - Opportunity costs are not found in accounting records because they are not relevant to decisions

false

T/F - Some decisions only have one alternative

false

One of the great dangers in allocating common ___ costs is that such allocations can make a product line look less profitable than it really is

fixed

In general, the less sensitive customers are to price, the _____ the optimal selling price will be

higher

When making a product line decision, a company may focus on lost contribution margin and avoidable fixed costs or prepare comparative ___ ___

income statements

When making a product line decision, a company may focus on lost contribution margin and avoidable fixed costs or prepare comparative ______

income statements

Miracle Clean's variable costs are $3.00 per bottle and Fixed Expenses are $350,000 per year. The company currently sells 150,000 bottles for $6.50 which results in profit of $175,000. The company is considering raising the selling price to $6.75 per bottle which is expected to decrease sales by 5%. If the price is raised profits are expected to ___ (increase/decrease) by $ ___ per year

increase; 9,375