Cost Accounting Chapter 4

Given variable manufacturing costs of $1.25 per unit, direct fixed overhead of $3,000 and a cost to outsource of $1.50 per unit, the company will be indifferent to make or buy (in terms of cost) at a volume ______ of units. (Enter your answer as a whole number.)

12000

Given variable manufacturing costs of $1.25 per unit, direct fixed overhead of $3,000 and a cost to outsource of $1.50 per unit, the company will be indifferent to make or buy (in terms of cost) at a volume of ______ units

12000

Which of the following statements are true?

Determining opportunity costs involves subjectivity. Some opportunity costs are not readily quantified.

Which of the following statements are true? Differential costs change in response to alternative courses of action. Fixed costs are always differential. Variable costs are never differential in the short run. Sunk costs are never differential.

Differential costs change in response to alternative courses of action. Sunk costs are never differential.

True or false: Differential costs are not impacted by the time period being analyzed.

False

Which of the following types of costs may or may not be differential?

Fixed Variable

Which of the following statements are true?

Opportunity costs are typically not reported with other accounting cost data. When a benefit is forgone, it is not always possible to determine if an opportunity cost estimate is realistic.

Selling identical goods or services to different customers at different prices is ______.

Price Discrimination

Which of the following statements is true?

Price discrimination enables companies to sell products to customers who may not otherwise purchase them.

Which of the following is NOT a short-run pricing decision?

Pricing a main product in a large market

Which of the following statements are correct?

Product decisions may be limited by capacity in the short-run. Determining what products or services to offer is a common managerial decision.

Which of the following statements is true?

Some factors in a make-or-buy decision are not easily quantified.

Sales dollars minus direct materials costs and other variable costs such as energy and piecework labor equals _______ contribution.

Throughput

When doing an analysis, an advantage of the ______ format is that it provides information to managers about all resources required.

Total

True or false: Make or buy decisions are sensitive to volume.

True

When a company engages in predatory pricing, the ultimate goal is to ______.

act like a monopolist

A constraining resource in which the work to be performed limits production is called a(n) _______.

bottleneck

Jacki's Jewels has a limited number of skilled direct labor hours to make necklaces and bracelets. Each necklace has a contribution margin of $175 and requires 1 hour of labor. Each bracelet has a contribution margin of $100 and requires 1/2 hour of labor. In order to maximize contribution margin, Jacki should first use labor hours to make _______.

bracelets

Comparing alternative actions with the status quo in order to make decisions is the focus of ______.

differential analysis

The process of estimating revenues and costs of alternative actions and comparing them to the status quo is called ______ ______.

differential analysis

Using full costs for pricing decisions can be justified when a firm ______.

enters into a contract with a governmental agency to supply a product enters into a long-term contractual relationship to supply a product

Full cost includes all ______.

fixed and variable costs of manufacturing and selling a unit of product

When considering a special order, ______.

fixed costs may be irrelevant

When setting prices, most firms rely on ______.

full cost information

The time value of money ______.

is immaterial for short-run decisions

Cradle to grave costing is another term for ______ costing.

life-cycle

Environmental regulations that require firms to "take back" and dispose of products have increased the importance of ______ costing.

life-cycle

Pricing a product in a market where there is considerable leeway in setting prices is an example of a(n) ______-_____ pricing decision.

long-run

A diner is deciding whether to use its own ingredients to prepare meals or purchase frozen prepared items from a supplier. This is an example of a (n) ______.

make-or-buy decision

A product life cycle ______ span(s) several years.

may

In determining whether to drop a product line or close a business unit, nonfinancial considerations ______.

may outweigh the financial issues

The theory of constraints focuses on ______.

minimizing investments throughput contribution

For convenience the short run is considered to be ______.

one year

A company is considering whether to continue to make a component or buy it from an outside supplier. Because the company has no alternative use of the manufacturing facilities that are currently used to make the product, the ______ cost associated with the decision is zero.

