Cost 11 & 13
At what point are direct material costs per unit "locked in" ?
designed
Unit cost data can most mislead decisions by _____
not computing unit costs at the same output level
A product cost is composed of the following: Direct materials $12.00 Direct labor $1.00 Manufacturing overhead $8.00 The product sells for $45.00 and a 15% commission is paid to a salesperson for every unit sold. Management accountants also estimate that storage cost per unit averages $1.00 per unit. What is the full cost of the product?
$28.75
Jack's Back Porch manufactures rustic furniture. The cost accounting system estimates manufacturing costs to be $270 per table, consisting of 60% variable costs and 40% fixed costs. The company has surplus capacity available. It is Jack's Back Porch's policy to add a 70% markup to full costs. A large hotel chain is currently expanding and has decided to decorate all new hotels using the rustic style. Jack's Back Porch is invited to submit a bid to the hotel chain. What per unit price will Jack's Back Porch most likely bid on this long−term order?
$459.00 per unit
Which of the following is true of long-run pricing?
It is a strategic decision designed to build long-run relationships with customers based on stable and predictable prices.
Flash City Inc. manufactures small flash drives and is considering raising the price by 75 cents a unit for the coming year. With a 75−cent price increase, demand is expected to fall by 7,000 units. If the price increase is implemented, operating profit is projected to ________.
Increase by $25,850
Which f the following methods focuses on reducing costs during the manufacturing stage?
Kaizen costing
Which of the following statements is true about the factors that affect pricing decisions?
Managers must always be aware of the competition when pricing their products
Springer Products manufactures three different product lines, Model X, Model Y, and Model Z. Considerable market demand exists for all models. The following per unit data apply: Which model has the greatest contribution margin per machine−hour?
Model X
A company has three products possible products that it can produce in a machine intensive production process. capacity is constrained by the number of hours the machines can run during a period and the products are so popular that all units produced will be sold. Here is additional information:
Product B should be emphasized if the goal is to maximize contribution margin.
Springer Products manufactures three different product lines, Model X, Model Y, and Model Z. Considerable market demand exists for all models. The following per unit data apply: How can Lisa Dynondo encourage her salespeople to promote the more profitable model?
Provide higher sales commissions for items with the greatest contribution margin per constrained resource.
Relevant data in a make−or−buy decision of a part include which of the following?
Some portion of fixed costs that would be saved if the product in outsourced
Which of the following is true of historical costs?
They are useful for making future predictions
Which of the following can be used to determine markup percentage in the case of cost-plus pricing?
Target annual operating income / Invested capital
Which of the following is true of target costing?
The target cost is the target price minus the target operating income per unit.
John's 8−year−old Chevrolet Trail Blazer requires repairs estimated at $9,000 to make it road worthy again. His wife, Sherry, suggested that he should buy a 5−year−old used Jeep Grand Cherokee instead for $9,000 cash. Sherry estimated the following costs for the two cars: The cost NOT relevant for this decision is the ________.
acquisition cost of the Trail Blazer
Flash City Inc. manufactures small flash drives and is considering raising the price by 75 cents a unit for the coming year. With a 75−cent price increase, demand is expected to fall by 7,000 units. Would you recommend the 75−cent price increase?
Yes, because operating profits increase.
Snapper Tool Company has plenty of excess capacity to accept a special order. Shown below is an "what−if" analysis of the special order. Which of the following is the correct decision and reason?
Yes, since operating profits will most likely increase
Which of the following is true of target pricing?
a price is an estimate of customers' perceived value of the product.
Relevant costs for target pricing are ________.
all future costs, both variable and fixed
When evaluating a make−or−buy decision, which of the following needs to be considered?
alternative uses of the production capacity
When making decisions ________.
appropriate weight must be given to both quantitative and qualitative factors
Sunk Costs ____
are irrelevant for decision making
Which of the following minimizes the risks of outsourcing?
building close partnerships with the supplier
Which of the following statements about pricing is true?
companies in competitive markets use the market approach to pricing
Which of the following best describes customer life-cycle costs ?
costs to the customers for buying and using a product.
An example of a qualitative factor for the decision−making process is ________
customer satisfaction as determined by written responses given by customers to survey questions
When deciding to accept a one−time−only special order from a wholesaler, management should ________.
determine whether excess capacity is available
When using the five−step decision process, which one of the following steps should be done last?
evaluation and feedback
Which of the following is a relevant cost to be included in a make−or−buy decision?
fixed salaries that will not be incurred if the part is outsourced
A relevant revenue is revenue that is a(n) ________.
future revenue and differs among alternative courses of action
Product mix decisions
help determine how to maximize operating profits
With a constraining resource, managers should choose the product with the ________.
highest contribution margin per unit of the constraining resource
When there is an excess capacity, it makes sense to accept a one−time−only special order for less than the current selling price if ________.
incremental revenues exceed incremental costs
Life-cycle costing is best described by which of the following?
it is the process of tracking and accumulating business function costs across the entire value chain
To minimize the chances of violating pricing laws, a company should ________.
keep detailed records of variable costs for all value-chain business functions
Which of the following is a firm's risk of outsourcing the production of a part?
leakage of intellectual property
When using the five−step decision process, which one of the following steps should be done first?
obtain information
Roberto Inc., operates a chain of luxury hotels in the Asia-Pacific region. It charges $150 for one night stay. However when 90% of the rooms are occupied, Roberto charges a premium of 20% on room tariff for the remaining rooms. What pricing method has Roberto Inc. adopted?
peak-load pricing
If management takes a multiple−year view in the decision model and judges success according to the current year's results, a problem will occur in the ________.
performance evaluation model
Determining which products should be produced when the plant is operating at full capacity is referred to as a(n) ________.
product - mix decision
In a make−or−buy decision, which of the following would not be relevant?
property taxes on the plant that will still be necessary even if the product is outsourced
In evaluating different alternatives, it is useful to concentrate on ________.
relevant costs
The theory of constraints (TOC) defines throughput margin as ________.
revenues minus the direct material costs of the goods sold
Hartley's Meat Pies is considering replacing its existing delivery van with a new one. The new van can offer considerable savings in operating costs. Information about the existing van and the new van follow: Relevant costs for this decision include ________.
the annual operating cost
Managers are examining a possible replacement of a machine decision and generate the following numbers: Book value of old machine $1,00,000 Current disposal value of old machine $50,000 Loss on disposal of old machine $300,000 Cost of new machine $600,000 In performing an analysis and in attempt to answer the question, "should we replace the old machine", which of the following statements would be true?
the cost of the new machine and the current disposal value of the old machine are relevant
Which of the following is true of price bidding with the federal government?
the price is based on costs that include fully allocated manufacturing and design costs but not include marketing costs
As a general rule of economics, companies should only produce and sell units as long as ________.
the revenue from an additional unit exceeds the cost of producing it
Which of the following best defines the term: product life cycle?
the span of time from initial R&D on a product to when the customer service and support for the product is no longer offered
When target costing and target pricing are used together ________.
the target cost is the estimated long-run cost that enables a product or service to achieve a desired profit
Companies must always examine their pricing ________.
through the eyes of their customers and then manage costs to produce a profit
Which of the following is an objective of value engineering?
to reduce the total cost of the product
Which of the following are true regarding long-run pricing decisions ?
use prices that include a reasonable return on invested capital
Which of the following is a cost that, if eliminated, would reduce the actual or perceived value or utility (usefulness) customers experience from using the product or service?
value-added cost
In some industries, such as legal and consulting, most costs are locked in ________.
when they are incurred
Three major influences on pricing decisions are ________.
competition, costs, and customers