Chapter 25 Bullen
In making short-term business decisions, what should you do? A. Use a traditional costing approach. B. Focus on total costs. C. Separate variable from fixed costs. D. Focus only on quantitative factors.
C. Separate variable from fixed costs.
Which of the following costs are irrelevant to business decisions? A. Avoidable costs B. Costs that differ between alternatives C. Sunk costs D. Variable costs
C. Sunk costs
When pricing a product or service, managers must consider which of the following? A. Only period costs B. Only manufacturing costs C. Only variable costs D. All costs
D. All costs
A product or segment should be dropped if it is expected to incur an operating loss for the upcoming period. True False
false
A traditional income statement rather than a contribution margin income statement should be used when considering accepting a special order from a customer. True False
false
If a manufacturer sells more than one product, it should emphasize producing the product with the highest contribution margin ratio. True False
false
If the price of special order is greater than the fixed cost per unit, then the special order should be accepted by management. True False
false
If the unit cost of outsourcing a product is less than the total cost to produce the product in-house, then companies should always outsource the product. True False
false
In order for information to be relevant in making short-term business decisions, the information must be financial information. True False
false
Manufacturers face several constraints when producing products, but constraints are not a factor for merchandisers when choosing their sales mix. True False
false
When companies are price-takers they should use a cost-plus pricing approach when setting the regular price for their product or service. True False
false
Which of the following costs would be considered as part of a product's full cost? (check all that apply) A. Indirect Labor Direct Materials Advertising Cost Direct Labor
A. Indirect Labor Your answer is correct.B. Direct Materials Your answer is correct.C. Advertising Cost Your answer is correct.D. Direct Labor
A joint cost (check all that apply) A. Is a cost of a production process that yields multiple products B. Is a sunk cost C. Applies to variable costs but not fixed costs D. Is irrelevant to deciding whether to sell a product as-is or process it further
A. Is a cost of a production process that yields multiple products B Is a sunk cost D. Is irrelevant to deciding whether to sell a product as-is or process it further
Which of the following is a basic question managers ask when setting regular prices for their products and services? A. Is our company a price-setter or a price-taker for a product or service B. Is our company a cost-leader or a cost-setter for a product or service? C. What is our company's accounts receivable turnover ratio? D. What is the company's target profit?
A. Is our company a price-setter or a price-taker for a product or service D. What is the company's target profit?
Differential analysis is a method that looks at how ________ would differ under each decision alternative. A. Operating income B. Net income C. Return on Investment (ROI) D. Total assets
A. Operating income
Which of the following is relevant to Kitchenware.com's decision to accept a special order at a lower sale price from a large customer in China? A. The cost of shipping the order to the customer B. The cost of Kitchenware.com's warehouses in the United States C. Founder Eric Crowley's salary D. Kitchenware.com's investment in its Web site
A. The cost of shipping the order to the customer
When deciding whether to sell as is or process a product further, managers should ignore which of the following? A. The costs of processing the product thus far B. The cost of processing further C. The revenue if the product is sold as is D. The revenue if the product is processed further
A. The costs of processing the product thus far
Which of the following would be considered relevant information when determining if a product should be discontinued? (check all that apply) A. The expected contribution margin of the product B. The allocation of shared fixed costs when total fixed costs will remain unchanged whether the product is kept or discontinued C. Direct fixed costs that can be avoided if the product is discontinued D. Unavoidable fixed costs
A. The expected contribution margin of the productC. Direct fixed costs that can be avoided if the product is discontinued
A. revenues that differ between alternatives. B. costs that do not differ between alternatives. C. only variable costs. D. sunk costs in their decisions.
A. revenues that differ between alternatives.
What rule should be followed when a manufacturer is deciding which product it should emphasize producing, assuming it makes more than one product? A. Emphasize the product with the lowest fixed costs B. Emphasize the product with the highest contribution margin per unit of the constraint C. Emphasize the product with the highest sales price D. Emphasize the product with the lowest variable costs per unit of the constraint
B. Emphasize the product with the highest contribution margin per unit of the constraint
Relevant information is _________ data that ______ among alternatives. A. Past; differ B. Expected future; differ C. Correct; is the same D. Past; is the same
B. Expected future; differ
A company should outsource a product if A. The fixed costs of making the product exceed the fixed costs of outsourcing B. The differential costs of making the product exceed the differential costs of outsourcing C. The differential costs of outsourcing the product exceed the differential costs of making the product D. None of the above
B. The differential costs of making the product exceed the differential costs of outsourcing
Which of the following costs would be considered irrelevant when deciding between three alternatives in purchasing a new office copier? A. The delivery charge for the new copier B. The original purchase price of the current copier the company owns C. The cost per page of printing with the new copier D. The purchase price of the new copier
B. The original purchase price of the current copier the company owns
When making outsourcing decisions, which of the following is true? A. Expected use of the freed capacity is irrelevant. B. The variable cost of producing the product in-house is relevant. C. The total manufacturing unit cost of making the product in-house is relevant. D. Avoidable fixed costs are irrelevant.
