CH 13 SB

Costs incurred each time a company generates a set quantity of goods produced at one time are called ______ costs.

batch-level

The concept of relevance is ______ the concept of cost behavior.

independent from

The practice of enticing clients with a reduced price and then increasing prices once clients are dependent is called ______ pricing. Multiple choice question.

low-ball

In a special order decision, qualitative characteristics ______ quantitative ones.

may be more important than

Cost information ______.

may or may not be relevant, depending on the context

A company is considering eliminating their Small Appliances segment. If the company stops producing small appliances, the space will be used to manufacture laptops. The contribution to profit of the laptop business is a(n

oportunity cost

Buying goods and services from other companies rather than producing them internally is commonly called

outsourcing

Product-level costs should be considered when making ______ decisions.

outsourcing elimination

Equipment replacement decisions should be made based on ______.

profitability analysis

Product-level costs include ______.

regulatory compliance

Chris Co. produces surfboards. A customer has offered Chris Co. $400 per unit for 100 units. To fill the order, Chris would incur unit-level costs of $350 per unit and batch-level costs of $5,500. Chris Co. also incurred $70,000 of product-level costs to design the board and $10,000 of facility-level costs. Based on relevant benefits and costs, Chris Co. should ____________ the special order

reject

Differential revenue is another name for ______ revenue.

relevant

An example of a batch-level cost is ______.

shipping a 100 unit order

When considering whether or not to replace a machine, the annual depreciation expense of the existing (old) machine is a(n) ______ cost. Multiple choice question.

sunk

When making a decision to replace a car, the original cost and accumulated depreciation are ______ costs.

sunk

When making a segment elimination decision, management must consider ______

the growth potential of the segment that may be eliminated opportunity costs of operating the segment

Companies that have control over the full range of activities from acquiring raw materials to distributing goods and services are using _________ integration

vertical

Companies that have control over the full range of activities from acquiring raw materials to distributing goods and services use ______.

vertical integration

Costs that can be eliminated by making specific choices are called ______ costs.

avoidable

Wilson Co. has three segments -- Tennis, Golf, and Fishing. The Fishing segment is currently producing 2,000 deluxe fishing poles annually. The units sell for $200 each. The cost of each unit Wilson produces is $110. The Fishing segment spends $100,000 on product level costs each year. The segment is also allocated $200,000 of annual facility-level costs. The avoidable cost if Wilson Co. eliminates the Fishing segment is ______. Multiple choice question.

$320,000

Wilson Co. has three segments -- Tennis, Golf, and Fishing. The Fishing segment is currently producing 2,000 deluxe fishing poles annually. The units sell for $200 each. The cost of each unit Wilson produces is $110. The Fishing segment spends $100,000 on product level costs each year. The segment is also allocated $200,000 of annual facility-level costs. The differential revenue if Wilson Co. eliminates the Fishing segment is ______.

$400,000

Wilson Co. has three segments -- Tennis, Golf, and Fishing. The Fishing segment is currently producing 2,000 deluxe fishing poles annually. The units sell for $200 each. The cost of each unit Wilson produces is $110. The Fishing segment spends $100,000 on product level costs each year. The segment is also allocated $200,000 of annual facility-level costs. The differential revenue if Wilson Co. eliminates the Fishing segment is ______.

$400,000 Reason: $400,000 ($200 × 2,000 units)

Premier Co. has three segments -- Park Benches, Swings, and Lighting. The Lighting segment is currently producing 5,000 units annually. The units sell for $100 each. The cost of each unit is $90. The Lighting segment spends $40,000 on product design each year. The segment also is allocated $100,000 of annual facility-level costs. The avoidable cost if Premier Co. eliminates the Lighting segment is ______.

$490,000 Reason: ($90 × 5,000) + $40,000 product level costs = $490,000

Premier Co. produces park equipment and is currently producing 10,000 children swings annually. A supplier has offered to produce the swings for Premier Co. for $500 per swing. Premier Co. incurs unit-level costs of $490 per unit. Premier also spends $20,000 on product design each year and incurs $100,000 of facility-level costs. The avoidable production cost for Premier to produce one swing is ______.

$492

Oliver Company owns a machine with a current book value of $50,000. The market value of the machine is $20,000. The operating expenses are $9,000. Oliver is evaluating whether to sell the machine for $20,000 and purchase a new machine that will have lower operating expenses. In this scenario, what is the sunk cost related to Oliver's decision? Multiple choice question.

$50,000

A customer has requested a special order of 2,000 Wilson tennis rackets for $40 per unit. The normal selling price is $50. Costs related to the special order are $30 per racket plus batch-level costs of $1,000. Wilson incurred $10,000 of product-level costs to design the racket and has $100,000 of facility-level costs per year. The differential cost associated with the special order is ______.

$61,000 Reason: $30 × 2,000 units + $1,000 batch level-cost = $61,000

Premium Co. produces park benches. A customer has offered Premium Co. $700 per unit for 100 units. The normal selling price is $850 per bench. To fill the order, Chris would incur unit-level costs of $500 per unit and batch-level costs of $15,000. Premium Co. also incurred $20,000 of product-level costs to design the bench and $200,000 of facility-level costs. The differential cost associated with the special order is ______.

