ACC 202 Chapter 12

Assume that Synergy Inc. has been purchasing a component necessary for its final product for $220 a unit. The factory is currently operating at 80% of capacity and no major increase in production is expected in the near future. The cost per unit of manufacturing the component internally is estimated as follows: Direct materials $ 70 Direct labor 70 Variable factory overhead 42 Fixed factory overhead 56 Total cost per unit $238 a.$38 b.$20 c.$50 d.$18

$38

If the revenue earned from manufacturing and selling cell phones is estimated to be $555,000 and that of tablets is $495,000, what will be the differential revenue?

$60,000

The _____ prohibits price discrimination within the United States unless price differences can be justified by different costs.

Capital Markets Act

______ focuses on the effect of alternative courses of action on revenues and costs.

Differential analysis

_______is a decision-making technique that examines the benefits and costs associated with each of two options and compares the net results of the two. The alternative selected is the one with the most favorable (or least unfavorable) financial impact.

Differential analysis,

_________is the amount of increase or decrease in cost that is expected from a course of action as compared to an alternative. For example, if increasing advertising expenses from $100,000 to $150,000 is being considered, the differential cost is $50,000.

Differential cost

_____________is the difference between the differential revenue and the differential costs. Differential income indicates that a decision is expected to be profitable, while a differential loss indicates the opposite.

Differential income (or loss)

_______________ is the amount of increase or decrease in revenue that is expected from a course of action as compared to an alternative.

Differential revenue

A cost that is not affected by subsequent decisions, Costs that have been incurred in the past are irrelevant.

Sunk Cost

Which of the following formulas is used to calculate the unit contribution margin per production constraint? a. Unit contribution margin / Production constraint per unit b. Unit variable cost / Production constraint per unit c. Unit contribution margin / Unit selling price d. Unit selling price / Unit contribution margin

Unit contribution margin / Production constraint per unit

Which of the following is true of a company operating at full capacity? a. Any additional production increases fixed and variable manufacturing costs. b. The products manufactured are sold at prices two times higher than the prevailing market prices. c.Any additional production always decreases selling and administrative expenses by a considerable amount. d.Any additional production does not increase fixed manufacturing costs.

a. Any additional production increases fixed and variable manufacturing costs.

The normal selling price of a product is determined by:

adding the cost amount per unit to the markup.

Which of the following is true of a company operating below full capacity? a. Any additional production always decreases selling and administrative expenses by a considerable amount. b. Any additional production does not increase fixed manufacturing costs. c. Any additional production increases fixed manufacturing costs by a considerable amount. d. Any additional production does not increase variable manufacturing costs.

b. Any additional production does not increase fixed manufacturing costs.

Which of the following is true of the competition-based concept? a. It sets the price according to the overhead costs allocated by competitors to a product. b. It sets the price according to the demand for a product. c. It sets the price according to the price offered by competitors. d. It sets the price according to the differential cost incurred by competitors in producing a product.

c. It sets the price according to the price offered by competitors.

Which of the following is true of a company operating at full capacity? a. Any additional production increases fixed and variable manufacturing costs. b. The products manufactured are sold at prices two times higher than the prevailing market prices. c. Any additional production always decreases selling and administrative expenses by a considerable amount. d. Any additional production does not increase fixed manufacturing costs.

d. Any additional production does not increase fixed manufacturing costs.

Which of the following is the fifth step of the managerial decision-making process? a.Making a decision b.Facilitating the process by gathering relevant information c.Identifying the alternative courses of action d.Reviewing, analyzing, and assessing the results of the decision

d.Reviewing, analyzing, and assessing the results of the decision

The normal selling price must be set high enough to cover:

only differential costs.

When a company has a production constraint in its production process, it _____.

should attempt to maximize its profits, subject to the constraint

When a company attempts to maximize its profits, subject to its production constraint, it uses _____.

the unit contribution margin of each product per production constraint