Deck 8: Relevant Information and Decision Making: Marketing Decisions

Question 1

________ becomes a principal source of feedback.

A) Prediction method
B) Decision model
C) Implementation
D) Evaluation of performance

Answer 1

D

Question 2

Under the absorption approach to pricing, the decision-maker has no direct knowledge of cost-volume-profit relationships.

Answer 2

True

Question 3

The predicted future costs and revenues that will differ among alternative courses of action are referred to as

A) relevant information.
B) sunk costs and revenues.
C) historical information.
D) predictable information.

Answer 3

A

Question 4

Predatory pricing is the act of charging different prices to different customers for the same product or service.

Question 5

Unit costs are useful for predicting fixed costs, while total costs are useful for predicting variable costs.

Question 6

The predicted future costs and revenues that will differ as a result of alternative courses of actions are referred to as relevant information.

Question 7

Unavoidable costs will not continue if an ongoing operation is changed or deleted.

Question 8

A decision model is any method for making a choice, sometimes requiring elaborate qualitative procedures.

Question 9

In using the four popular markup formulas for pricing, the decision-maker will get four different target prices and will pick the best one for the product.

Question 10

A fixed cost element of an identical amount that is common among all alternatives is essentially irrelevant.

Question 11

The accountant's role in decision making involves collecting the relevant information and ultimately making the final choice.

Question 12

If small price increases cause large volume declines, demand is inelastic.

Question 13

In the short run, the minimum price to be quoted for a product should be equal to the costs that may be avoided by not landing the order.

Question 14

In decision making, the key question is:

A) What are the fixed costs of each alternative?
B) What are the past costs of each alternative?
C) What difference will the choice make?
D) What are the irrelevant costs?

Question 15

In analyzing costs to decide whether to accept a special order, total fixed costs should be investigated to see how much fixed manufacturing costs per unit will be changed by the special order.

Question 16

Marginal cost is the additional cost resulting from producing and selling one additional unit.

Question 17

The accountant's primary role in the decision-making process is to

A) make the decision.
B) collect relevant information.
C) report irrelevant information.
D) provide emotional support.

Question 18

Limiting factors include labour-hours and machine-hours that limit production and hence sales in manufacturing firms.

Question 19

________ is (are) defined as any method for making a choice.

A) A decision model
B) Irrelevant costs
C) Relevant costs
D) Prediction method

Question 20

The contribution margin approach helps managers in pricing decisions because the relationships among variable costs, fixed costs and selling price changes are easier to show and understand.

Question 21

Assuming there is excess capacity, what would be the effect of accepting a special order for 2,000 units at a price of $64.00 per phone?

A) Net income would decrease by $32,000.
B) Net income would increase by $640,000.
C) Net income would increase by $12,000.
D) Net income would increase by $36,000.

Question 22

Each quarter Comito, Inc. produces 120,000 units of a product that has variable costs of $56 per unit. Total fixed costs for the quarter are $90,000. A special order is received which is for 30,000 units at a price of $57 per unit. In deciding to accept or reject this special order, it is appropriate to consider the

A) old fixed cost per unit of $0.75.
B) difference between the offered price and the variable cost per unit, which is $1.00.
C) new fixed cost per unit of $0.60.
D) difference between the two fixed costs per unit, which is $0.15.

Question 23

The Finn Company provided the following information regarding its one and only product, phones:

The unit cost of a phone under the absorption approach is

A) $20.00.
B) $46.00.
C) $66.00.
D) $58.00.

Question 24

Van Horn, Inc. has been producing and selling 20,000 meters a year. The company has the capacity to produce 25,000 meters with its present facilities. The following information is also available:

Currently, the absorption approach cost of manufacturing one meter is

A) $160.
B) $224.
C) $174.
D) $252.

Question 25

In a special order decision, fixed costs that do NOT differ between two alternatives are

A) of major importance to the decision.
B) considered opportunity costs.
C) important only if they are a material dollar amount.
D) irrelevant.

Question 26

Which of the following statements regarding special order decisions is false?

A) A fixed-cost element of an identical amount that is common among all alternatives is essentially irrelevant.
B) Fixed cost per unit is equal to total fixed costs divided by a selected volume level.
C) The contribution approach offers more detailed information than does the absorption approach.
D) Fixed cost per unit is a necessary piece of information in the decision-making process.

Question 27

Ulmer Company has three product lines, X, Y, and Z. The following information is available:

Assuming product line Z is discontinued and the space formerly used to produce product Z is rented for $4,000 per year, operating income will

A) increase $2,200.
B) increase $3,000.
C) increase $4,000.
D) increase $4,800.

