Chapter 4 - Cost Accounting
Equation for a Throughput Contribution:
= Sales Dollars - Direct Materials and other Variable Costs such as Energy and Piecework Labor
A _______ is a Constraining Resource in which the Work to be Performed Limits Production
Bottleneck
When a Company is Unable to Produce as Much as Demanded due to Limited Resources they are Facing a:
Constraint
Larson, Inc. makes 2 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
Comparing Alternative Actions with the Status Quo in Order to Make Decisions is the Focus of:
Differential Analysis
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: Companies can only be Charged with Price Fixing for Domestic Sales
FALSE
True or False: Comparing Alternative Actions with the Status Quo in Order to Make Decisions is the Focus of Cost Volume Analysis
FALSE
True or False: Comparing Alternative Actions with the Status Quo in Order to Make Decisions is the Focus of Long-Run Pricing
FALSE
True or False: Comparing Alternative Actions with the Status Quo in Order to Make Decisions is the Focus of Peak-Run Pricing
FALSE
True or False: Differential Costs are NOT Impacted by the Time Period Being Analyzed
FALSE
True or False: Fixed Costs are ALWAYS Differential
FALSE
True or False: Full Cost Includes all FIXED and VARIABLE Costs of Manufacturing, but NO Selling a unit of Product
FALSE
True or False: Full Cost Includes all VARIABLE Costs of Manufacturing and Selling a unit of Product
FALSE
True or False: If Opportunity Costs are Difficult to Estimate, they Should be Ignored when Preparing an Analysis
FALSE
True or False: In Order to use Goal Seek for a Make-or-Buy Analysis, the Total Cost to Buy must be Less than the Total Cost to Make
FALSE
True or False: In Order to use Goal Seek for a Make-or-Buy Analysis, the buy Price must be Less than Total Variable Costs per Unit
FALSE
True or False: Opportunity Costs are Typically Reported with Other Accounting Cost Data
FALSE
True or False: Opportunity Costs are Typically Reported with other Accounting Cost Data
FALSE
True or False: Price Discrimination Occurs when Competitors Agree to Set Prices at a Particular Level
FALSE
True or False: Price Discrimination Occurs when a Company Exports Goods at a Lower Price than the Domestic Price
FALSE
True or False: Price Discrimination is Always Illegal if it is done to Segment Customers into a Group
FALSE
True or False: Price Fixing is Illegal in Almost all Developing Countries
FALSE
True or False: Price is a Static Optimization of Profits during Period of Low Demand
FALSE
True or False: The Cost-Plus Approach Ignores all Costs that are NOT Involved in Manufacturing Products
FALSE
True or False: The Cost-Plus Approach is Another Term for Special Order Pricing
FALSE
True or False: The Cost-Plus Approach is only Appropriate for Regulated Industries
FALSE
True or False: The Differential Approach to Pricing Works Well for Pricing Regular Products
FALSE
True or False: The Full-Cost Fallacy Occurs when Decision Makers Exclude Fixed Manufacturing Costs in Special Order Pricing Decisions
FALSE
True or False: The Full-Cost Fallacy Occurs when Decision Makers Include Selling and Administrative Costs in Pricing Decisions
FALSE
True or False: The Full-Cost Fallacy Occurs when Decision Makers think that Variable Costs are Fixed
FALSE
True or False: The Idea behind Price Fixing is to Set Prices at a Level Lower than Equilibrium Prices in Competitive Markets
FALSE
True or False: The Objective of the Theory of Constraints is to Maximize Net Operating Income
FALSE
True or False: Variable Costs are NEVER Differential in the Short-Run
FALSE
True or False: When Considering a Special Order Full Cost SHOULD be Considered
FALSE
True or False: When Considering a Special Order other Sales MUST be Considered
FALSE
True or False: When Considering the Differential Costs vs. Total Costs Approach, the Differential Format is Always Preferred for Short Run Decision
FALSE
True or False: if Opportunity Costs are Difficult to Estimate, they should be Ignored when Preparing an Analysis
