Learn Smart 12
The formula to calculate the target cost includes
-desired profit per unit -anticipated selling price
Which of the following should not be included in the analysis when making a decision
-non differential future costs -sunk costs
To calculate the optimal selling price using Microsoft Excel's solver requires
-percentage change in selling price -current unit sales -current selling price
The absorption costing approach to cost plus pricing
-relies on forecasted unit sales -assumes that customers will pay whatever price the company decides to charge
The formula used to calculate markup percentage on absorption cost includes:
-required ROI multiplied by investment -selling, general, and administrative expenses -unit product cost multiplied by unit sales
Irrelevant costs include
-sunk costs -future costs that do not differ between alternatives
Which of the following are ways to increase the capacity of a bottleneck?
- shifting workers from processes that are not bottlenecks to the process that is the bottleneck -investing in additional machines at the bottleneck
The target costing approach was developed because
- the market really determines prices - most of a products cost is determined in the design stage
The absorption costing approach to cost plus pricing
-assumes that customers will pay whatever price the company decides to charge -Relies on forecasted unit sales
A company must make a volume trade off decision when they
- do not have enough capacity to satisfy the demand for all of its products - must trade off units of one product for units of another due to limited production capacity
Given a reference value of $3500 and a differential value based will be greater than or equal to $_______ and less than or equal to $__________
3500 and 4700
Anything that prevents you from getting more of what you want is an
constraint
The machine or processes that is limiting overall output is called an
constraint
when a constraint exists, companies need to focus on maximizing
contribution margin per unit of constraint
When a company applies a predetermined markup to a cost base to determine the selling price, it is using
cost plus
When making a decision, only relevant items are included in the analysis of the alternatives when using
differential cost approach only
The price of a customer's best available alternative plus the value of what differentiates the product from that alternative is the products
economic value to the customer
One of the great dangers in allocating common __________ costs is that such allocations can make a product line look less profitable than it really is.
fixed
In general the less sensitive customers are to price the ______ the optimal selling price will be
higher
Companies that use _______ _________ pricing establish selling prices based on the economic worth of benefits their goods and services provide to customers
value based
Companies that use _________ _________ pricing establish selling prices based on the economic worth of benefits their goods and services provide to customers
value based
Activities ranging from developments to production to after sales service are called an
value chain
Being less dependent on suppliers and making profits on both parts and the final product are advantages of
vertical integration
When a company is involved in more than one activity in the entire value chain it is
vertically integrated
When is it profitable to continue processing a joint product after the split-off point?
when incremental revenue exceeds the incremental processing cost
When should a special order be accepted
when the incremental revenue from the special order exceeds the incremental costs of the order
When a manager increases the capacity of constraint or ______ it is called relaxing the constraint
bottleneck
Customers and competitors play important roles in determining a company's price
ceiling
Synonyms for differential costs include
incremental and avoidable
A company's price floor is determined by
incremental costs
Generally speaking, managers should set higher prices when demand is
inelastic
When deciding whether to drive your care or take a train to a destination , the costs for your care insurance and drivers license are
irrelevant costs
The costs incurred up to the split off point in a process in which two or more products are produced from a common input are known as
joint costs
Two or more products produced from a common input are called
joint products
If by dropping a product line, a company cannot avoid as much in fixed costs as it loses in contribution margin, the company should
keep the product line
A decision to carry out one of the activities in the value chain internally rather than to buy externally from a supplier is called an
make or buy decision
The potential benefit given up when selecting one alternative over another is an
opportunity cost
When considering decision alternatives, both relevant and irrelevant costs are included when using the
total cost
The process of determining the maximum allowable cost for a product and developing a profitable prototype is called
Target costing
The first step in decision making is to
define alternatives
The degree to which a change in price affects unit sales of a product or service is the
price elasticity of demand
Effectively managing an organization's constraints is a key to increased
profits
Space being used that would otherwise be idle has a(n) __________ cost of zero.
relevant
When making a decision only___________ costs and benefits should to be included in the analysis
relevant
Steps in the absorption costing approach are
- multiply unit product cost by 1+ markup percentage -determine markup percentage on absorption cost -calculate unit product costs
It is assumed under the _____________ ______________ approach that customers are required to buy a product at whatever price the seller deems appropriate
absorption costing
When planning a tripe and deciding whether to drive or fly the _______ is a sunk cost and should be ignored
original cost of the car
Product markup is generally expressed as an
percentage of cost
A cost that can be eliminated by choosing one alternative over another is an
relevant cost
Deciding what to do with a joint product at the split off point is an _________ or ____________ ______________ decision
sell or process further
A one time sale that is not considered part of the company's normal ongoing business is referred to as an ________ decision
special order
A cost that has already been made and cannot be recovered is called a
sunk cost
anticipated selling price - desired profit =
target cost
