Chapter 13

When managers consider product mix: fixed costs are relevant to the decision. they choose the alternative that maximizes sales dollars. they must choose the optimal mix given the constraints found within the firm. All of these choices are correct.

All of these choices are correct.

Which of the following is not an example of a qualitative factor? Quality of the product Speed of delivery Costs of shipping Reliability of supplier Appeal to consumers

Costs of shipping

Resources that are acquired in advance of usage are flexible resources. True False

False

Target costing involves much more up-front work than cost-based pricing. True False

True

Target costing is a method of determining the cost of a product or service based on the price (target price) that customers are willing to pay. True False

True

In the keep-or-drop decision, the company will find which of the following income statement formats most useful? a. A segmented income statement in the contribution margin format b. A segmented income statement in the full costing format that is used for financial reporting c. An overall income statement in the contribution margin format d. An overall income statement in the full costing format that is used for financial reporting e. Income statements are of no use in making this type of decision.

a. A segmented income statement in the contribution margin format

Relevant costs are: costs that differ between alternatives. costs that remain the same among alternatives. costs that can be identified by the manager. past costs that will continue if the alternative is chosen.

costs that differ between alternatives.

Costs that cannot be affected by any future action are called a. inventory costs. b. differential costs. c. period costs. d. sunk costs. e. relevant costs.

d. sunk costs.

The difference in costs between two alternatives is referred to as: relevant costs. irrelevant costs. differential costs. opportunity costs.

differential costs.

Which of the following statements is false? a. Fixed costs are never relevant. b. Variable costs are never relevant. c. Usually, variable costs are irrelevant. d. Step costs are irrelevant when a decision alternative requires moving outside of the existing relevant range. e. All of these choices are correct.

e. All of these choices are correct.

An advantage of target costing is: it forces managers to control costs. it considers how much it costs to make a product before setting the selling price. it does not consider the design phase of a product. it is useful in the decision to keep inventory.

it forces managers to control costs.

Markup:

no no

In a keep-or -drop decision: segmented reports prepared on a variable-costing basis are important. absorption costing income statements should be provided. fixed costs should be ignored. sunk costs should be included.

segmented reports prepared on a variable-costing basis are important.

All of the following are correct concerning the relationship between the base cost, the markup percentage, and the firm's cost system except: if relatively few costs are in the base cost, a large enough markup percentage must be chosen to ensure that the markup covers all of the remaining costs not included in the base cost. under cost based pricing, firms can effectively mark up direct manufacturing costs and ignore indirect manufacturing costs or nonmanufacturing costs. covering costs with markups requires significant judgment. the effectiveness of cost plus pricing depends on the accuracy of the cost system.

under cost based pricing, firms can effectively mark up direct manufacturing costs and ignore indirect manufacturing costs or nonmanufacturing costs.

Constraints include:

yes yes

Depreciation of equipment is an example of a(n): Relevant cost. Sunk cost. Opportunity cost. Variable cost. None of these choices are correct.

Sunk cost

If a company has a policy of charging its customers 15% above direct materials and labor costs and the following costs are incurred: What is the price charged by the company? $75,000 $65,000 $78,000 $74,750

$74,750

Adams Company makes 140,000 units per year of a part used in its ice cream machine. An outside supplier offered to sell it to Adams for $97. Currently Adams has the following costs to manufacture it: If the offer is accepted, all of direct labor would be avoided. However, $16.40 of the fixed overhead will continue even if the part is purchased from the outside. How much of the unit product cost of $109.80 is relevant for decision making? $75.60 $93.40 $109.80 $38

$93.40

The following are steps involved in making short-term decisions: Recognize and define the problem Assess qualitative factors Identify costs and benefits associated with each alternative Identify alternatives Total the relevant costs and benefits for each benefit Which of the following is the correct order to make such a decision? I, II, III, IV, V II, V, III, IV, III I, IV, III, V, II II, V, III, IV, I V, III, II, IV, I

I, IV, III, V, II

Grant Company owns four machines that provide 17,250 machine hours per year. Part X requires 1.5 hours and Part Y requires 0.5 hours. The respective unit contribution margins for Part X and Y are $60 and $30. If a maximum of 22,500 units of each part can be sold, what is optimal mix of parts? Part X: 22,500 units; Part Y: 22,500 units Part X: 8,625 units; Part Y: 22,500 units Part X: 4,000 units; Part Y: 22,500 units Part X: 4,000 units; Part Y: 18,500 units

Part X: 4,000 units; Part Y: 22,500 units

A decision that focuses on whether a specially priced order should be accepted or rejected is what kind of decision? Make-or-buy Keep-or-drop Relevant Sell-or-process-further Special-order

Special-order

Carroll Company, a manufacturer of vitamins and minerals, has been asked by a large drugstore chain to provide bottles of vitamin E. The bottles would be labeled with the name of the drugstore chain, and the chain would pay Carroll $2.30 per bottle rather than the $3.00 regular price. Which type of a decision is this? a. Make-or-buy b. Special-order c. Keep-or-drop d. Economic order quantity e. Markup pricing

b. Special-order

Jennings Hardware Store marks up its merchandise by 30%. If a part costs $25.00, which of the following is true? a. The price is $7.50. b. The markup is $32.50. c. The price is $32.50. d. The markup is pure profit. e. All of these choices are correct.

c. The price is $32.50.

When a company faces a production constraint or scarce resource (e.g., only a certain number of machine hours are available), it is important to a. produce the product with the highest contribution margin in total. b. produce the product with the lowest full manufacturing cost. c. produce the product with the highest contribution margin per unit of scarce resource. d. produce the product with the highest contribution margin per unit. e. The constraint is not relevant to the production problem.

c. produce the product with the highest contribution margin per unit of scarce resource.

In a make-or-buy decision, a. the company must choose between raising or lowering the average selling price on its products. b. the company would consider all fixed overhead to be irrelevant. c. the company would consider the purchase price of the externally provided good to be relevant. d. the company must choose whether or not to close a business unit. e. None of these choices are correct.

c. the company would consider the purchase price of the externally provided good to be relevant.

In the sell-or-process-further decision, a. joint costs are always relevant. b. total costs of joint processing and further processing are relevant. c. all costs incurred prior to the split-off point are relevant. d. the most profitable outcome may be to further process some separately identifiable products beyond the split-off point, but sell others at the split-off point. e. None of these choices are correct.

d. the most profitable outcome may be to further process some separately identifiable products beyond the split-off point, but sell others at the split-off point.

Which of the following is not a step in the short-run decision-making model? a. Defining the problem. b. Identifying alternatives. c. Identifying the costs and benefits of feasible alternatives. d. Assessing qualitative factors. e. All of these choices are steps in the short-run decision-making model.

e. All of these choices are steps in the short-run decision-making model.

In making short-term decisions: sunk costs are relevant costs. costs should be included if they will still remain. sunk costs should not be included in the analysis. All of these choices are correct.

sunk costs should not be included in the analysis.

When managers consider product mix: fixed costs are relevant to the decision. they choose the alternative that maximizes sales dollars. they must choose the optimal mix given the constraints found within the firm. All of these choices are correct.

they must choose the optimal mix given the constraints found within the firm.