1) Costs that do not differ between alternatives are ________.A) relevant to the decisionB) considered opportunity costsC) considered irrelevant to the decisionD) important only if they represent a material dollar amount
2) When replacing an old asset with a new one, the original purchase price of the old asset represents a(n) ________ cost.A) relevant B) differentialC) opportunityD) sunk
3) Which of following statements is true of short-term decision making?A) Fixed costs and variable costs must be analyzed separately.B) All costs behave in the same way.C) Unit manufacturing costs are variable costs.D) All costs involved in a decision are considered relevant.
4) The contribution margin approach helps managers in short-term decision making because it ________.A) treats fixed manufacturing overhead as product costB) reports only mixed costsC) reports costs and revenues at present valueD) isolates costs by behavior
Regarding relevant nonfinancial information, which of the following statements is incorrect?A) Nonfinancial, or qualitative, factors play a role in managers” decisions and, as a result, can be relevant.B) Relevant qualitative information has the same characteristics as relevant financial information.C) Managers must always consider the potential quantitative and qualitative effects of their decisions.D) Qualitative factors can be ignored because these factors are difficult to measure.
5) Differential analysis is a method that ________.A) evaluates both relevant and irrelevant informationB) considers all areas of the traditional income statementC) is not used for short-term decision makingD) looks at how operating income would differ under each decision alternative
6) Which of the following provides a key in analyzing short-term business decisions?A) focus on costs that do not change under two alternatives and on historic costsB) focus on qualitative data only and ignore future cash flowsC) focus on sunk costs and quantitative dataD) focus on relevant costs and use the contribution margin approach
7) Rica Company is a price-taker and uses a target-pricing approach. Refer to the following information:Production volume 600,000 units per yearMarket price $30 per unitDesired operating income 17% of total assetsTotal assets $13,900,000 What is the desired profit for the year?A) $102,000B) $18,000,000C) $4,100,000D) $2,363,000
PPOBLEM 8) Revolve Company is a price-taker and uses a target-pricing approach. Refer to the following information:Production volume 602,000 units per yearMarket price $32 per unitDesired operating income 15% of total assetsTotal assets $13,700,000 What is the target full product cost in total for the year? Assume all units produced are sold.A) $90,300B) $17,209,000C) $13,700,000D) $2,055,000
BExplanation: Revenue at market price (602,000 × 32) $19,264,000Less: Desired profit (13,700,000 × 15%) 2,055,000Target cost $17,209,000
PROBLEM 9) Peacock, Inc. sells 2,000 kayaks per year at a sales price of $460 per unit. It sells in a highly competitive market and uses target pricing. The company has calculated its target full product cost at $810,000 per year. Fixed costs are $340,000 per year and cannot be reduced. What is the target variable cost per unit assuming units sold are equal to units produced? A) $235B) $405C) $575D) $170
AExplanation: Target full product cost $810,000Less: Fixed costs 340,000Target variable costs $470,000Target variable cost per unit = $470,000 / 2,000 units = $235
11) If a company wants to be a price-taker, which of the following strategies should be taken?A) Enter a competitive market and focus on cost cutting.B) Produce a unique product.C) Exploit the value of a fashionable brand name.D) Differentiate the product clearly from the competitors.
12) Which of the following statements is true?A) Companies are price-takers when their products are unique.B) Companies are price-setters for a product when there is intense competition.C) Companies are price-takers for a product when the pricing approach emphasizes cost-plus pricing.D) Companies are price-takers when they have little or no control over the prices of their products or services.
14) Which of the following is a major consideration when analyzing a special pricing decision?A) The sales price must be high enough to cover any differential costs to fill the order.B) The company must have a good stock turnover ratio.C) The profit margin of the special sale must be higher than the regular sales.D) The sunk costs of the decision must not exceed the irrelevant costs.
15) Venlite, Inc. produces and sells cosmetic products. Currently, the company is operating at 70% of its capacity. The sales price of its product is $30 per unit, and it incurs a full cost of $25 to produce each unit. Its yearly fixed manufacturing overhead amounts to $20,000. The company has received a one-time order for supplying 5,000 units at $26 per unit. This order can be executed within the excess production capacity and will not involve any additional costs. To make this decision, the management of Venlite should use ________.A) absorption costing as the decision is long-term in natureB) variable costing as the decision is short-term in natureC) absorption costing as the decision is short-term in natureD) variable costing as the decision is long-term in nature
WORK PROBLEM Home Bakery Living can manufacture six toaster ovens per machine hour and four bread machines per machine hour. Home Bakery”s production capacity is 2,000 machine hours per month. What is the contribution margin per machine hour for toaster ovens? (Round machine hour per unit to two decimal places and your final answer to the nearest whole dollar.) A) $120B) $20C) $14D) $320
AExplanation: Sales price $80Variable costs 60Contribution margin $20Toaster ovens per hour 6Contribution margin per machine hour $120
22) Gnome Company is deciding whether to continue to manufacture a component or to buy the component from a supplier. Which of the following is relevant to this decision?A) the potential uses of the facilities that are currently used to manufacture the componentB) the insurance on the manufacturing facility that will continue regardless of the decisionC) fixed costs that do not differ between the alternativesD) the cost of the equipment that is currently being used to manufacture the component