B. The variable cost of producing the product in-house is relevant.
In deciding whether to drop its sports car product line, Horngren Autos should consider? (check all that apply) A. If the decrease in total assets will exceed the decrease in total liabilities if the product line was dropped B. What it would do with the freed manufacturing capacity if the product line was dropped C. What fixed costs would still exist if it were to drop the product line Your answer is correct.D. If the sports car product line currently provides a positive contribution margin for the company
B. What it would do with the freed manufacturing capacity if the product line was dropped
In deciding which product lines to emphasize when a production constraint exists, the company should focus on the product line that has the highest A. contribution margin per unit of product. B. contribution margin per unit of the constraint. C. profit per unit of product. D. contribution margin ratio.
B. contribution margin per unit of the constraint.
A company should accept a special order when A. The expected increase in assets exceeds the expected increase in liabilities B. The expected increase in revenues exceeds the expected increase in product costs C. The expected increase in revenues exceeds the expected increase in variable and fixed costs D. The company is already running at full capacity
C. The expected increase in revenues exceeds the expected increase in variable and fixed costs
In deciding whether to drop its electronics product line, Smith Company should consider A. how dropping the electronics product line would affect sales of its other products. B. the costs it could save by dropping the product line. C. the revenues it would lose from dropping the product line. D. All of the above.
D. All of the above.
A product or segment should be dropped if the A. Cost of goods sold exceeds the current sales price B. Lost revenues are less than the avoidable fixed costs C. Fixed costs of the product or segment can be avoided D. Lost revenues are less than the total cost savings
D. Lost revenues are less than the total cost savings
Which of the following costs are irrelevant to business decisions? A. Overhead costs B. Avoidable costs C. Variable costs D. Sunk costs
D. Sunk costs
When deciding to sell a product as-is or process it further, managers should ignore which of the following? A. The revenue if the product is processed further B. The cost of producing further C. The revenue if the product is sold as-is D. The costs of processing the product thus far
D. The costs of processing the product thus far
When making outsourcing decisions, which of the following is true? A. Expected use of the freed capacity is irrelevant B. Avoidable fixed costs are irrelevant C. The total manufacturing unit cost of making the product in-house is relevant D. The variable cost of producing the product in-house is relevant
D. The variable cost of producing the product in-house is relevant
When companies are price-setters, their products and services A. are priced by managers using a target-pricing emphasis. B. tend to have a lot of competitors. C. tend to be commodities. D. tend to be unique.
D. tend to be unique.
Which of the following shows the steps in the proper order when managers analyze information to make business decisions? A. 1) Define business goals, 2) Gather and analyze relevant information, 3) Identify courses of action, 4) Choose the best alternative B. 1) Gather and analyze relevant information, 2) Define business goals, 3) Identify alternative courses of action, 4) Choose the best alternative C. 1) Identify alternative courses of action, 2) Define business goals, 3) Gather and analyze relevant information, 4) Choose the best alternative D. 1) Define business goals, 2) Identify alternative courses of action, 3) Gather and analyze relevant information, 4) Choose the best alternative
D. 1) Define business goals, 2) Identify alternative courses of action, 3) Gather and analyze relevant information, 4) Choose the best alternative
You are trying to decide whether to trade in your inkjet printer for a more recent model. Your usage pattern will remain unchanged, but the old and new printers use different ink cartridges. Indicate if the following items are relevant or irrelevant to your decision: a. The price of the new printer b. The price paid for the old printer c. The trade-in value of the old printer d. Paper cost e. The difference between ink cartridges' costs
a. The price of the new printer is relevant. b. The price paid for the old printer is irrelevant. c. The trade-in value of the old printer is relevant. d. Paper cost is irrelevant. e. The difference between ink cartridges' costs is relevant.
A contribution margin income statement for a product or service is used to help analyze setting a regular price for a product or service using the target pricing method. True False
true
In most cases, changing a product mix will not affect fixed costs in the short-term. True False
true
It would not be a good business decision to accept a special pricing order when a company is running at full capacity. True False
true
Managers should also include in their analysis the loss of the contribution margin from other products and departments affected by the possible discontinuing of a product. True False
true
Pricing decisions are often considered short-term business decisions due to the short product life cycles in many industries. True False
true
Special pricing occurs when a customer requests a one-time order at a reduced sales price. True False
true
Target pricing starts with the market price for a product or service, then subtracts the company's desired profit to determine the maximum allowed full product cost. True False
true
When accepting a special order from a customer, companies run the risk of losing long-term sales from existing customers. True False
true
When analyzing information to make short-term decisions, a contribution margin approach should be used rather than a traditional income statement approach. True False
true
If the company is a price-setter for a product or service, most often management should use the _______ method when setting the standard price for the product or service. A. Cost-Plus Pricing B. Target Cost Pricing C. Target Pricing D. Profit-Plus Pricing
Cost-Plus Pricing