Question 28

________ is the process of putting a decision into action.

A) Prediction method
B) Decision model
C) Implementation
D) Evaluation of performance

Question 29

________ uses information as a basis for estimating future costs.

A) Prediction method
B) Decision model
C) Implementation
D) Evaluation of performance

Question 30

A cost that will NOT continue if an ongoing operation is changed or deleted is a(n)

A) avoidable cost.
B) common cost.
C) sunk cost.
D) differential cost.

Question 31

Van Horn, Inc. has been producing and selling 20,000 meters a year. The company has the capacity to produce 25,000 meters with its present facilities. The following information is also available:

Currently, the contribution approach cost of manufacturing one meter is

A) $174.
B) $160.
C) $224.
D) $252.

Question 32

The Chou Company provided the following information regarding its one and only product, rollers:

What is the current net income?

A) $200,000
B) $165,000
C) $35,000
D) $85,000

Question 33

The Finn Company provided the following information regarding its one and only product, phones:

The unit cost of a phone using the contribution approach is

A) $66.00.
B) $20.00.
C) $58.00.
D) $46.00.

Question 34

Each month Barrett Company produces 4,000 units of a product that has variable costs of $10 per unit. Total fixed costs for the month are $14,800. A special order is received which is for 625 units at a price of $12 per unit. Relevant to the decision of whether to accept or reject this special order is the

A) old fixed cost per unit of $3.70.
B) new fixed cost per unit of $3.20.
C) difference between the offered price and the variable cost per unit, which is $2.00.
D) difference between the two fixed costs per unit, which is $0.50.

Question 35

Ulmer Company has three product lines, X, Y, and Z. The following information is available:

Ulmer Company is thinking of dropping product line Z since it is losing money. Assuming Ulmer drops line Z and does NOT replace it, the operating income will

A) increase by $ 800.
B) increase by $1,000.
C) decrease by $1,000.
D) decrease by $1,800.

Question 36

Costs that continue even if an operation is halted are

A) common costs.
B) sunk costs.
C) unavoidable costs.
D) variable costs.

Question 37

Van Horn, Inc. has been producing and selling 20,000 meters a year. The company has the capacity to produce 25,000 meters with its present facilities. The following information is also available:

If a special order is accepted for 5,000 meters at a price of $250 per unit, net income would

A) increase by $200,000.
B) increase by $136,000.
C) decrease by $500,000.
D) decrease by $260,000.

Question 38

The Chou Company provided the following information regarding its one and only product, rollers:

Assuming there is excess capacity, what would be the effect of accepting a special order for 2,000 units at a price of $16.00 per roller?

A) Net income would decrease by $1,000.
B) Net income would increase by $9,000.
C) Net income would decrease by $8,000.
D) Net income would increase by $3,000.

Question 39

Each week Kline Company produces 800 units of a product that has variable costs of $8 per unit. Total fixed costs for the month are $6,800. A special order is received for 200 units of the same product at a price of $9 per unit. In deciding to accept or reject this special order, it is appropriate to consider the

A) difference between the offered price and the variable cost per unit, or $1.00.
B) old fixed cost per unit of $8.50.
C) new fixed cost per unit of $6.80.
D) difference between the two fixed costs per unit, which is $1.70.

Question 40

The Finn Company provided the following information regarding its one and only product, phones:

What is the current net income?

A) $800,000
B) $660,000
C) $140,000
D) $340,000

Question 41

Drummer produces two products, A and B. The following information is available for these two products:

If only 5,000 units of each product, A and B can be sold, it would be best to

A) discontinue A as it results in a net loss of $2.00 per unit, and continue producing B.
B) produce only 2,500 units of A and 5,000 units of B to maximize profits.
C) produce 5,000 units of both A and B.
D) discontinue the production of both A and B.

Question 42

In perfect competition, the profit-maximizing volume is the quantity at which

A) marginal cost equals marginal revenue.
B) marginal revenue exceeds marginal cost.
C) marginal revenue exceeds price.
D) price exceeds marginal cost.

Question 43

Beem Corporation manufactures two products, X and Y. The following information was gathered:

If Beem Corporation could produce and sell either 3,000 units of X or 2,000 units of Y at full capacity, it should produce and sell

A) 2,000 units of Y and none of X.
B) 1,000 units of Y and 1,500 units of X.
C) 3,000 units of X and none of Y.
D) either X or Y, there is no difference.

Question 44

A firm can sell as much of a product as it can produce at a single market price in

A) perfect competition.
B) imperfect competition.
C) price elasticity.
D) a marginal cost curve.