$65,000 Reason: $500 × 100 units + $15,000 batch-level = $65,000

Premium Co. produces park benches. A customer has offered Premium Co. $700 per unit for 100 units. The normal selling price is $850 per bench. To fill the order, Chris would incur unit-level costs of $500 per unit and batch-level costs of $15,000. Premium Co. also incurred $20,000 of product-level costs to design the bench and $200,000 of facility-level costs. The differential revenue associated with the special order is ______.

$70,000 Reason: $700 × 100 units = $70,000

Chris Co. produces sports equipment and is currently producing 1,000 mini long boards annually. A supplier has offered to produce the boards for Chris Co. for $300 per board. Chris Co. incurs unit-level costs of $280 per unit. Chris also spends $25,000 on product design each year and incurs $50,000 of facility-level costs. The avoidable production cost for Chris to produce one mini long board is ______.

305

Chris Co. produces surfboards. A customer has offered Chris Co. $400 per unit for 100 units. To fill the order, Chris would incur unit-level costs of $350 per unit and batch-level costs of $5,500. Chris Co. also incurred $70,000 of product-level costs to design the board and $10,000 of facility-level costs. The differential cost associated with this order is $_____________

40,500 or 40500

Chris Co. produces surfboards. A customer has offered Chris Co. $400 per unit for 100 units. To fill the order, Chris would incur unit-level costs of $350 per unit and batch-level costs of $5,500. Chris Co. also incurred $70,000 of product-level costs to design the board and $10,000 of facility-level costs. The differential revenue associated with this order is $

40000

A customer has requested a special order of 2,000 Wilson tennis rackets for $40 per unit. The normal selling price is $50. Costs related to the special order are $30 per racket plus batch-level costs of $1,000. Wilson incurred $10,000 of product-level costs to design the racket and has $100,000 of facility-level costs per year. The differential revenue associated with the special order is ______.

80,000 Reason: $40 × 2,000 units = $80,000

Which of the following is a qualitative characteristic of a special order decision?

Current customers demanding a price reduction

True or false: Information that is relevant in one context will be relevant in all contexts.

FALSE

True or false: The most useful information is always the most precise, regardless of relevance.

FALSE

Wilson Co. produces sports equipment and is currently producing 2,000 premium specialty tennis rackets annually. A supplier has offered to produce the rackets for Wilson Co. for $370 per racket. Wilson incurs unit-level costs of $360 per unit. Wilson also spends $10,000 on product-level costs each year and incurs $100,000 of facility-level costs. Should Wilson Co. outsource the rackets? What is the effect on profit?

No, Wilson Co. should not outsource the rackets because outsourcing will decrease profits by $10,000. Reason: Relevant production cost of $365 vs. supplier cost of $370 = ($5) × 2,000 or ($10,000) decrease in profit from outsourcing.

Premier Co. has three segments -- Park Benches, Swings, and Lighting. The Lighting segment is currently producing 5,000 units annually. The units sell for $100 each. The cost of each unit is $90. The Lighting segment spends $40,000 on product design each year. The segment also is allocated $100,000 of annual facility-level costs. Should Premier eliminate the Lighting segment? What would be the effect on profit?

No, eliminating the segment will decrease profit by $10,000.

Which of the following statements are correct?

The most useful information is both relevant and precise. Information need not be exact to be relevant.

Which of the following should be considered when making a special order decision? Multiple select question.

Unit-level costs Batch-level costs

Chris Co. has three segments -- Surfing, Biking, and Fly Fishing. The Biking segment is currently producing 1,000 units annually. The units sell for $500 each. The cost of each unit is $400. The Biking segment spends $110,000 on product design each year. The segment also is allocated $100,000 of annual facility-level costs. Should Chris eliminate the Biking segment? What would be the effect on profit? Multiple choice question.

Yes, eliminating it will increase profit by $10,000.

A customer has requested a special order of 2,000 Wilson tennis rackets for $40 per unit. The normal selling price is $50. Costs related to the special order are $30 per racket plus batch-level costs of $1,000. Wilson incurred $10,000 of product-level costs to design the racket and has $100,000 of facility-level costs per year. Based on the relevant costs and revenues, Wilson should ______ the special order. Multiple choice question.

accept

Premium Co. produces park benches. A customer has offered Premium Co. $700 per unit for 100 units. The normal selling price is $850 per bench. To fill the order, Chris would incur unit-level costs of $500 per unit and batch-level costs of $15,000. Premium Co. also incurred $20,000 of product-level costs to design the bench and $200,000 of facility-level costs. Based on the differential revenues and costs, Premium Co. should ______ the special order.

accept

Quantitative information includes ______.

allocated overhead cost employee wages net income

When making current decisions, sunk costs ______. Multiple choice question.

are relevant costs that were incurred in the past

Revenue that differs among two alternatives is sometimes called ______ revenue.

differential

Qualitative characteristics that should be considered in an outsourcing decision include ______.

difficulty in reestablishing internal production reliability of the supplier existing employee morale and loyalty employee displacement

Unit-level costs are incurred ______.

each time a company generates one individual item of product

Qualitative characteristics include ______.

employee satisfaction appearance customer satisfaction

Costs incurred to support an entire company are called ______ costs.

faculty-level