FALSE
Cradle to Grace Costing is also Called:
Life-Cycle Costing
Setting Prices Highest when the Quantity Demanded for the Product Approaches the Physical Capacity to Produce it is:
Peak-Load Pricing
The Intent of _______ is to Drive Competitors out of the Market by Setting Low Prices
Predatory Pricing
When Airlines sell Tickets to Customers who stay over Saturday night for Less than Tickets to Customers who fly on Saturday, they are engaging in
Price Discrimination
The _______ Covers the Time from Initial Research and Development to the Time when Customer Support is Withdrawn
Product Life Cycle
Determine if a Special Order for 500 Units @ $10 each should be accepted given the following: Sales (10,000 units @ $14 each) = $140,000 Variable Costs (10,000 units @ $8 each) = $80,000 Total Contribution Margin = $60,000 Allocated Fixed Costs = $20,000 Operating Profit = $40,000
Selling Price - Variable Cost = Contribution Margin $10 - $8 = $2 $2 * 500 units = $1,000 The Order Should be ACCEPTED bc the Profit will be $2 per unit ($1,000 total)
The Period of Time Over Which Capacity will be Unchanged (Normally 1 Year) is known as the:
Short-Run
If a Company is NOT Operating at Full Capacity, Accepting a ______ from a Customer will NOT Affect Other Sales and is Usually a Short-Run Occurrence
Special Order
True or False: Comparing Alternative Actions with the Status Quo in Order to Make Decisions is the Focus of Differential Analysis
TRUE
True or False: Cost Minimization is an Important Aspect of the Theory of Constraints
TRUE
True or False: Determining Opportunity Costs Involves Subjectivity
TRUE
True or False: Differential Costs Change in Response to Alternative Courses of Action
TRUE
True or False: Fixed Costs are Generally Irrelevant in Short-Term Pricing Decisions
TRUE
True or False: Following the Differential Approach in the Short-Run may lead to Underpricing in the Long-Run
TRUE
True or False: Full Cost Includes all FIXED and VARIABLE Costs of Manufacturing and Selling a unit of Product
TRUE
True or False: In Order to use Goal Seek for a Make-or-Buy Analysis, Costs must be Separated into Fixed and Variable Components
TRUE
True or False: Informal or Unspoken Agreements to Fix Prices may be Considered Illegal
TRUE
True or False: Price Discrimination Enables Companies to Sell Products to Customers who may NOT Otherwise Purchase them
TRUE
True or False: Some Opportunity Costs are NOT Readily Quantified
TRUE
True or False: Sunk Costs are NEVER Differential
TRUE
True or False: The Cost-Plus Approach Adds Mark-up to Full Cost to Determine Target Prices
TRUE
True or False: The Differential Approach Indicates the Minimum Acceptable Price for a Product
TRUE
True or False: The Full-Cost Fallacy Occurs when Decision Makers Think that Fixed Costs are Variable
TRUE
True or False: The Theory of Constraints Assumes few Variable Costs
TRUE
True or False: The Theory of Constraints Focuses on Bottlenecks
TRUE
True or False: When Considering a Special Order Fixed Costs May be Irrelevant
TRUE
True or False: When Considering a Special Order Fixed Costs are only Relevant if they Change
TRUE
True or False: When Considering a Special Order Only Costs that Change Should be Considered
TRUE
True or False: When Considering the Differential Costs vs. Total Costs Approach, the Differential Format can be Derived from the Total Format
TRUE
True or False: When Considering the Differential Costs vs. Total Costs Approach, the Total Cost Approach Provides Information Regarding Total Resources Required
TRUE
Using Price-Based Costing instead of Cost-Based Pricing is the Concept of:
Target Costing
The Theory of Constraints Focuses on what 3 Factors:
The Rate of Throughput Contribution Minimizing Investments Minimizing other Operating Costs
Sales Dollars Minus Direct Materials and other Variable Costs such as Energy and Piecework Labor equals:
Throughput Contribution
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 Make-or-Buy Decision