Question 45

Beem Corporation manufactures two products, X and Y. The following information was gathered:

Beem Corporation manufactures and sells three units of X for every two units of Y. If the company sold 1,500 units of X, it would report operating income (loss) of

A) $23,000.
B) $15,000.
C) $(35,000).
D) $(27,000).

Question 46

Beem Corporation manufactures two products, X and Y. The following information was gathered:

Assume Beem Corporation could produce and sell any mix of product X and Y at full capacity. If product X takes twice as long to manufacture as product Y and only 200,000 hours of plant capacity are available, it is best for Beem to produce

A) only X.
B) only Y.
C) either X or Y, there is no difference.
D) an equal number of X and Y.

Question 47

Eagan Company has three product lines, A, B and C. The following information is available:

Assuming Eagan Company can increase the selling price of product B to $21,000, all other information remaining constant, operating income will

A) decrease $ 2,000.
B) decrease $ 6,000.
C) increase $21,000.
D) increase $ 2,000.

Question 48

Eagan Company has three product lines, A, B and C. The following information is available:

Assume that product line B is discontinued and replaced with product line C. This will triple the production and sales of product line C without increasing fixed costs. Operating income will

A) increase $2,000.
B) increase $6,000.
C) decrease $2,000.
D) not change.

Question 49

Which of the following is NOT a pricing decision?

A) Setting the price of a new product.
B) Responding to a special order price
C) Responding to a new price of a competitor
D) Setting the price of products sold under private labels

Question 50

Drummer produces two products, A and B. The following information is available for these two products:

If a maximum of 10,000 units of A and/or B can be sold, it is best to

A) produce B only.
B) produce A only.
C) produce 2,500 units of A and 7,500 units of B.
D) produce 5,000 units of A and 5,000 units of B.

Question 51

The effect of price changes on sales volume is

A) marginal revenue.
B) price elasticity.
C) maximization of profits.
D) imperfect competition.

Question 52

The additional cost resulting from producing and selling one additional unit is called the

A) marginal cost.
B) common cost.
C) opportunity cost.
D) markup.

Question 53

Ulmer Company has three product lines, X, Y, and Z. The following information is available:

Assuming Ulmer Company can increase the selling price of product Z to $10,000, all other information remaining constant, operating income will

A) increase $1,200.
B) decrease $1,200.
C) decrease $2,000.
D) increase $2,000.

Question 54

________ is the additional cost resulting from producing and selling one additional unit.

A) Perfect competition
B) Unit cost
C) Marginal cost
D) Product cost

Question 55

The average number of times the inventory is sold per year is the

A) inventory shortage.
B) cost of goods sold.
C) cost of goods available for sale.
D) inventory turnover.

Question 56

A firm price will influence the quantity it sells in

A) perfect competition.
B) imperfect competition.
C) price elasticity.
D) a marginal cost curve.

Question 57

Eagan Company has three product lines, A, B and C. The following information is available:

Assuming product line B is discontinued and the space formerly used to produce product B is rented for $5,000 per year, operating income will

A) increase $5,000.
B) increase $7,000.
C) increase $1,000.
D) decrease $1,000.

Question 58

Ulmer Company has three product lines, X, Y, and Z. The following information is available:

Assume that product line Z is discontinued and replaced with product line Y. This will double the production and sales of product line Y without increasing fixed costs. Operating income will

A) increase $4,200.
B) increase $13,000.
C) increase $14,000.
D) decrease $1,000.

Question 59

Eagan Company has three product lines, A, B and C. The following information is available:

Eagan is thinking of dropping product line B since it is losing money. Assuming Eagan drops line B and does NOT replace it, the operating income will

A) increase $ 2,000.
B) decrease $ 4,000.
C) decrease $10,500.
D) not change.

Question 60

The item that restricts or constrains the production or sale of a product or service is the

A) limiting factor.
B) selling price.
C) unlimited resource.
D) contribution approach.

Question 61

Van Horn, Inc. has been producing and selling 20,000 meters a year. The company has the capacity to produce 25,000 meters with its present facilities. The following information is also available:

The product strategy in which companies first determine the price at which they can sell a new product and then design a product that can be produced at a low enough cost to provide an adequate profit margin is referred to as

A) full costing.
B) target costing.
C) predatory pricing.
D) discriminatory pricing.

Question 62

The contribution approach to pricing involves all of the following EXCEPT

A) it assumes a given volume level.
B) it displays variable and fixed cost behaviour.
C) it emphasizes cost-volume-profit relationships.
D) it makes it easier for managers to prepare price schedules at different volume levels.

