Cost Accounting Final

Profit

(Price - Variable costs) * Units of output - fixed costs

CVP analysis relies on certain __________ that might limit the applicability of results for decision making.

Assumptions

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) ______. target costing decision opportunity cost analysis make-or-buy decision differential cost analysis

Make or buy decision

The excess of the projected (or actual) sales over the break-even sales level is called the _________ _________ _________

Margin of Safety

Differential Costs are used to set prices in governmental agency contracts never include fixed costs are the same for both long run and short run pricing may be approximated by full costs in the long run

May be approximated by full costs in the long run

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

Peak Load

Short Run

Period of time over which capacity will be unchanged, usually one year

Which of the following statements is true? Some factors in a make-or-buy decision are not easily quantified. A company that is vertically integrated relies on outside suppliers for many critical components in the value chain. A make-or-buy decision should be based on lowest cost alone. A make-or-buy decision is almost always a simple, one-time choice.

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

If a company is not operating at full capacity, accepting a(n) ___________ ___________ from a customer will not affect other sales and is usually a short-run occurrence.

Special Order

Cost Volume Profit Analysis

Study of the relations among revenues, costs, and volume and their effect on profit

Full Cost

Sum of all costs of manufacturing and selling a unit of product (includes both fixed and variable costs)

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 ______. peak-load price differential cost target cost target price

Target Price

Target Cost

Target Price - Desired Profit Margin

Margin of Safety

The excess of projected sales over the break-even sales level (Sales Volume -Break even sales volume = Margin of safety)

Margin of Safety Percentage

The excess of the projected or actual sales volume over the break-even volume expressed as a percentage of actual sales volume

Operating Leverage

The extent to which an organizations cost structure is made up of fixed costs

Product Life Cycle

Time from initial research and development to the time that support to the customer ends

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

Total

Break Even Points

Total Revenues = Total Costs

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

True

The slope of the profit-volume line represents ______. - profit - unit contribution margin - variable cost per unit - fixed cost per unit - revenue per unit

Unit Contribution Margin

A company that is labor intensive has a cost structure with a high proportion of ________ costs.

Variable

When a company is doing multi-product break-even analysis and assumes a constant product mix, the contribution margin is the __________-_________ contribution margin of all of its products.

Weighted Average

Using full costs for pricing decisions can be justified when a firm ______. accepts a one-time special order to supply a product that will not impact other sales enters into a long-term contractual relationship to supply a product enters into a contract with a governmental agency to supply a product

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

Special Order

Order that will not affect other sales and is usually a short-run occurrence

When considering the differential costs versus total costs approach, the ______. - differential format can be derived from the total format - differential format is always preferred for short run decision - total cost approach provides information regarding total resources required

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

Profit Volume Analysis

Analyze the relation between profit and volume directly

Constraint

Activities, resources, or policies that limit or bound the attainment of an objective

Price Fixing

Agreement among business competitors to set prices at a particular level

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

Bottleneck

An operation where the work required limits production is a(n) ______. bottleneck opportunity cost throughput marginal cost

Bottleneck

Excel's Goal Seek may be used to perform ______ analysis.

CVP

Contribution Margin Ratio

Contribution margin per unit / sales price per unit

An organization's ___________ ___________ is the proportion of fixed and variable costs to total costs.

Cost Structure

Sunk Costs

Cost incurred in the past that cannot be changed by present or future decisions

Make or Buy Decision

Decision concerning whether to make needed goods internally or purchase them from outside sources

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

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

Dumping

Dumping

Exporting a product to another country at a price below domestic price

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

False

A company that is intensive has a cost structure with a high proportion of ____________ costs

Fixed

On a CVP graph, the intercept of the total cost line is the _________ cost for the period.

Fixed

The intercept of the profit-volume line equals the loss at zero volume, which equals _________ __________

Fixed Costs

When considering a special order, ______. - full cost should be considered -other sales must always be considered -fixed costs may be irrelevant

Fixed costs may be irrelevant

Theory of Constraint

Focuses on revenue and cost management when faces with bottlenecks

When setting prices, most firms rely on ______. differential costs full cost information variable and fixed manufacturing costs only market conditions

Full cost information

CVP Analysis can be performed using excel's ________ ________

Goal Seek

Which of the following statements is true? Companies can only be charged with price fixing for domestic sales. Price fixing is illegal in almost all developing countries. OPEC is a prime example of an organization that uses price fixing. Informal or unspoken agreements to fix prices may be considered illegal. The idea behind price fixing is to set prices at a level lower than equilibrium prices in competitive markets.

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

Bottleneck

Operation where the work required limits production

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

Price Discrimination

Practice of selling identical goods to different customers at different prices

Predatory Pricing

Practice of setting price below cost with the intent to drive competitors out of business

Peak Load Pricing

Practice of setting prices highest when the quantity demanded for the product approaches capacity

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

Predatory Pricing

Selling identical goods or services to different customers at different prices is ______. price fixing price discrimination target pricing predatory pricing peak-load pricing

Price Discrimination

The agreement among business competitors to set prices at a particular level is ______. price discrimination price fixing peak-load pricing predatory pricing target pricing

Price Fixing

Target Price

Price based on customers' perceived value for the product and the price that competitors charge

Market segmentation is required with ______. price fixing predatory pricing peak-load pricing target pricing price discrimination

Price discrimination

Which of the following is NOT a short-run pricing decision? Pricing a main product in a large market Adjusting product mix and volume in a competitive environment A one-time special order

Pricing a main product in a large market

Which of the following is NOT a short-run pricing decision? - Adjusting product mix and volume in a competitive environment - A one-time special order - Pricing a main product in a large market

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. Product choices are generally thought of as long-run decisions. Determining what products or services to offer is a common managerial decision. The choice of which products and services to offer has little or no effect on costs.

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

Profit Equation

Profit = Total Revenues - Total Costs

Cost Structure

Proportion of fixed and variable costs to total costs

Unit Contribution Margin

Revenue per unit - Variable cost per unit

Total Contribution Margin

Revenues - Total Variable Costs

Throughput Contribution

Sales dollars -direct materials costs and variables such as energy and piecework labor

Assumptions that may be considered important limitations of CVP analysis include constant ______. - total fixed costs - selling price - unit variable costs

Selling Price Unit Variable Costs

Product choices are generally considered to be ______ decisions. short-run long-run

Short Run

Contribution margin Per Unit of Scarce Resource

contribution margin per unit of a particular input with limited availability

When a company engages in predatory pricing, the ultimate goal is to ______. cause competitors to raise their prices act like a monopolist achieve a targeted profit provide high quality products at low prices

act like a monopolist

Differential Analysis

process of estimating revenues and costs of alternative actions available to decision makers and of comparing these estimates to the status quo

On a CVP graph, ______.

profit = TR - TC TR = TC at breakeven