Chapter 8- True/False
A special order occurs when a customer requests a one-time order at an increased sales price.
False
A sunk cost is a past cost that can be changed regardless of which future action is taken.
False
All other things being equal, if the incremental costs of outsourcing a product exceed the incremental costs of making a product, it should be outsourced.
False
An opportunity cost is a past cost
False
Companies operating in highly competitive industries are generally price-setters.
False
Costs that differ between alternatives are irrelevant.
False
Fixed costs that will continue to exist if a product is discontinued are relevant.
False
For a product, revenue at market price plus desired operating profit equals target total cost.
False
If a product has a negative contribution margin, it should not be discontinued
False
If the cost savings from discontinuing a product exceed the lost revenues from discontinuing the product, it should be retained.
False
In deciding whether to accept a special sales order, any fixed costs that would remain unchanged are considered relevant data.
False
In most circumstances, all fixed costs can be eliminated by outsourcing a product
False
Managers' decisions are based solely on quantitative factors.
False
Outsourcing decisions are best made by comparing the total manufacturing costs, both fixed and variable, allocated to the product versus the total unit cost charged by the outsourcing company.
False
Relevant information is expected future data that will not differ among alternatives.
False
Relevant information is future data that do not differ among alternatives.
False
Special orders increase income if the revenue from the order does not exceed the incremental variable and fixed costs incurred to fill the order.
False
Sunk costs should be considered when deciding whether to sell a product as is or process it further.
False
To maximize profits, produce the product with the lowest contribution margin per unit of the constraint.
False
Variable costs are irrelevant to a special decision when those variable costs differ between alternatives.
False
When a company is a price-setter, it emphasizes a target costing approach to pricing.
False
When deciding whether to discontinue a product, managers should only consider the costs that will be saved.
False
When making a pricing decision, it is not necessary to separate costs into fixed and variable.
False
When making product mix decisions, companies are most profitable when they maximize production of the product with the greatest sales demand (and sales price)
False
When setting prices, a company need not consider whether it is a price-taker or a price-setter for each product that it sells.
False
When deciding whether to accept a special order, managers need to consider whether they have available excess capacity.
True
When making outsourcing (make-or-buy) decisions, the focus is on how best to use available resources
True
When setting prices, managers need to consider all costs.
True
When using a target costing approach, the company starts with revenue at market price, and then subtracts its desired profit, to yield the target total cost.
True
A constraint is a factor that restricts production or sale of a product
True
A decision must be made at the point in a process where a product can either be sold as is or processed further.
True
A price-setter company emphasizes a cost-plus approach to pricing.
True
An example of an expansion constraint would be the size of the available labor pool.
True
Companies often consider outsourcing so they can focus on their core competencies
True
Companies often try to gain more control over pricing by attempting to differentiate their products
True
Cost-plus price minus desired profit equals total cost.
True
Cost-plus pricing is essentially the opposite of target-costing.
True
Fixed costs affect product mix considerations
True
Fixed costs that exist even after a product is discontinued are called unavoidable fixed costs.
True
For some merchandisers, the primary constraint may be cubic feet of display space.
True
From a purely financial standpoint, if a product line has a negative contribution margin, the product line should be discontinued.
True
If a product line has a negative contribution margin, the product is not covering its fixed costs and should be discontinued.
True
If the expected increase in revenues from a special order is greater than the expected increase in variable and fixed costs, then the special order should be accepted.
True
Irrelevant costs are costs that do not affect short-term decisions
True
Make or buy decisions are often referred to as outsourcing decisions.
True
Management accountants gather and analyze relevant information to compare alternatives.
True
Managers need to consider variable costs, fixed costs, inventoriable product costs and period costs when setting prices.
True
Managers should consider the potential effect of a special order on long-run profits and operations.
True
One cost that is irrelevant in decision making is a sunk cost.
True
One key to analyzing short-term business decisions is to focus on relevant revenues, costs and profits.
True
One key to analyzing short-term business decisions is to use a contribution margin approach that separates variable costs from fixed costs.
True
Opportunity costs should be factored into outsourcing decisions
True
Product differentiation allows companies to become more of a price-setter, and less of a price-taker.
True
Qualitative factors play an important part in make or buy decisions.
True
The maximum outsourcing price a company is willing to pay can be found by solving for the company's indifference point.
True