Question 63

Hartwig Company prepared the following budget for 20X4 for its product:
Hartwig has a target profit of $105,000 for 20X4.
The average target profit percentage for setting prices as a percentage of total manufacturing costs would be

A) 293 percent.
B) 198 percent.
C) 119 percent.
D) 62 percent.

Question 64

Hartwig Company prepared the following budget for 20X4 for its product:
Hartwig has a target profit of $105,000 for 20X4.
The average target profit percentage for setting prices as a percentage of variable manufacturing costs would be

A) 72 percent.
B) 31 percent.
C) 220 percent.
D) 344 percent.

Question 65

The amount by which price exceeds cost is the

A) marginal cost.
B) marginal revenue.
C) full cost.
D) markup.

Question 66

Baker Company budgeted the following costs for the production of its one and only product, blades, for the next fiscal year:
Baker has a target profit of $150,000.
The average target profit percentage for setting prices as a percentage of total costs would be

A) 328 percent.
B) 36 percent.
C) 228 percent.
D) 18 percent.

Question 67

Baker Company budgeted the following costs for the production of its one and only product, blades, for the next fiscal year:
Baker has a target profit of $150,000.
The average target profit percentage for setting prices as a percentage of variable manufacturing costs would be

A) 328 percent.
B) 87 percent.
C) 228 percent.
D) 65 percent.

Question 68

Baker Company budgeted the following costs for the production of its one and only product, blades, for the next fiscal year:
Baker has a target profit of $150,000.
The average target profit percentage for setting prices as a percentage of total manufacturing costs would be

A) 245 percent.
B) 185 percent.
C) 125 percent.
D) 51 percent.

Question 69

The Chou Company provided the following information regarding its one and only product, rollers:

The unit cost of a roller using the contribution approach is

A) $16.50.
B) $5.00.
C) $14.50.
D) $11.50.

Question 70

Hartwig Company prepared the following budget for 20X4 for its product:
Hartwig has a target profit of $105,000 for 20X4.
The average target profit percentage for setting prices as a percentage of total variable costs would be

A) 72 percent.
B) 128 percent.
C) 236 percent.
D) 344 percent.

Question 71

Hartwig Company prepared the following budget for 20X4 for its product:
Hartwig has a target profit of $105,000 for 20X4.
The average target profit percentage for setting prices as a percentage of total costs would be

A) 72 percent.
B) 32 percent.
C) 236 percent.
D) 344 percent.

Question 72

Baker Company budgeted the following costs for the production of its one and only product, blades, for the next fiscal year:
Baker has a target profit of $150,000.
The average target profit percentage for setting prices as a percentage of prime costs would be

A) 54 percent.
B) 87 percent.
C) 169 percent.
D) 122 percent.

Question 73

Van Horn, Inc. has been producing and selling 20,000 meters a year. The company has the capacity to produce 25,000 meters with its present facilities. The following information is also available:

Predatory pricing is establishing prices so low that competitors are driven out of the market so that the surviving company then has no significant competition and can

A) sell as much as it produces.
B) lower prices to stimulate the economy.
C) raise prices dramatically.
D) discriminate against certain customers.

Question 74

Van Horn, Inc. has been producing and selling 20,000 meters a year. The company has the capacity to produce 25,000 meters with its present facilities. The following information is also available:

The least that Van Horn would be willing to sell a meter for in the short run would be

A) $160.00.
B) $300.00.
C) $48.00.
D) $66.40.

Question 75

Baker Company budgeted the following costs for the production of its one and only product, blades, for the next fiscal year:
Baker has a target profit of $150,000.
The average target profit percentage for setting prices as a percentage of total variable costs would be

A) 328 percent.
B) 36 percent.
C) 228 percent.
D) 65 percent.

Question 76

The Chou Company provided the following information regarding its one and only product, rollers:

The unit cost of a roller under the absorption approach is

A) $5.00.
B) $11.50.
C) $16.50.
D) $14.50.

Question 77

All of the following represent a popular markup formula for pricing EXCEPT

A) as a percentage of fixed costs.
B) as a percentage of variable manufacturing costs.
C) as a percentage of full costs.
D) as a percentage of absorption costs.

Question 78

Hartwig Company prepared the following budget for 20X4 for its product:
Hartwig has a target profit of $105,000 for 20X4.
The average target profit percentage for setting prices as a percentage of prime costs would be

A) 254 percent.
B) 368 percent.
C) 84 percent.
D) 39 percent.

Question 79

The total of all manufacturing costs plus the total of all selling and administrative costs is equal to

A) marginal cost.
B) target cost.
C) full cost.
D) contribution cost.

Question 80

Charging different prices to different customers for the same product or service is known as

A) predatory pricing.
B) target costing.
C) full costing.
D) discriminatory pricing.