opportunity

Setting prices highest when the quantity demanded for the product approaches the physical capacity to produce it is ______.

peak-load

Utility companies often engage in ______-_____ pricing in providing services at high demand levels.

peak-load

Driving competitors out of the market by setting prices low is the intent of

predatory pricing

Setting prices below cost with the intent of driving competitors out of business is ______.

predatory pricing

Market segmentation is required with ______.

price discrimination

The agreement among business competitors to set prices at a particular level is ______.

price fixing

The time from initial research and development to the time when customer support is withdrawn is called the ______ ______ ______.

product life cycle

Given the following, a special order for 100 units @ $5 each will result in a (profit/loss) ______ of $______ from the special order. Sales (2,000 units @ $9 each) $18,000 Variable costs (2,000 units @ $4 each) $8,000 Total contribution margin $10,000 Allocated fixed costs $4,000 Operating profit $6,000

profit 100

Decision horizons over which capacity will be unchanged are referred to by the term _______ ________.

short run

Using "price-based costing" instead of "cost-based pricing" is the concept of

target costing

The estimated price that potential customers are willing to pay for a product or service is the ______.

target price

In a make-or-buy decision, if a company has an alternative use of the facilities currently used to make the product, the opportunity cost of using the facility to continue to make the product is ______.

the differential contribution from the alternative use

A company is considering whether to continue to make a component or buy it from an outside supplier. If they buy the component the manufacturing facility currently being used will be idle. If the company has no alternative use of the facility, the opportunity cost associated with this decision is ______.

zero

Bob's Bakery has a nearly unlimited demand for his cakes and pies. Each cake requires 2 direct labor hours and provides a contribution margin of $90. Each pie requires 1/4 labor hour and provides a contribution margin of $15. Bob has a total of 100 labor hours available each month and his fixed costs are $1,500. Calculate the maximum operating profit Bob can earn each month.

4500

When a company exports its product to consumers in another country at an export price below the domestic price, _______ has occurred.

Dumping

True or false: In both the short and long run, the differential approach leads to the correct pricing decision.

False

Which of the following statements are correct?

Following the differential approach in the short run may lead to underpricing in the long run. Fixed costs are generally irrelevant in short-term pricing decisions. The differential approach indicates the minimum acceptable price for a product.

Which of the following statements is true?

In some companies, dropping a product line is equivalent to closing a business unit.

Which of the following statements is true?

Informal or unspoken agreements to fix prices may be considered illegal. OPEC is a prime example of an organization that uses price fixing.

True or false: Ultimately dumping can cause the same harm to consumers that is caused by predatory pricing.

True

When a company has a limited number of machine hours available each month, the limitation is known as a(n) ______.

constraint

When a company is unable to produce as much as demanded due to limited resources they are facing a(n) ______.

constraint

Sanders, Inc. makes two products. Due to a limited availability of skilled labor hours, demand for the products exceeds production capability. In deciding how to allocate resources, Sanders' measure of profitability should be ______.

contribution margin per direct labor hour

Larson, Inc. makes two products. Due to a limited number of available machine hours, demand for the products exceeds production capability. When allocating resources, Larson's measure of profitability should be ______.

contribution margin per machine hour

Price discrimination ______ illegal.

may be

Differential costs ______.

may be approximated by full costs in the long run

Product choices are generally considered to be ______ decisions.

short-run

If a company is not operating at full capacity, accepting a(n) _______ ________ from a customer will not affect.

special order

A management method for dealing with bottlenecks that focuses on determining the optimal product mix is called the _______ of ______.

theory constraints

A management method that focuses on revenue and cost management when faced with bottlenecks is called the _______ of _______.

theory constraints

The full-cost fallacy occurs when decision makers ______.

think that fixed costs are variable

When considering the differential costs versus total costs approach, the ______.

total cost approach provides information regarding total resources required differential format can be derived from the total format