Deck 16: Revenue and Customer Profitability Analysis

Question 1

When allocating the revenues between a bundled product offering,there are only two methods which can be used: 1)the stand-alone revenue-method and 2)the incremental revenue-allocation method.

Answer 1

False

Question 2

The stand-alone method may use selling price or unit costs to allocate revenues.

Answer 2

True

Question 3

Revenue allocation is required to determine the profitability of individual items within a bundled product.

Answer 3

True

Question 4

The first-ranked product is termed the incremental product in the incremental revenue-allocation method.

Question 5

________ is a package of two or more products or services,sold for a single price,where the individual components of the package may also be sold as separate items,each with their own stand-alone price.

A)A revenue product
B)A byproduct
C)A bundled product
D)A joint product
E)A product package

Question 6

________ uses product specific information pertaining to products in the bundle to determine the weights used to allocate the bundled revenues to those individual products.

A)The stand-alone revenue allocation method
B)The averaging approach
C)The incremental revenue allocation method
D)The joint production costing method
E)The weighted-averaging approach

Question 7

The stand-alone revenue allocation method pertains to products that cannot be bundled together.

Question 8

________ occurs where revenues,related but not traceable to individual products (service,customer,and so on),are assigned to those individual products.

A)Revenue tracing
B)Revenue allocation
C)A bundled product
D)Joint product costing
E)Revenue shedding

Question 9

The stand-alone revenue allocation method is a weighted-average method.

Question 10

________ ranks the individual products in a bundle and then uses this ranking to allocate the bundled revenues to these individual products.

A)The stand-alone revenue allocation method
B)The averaging approach
C)The incremental revenue allocation method
D)The joint production costing method
E)The weighted averaging approach

Question 11

Revenue allocation occurs where revenues can be identified with an individual product (service,customer,and so on)in an economically feasible (cost-effective)way.

Question 12

Under the incremental revenue allocation method,there is an incentive to be the first-ranked user.

Question 13

Which of the following statements is TRUE?

A)The two main classes of revenue allocation methods are the step-up method and the incremental method.
B)The stand-alone revenue allocation method ranks the individual products in a bundle and then uses this ranking to allocate the bundled revenues to these individual products.
C)A bundled product is a package of two or more products or services,sold for multiple prices.
D)The issues discussed with revenue tracing and sales returns apply to cost tracing.
E)The two main classes of revenue allocation methods are the stand-alone method and the incremental method.

Question 14

Which of the following statements is TRUE?

A)Joint product allocation results in more accurate assignment of revenues to products than does revenue allocation.
B)Revenue allocation results in more accurate assignment of revenues to products than does revenue tracing.
C)Revenue tracing results in more accurate assignment of revenues to products than does revenue allocation.
D)Revenue allocation results in more accurate assignment of revenues to products than does joint product allocation.
E)Joint product allocation results in more accurate assignment of revenues to products than does revenue tracing.

Question 15

A bundled product is a package of two or more products or services,sold for a single price,where the individual components of the bundle may also be sold as separate items,each with their own stand-alone prices.

Question 16

An example of a bundled product is when a resort hotel charges a single price for lodging,food,and recreational activities.

Question 17

The ranking of products with regard to the incremental revenue allocation method can only be done by top management.

Question 18

It is most appropriate to base revenue allocation on the number of physical units when individual products in the bundle are of unequal value.

Question 19

The incremental revenue-allocation method uses product specific information pertaining to products in the bundle to determine the weights used to allocate the bundled revenues to those individual products.

Question 20

Revenue tracing results in a more accurate assignment of revenues to products,than does revenue allocation.

Question 21

Use the information below to answer the following question(s).
John's Video Game Outlet encounters revenue-allocation decisions with its bundled product sales.Here,two or more of the video games are sold as a single package.Managers at John's are keenly interested in individual product-profitability figures.Information pertaining to its three bundled products and the stand-alone prices of its individual products is as follows:
The unit manufacturing costs are $3.60,$4.00,and $5.00 for games A,B,and C,respectively.
Calculate the allocation of packaged price for Game A in Package 1,using unit costs as the base.

A)$12.57
B)$13.97
C)$20.84
D)$22.00
E)$23.16

Question 22

Answer the following question(s)using the information below:
The Appliance Store sells a refrigerator and a freezer as a single package for $1,000.Other data are in the chart below.

Using the stand-alone method with physical units as the weight for revenue allocation,what amount will be allocated to the refrigerator?

A)$500.00
B)$20.00
C)$775.00
D)$825.00
E)$687.50

Question 23

Answer the following question(s)using the information below:
Elmo's Educational Software Outlet sells two or more of the video games as a single package.Managers are keenly interested in individual product profitability figures.Information pertaining to three bundled products and the stand-alone prices is as follows:
Assume Reading Fun is the primary product,followed by Math Fun,and then Analysis.
Using the incremental method for revenue allocation,what amount of revenue will be allocated to Reading Fun in the first package (Reading Fun & Math Fun)?

A)$40
B)$44
C)$38
D)$50
E)$28

Question 24

Answer the following question(s)using the information below:
The Appliance Store sells a refrigerator and a freezer as a single package for $1,000.Other data are in the chart below.

Using the stand-alone method with selling price as the weight for revenue allocation,what amount will be allocated to the refrigerator?

A)$500.00
B)$825.00
C)$687.50
D)$625.00
E)$375.00

Question 25

Use the information below to answer the following question(s).
John's Video Game Outlet encounters revenue-allocation decisions with its bundled product sales.Here,two or more of the video games are sold as a single package.Managers at John's are keenly interested in individual product-profitability figures.Information pertaining to its three bundled products and the stand-alone prices of its individual products is as follows:
The unit manufacturing costs are $3.60,$4.00,and $5.00 for games A,B,and C,respectively.
To give more weight to the product that most likely drives the sales of the bundled product,the revenue allocation should be weighted using

A)selling prices.
B)unit costs.
C)physical units.
D)stand-alone product revenues.
E)total product costs.

Question 26

Use the information below to answer the following question(s).
John's Video Game Outlet encounters revenue-allocation decisions with its bundled product sales.Here,two or more of the video games are sold as a single package.Managers at John's are keenly interested in individual product-profitability figures.Information pertaining to its three bundled products and the stand-alone prices of its individual products is as follows:
The unit manufacturing costs are $3.60,$4.00,and $5.00 for games A,B,and C,respectively.
Calculate the allocation of packaged price Game A in Package 3,using selling prices as the base.

A)$34.20
B)$30.00
C)$25.00
D)$22.80
E)$19.00

Question 27

Software For You encounters revenue allocation decisions with its bundled product sales.Two or more units of the software are sold as a single package.Managers at Software For You are keenly interested in individual product profitability figures.Information pertaining to its three bundled products and the stand-alone selling prices of its individual products is as follows:

Required:
a.Using the stand-alone revenue allocation method,allocate the $380 packaged price of "All Three" to the three software products
1.with selling prices as the weights.
2.based on physical units.
b.Allocate the $380 packaged price of "All Three" to the three software products using the incremental revenue allocation method.Assume Word Processing is the primary product,followed by Spreadsheet,and then Accounting Software.

Question 28

Answer the following question(s)using the information below:
Elmo's Educational Software Outlet sells two or more of the video games as a single package.Managers are keenly interested in individual product profitability figures.Information pertaining to three bundled products and the stand-alone prices is as follows:
Assume Reading Fun is the primary product,followed by Math Fun,and then Analysis.
Using the incremental method,what amount of revenue will be allocated to Math Fun in the package that contains all three products?

A)$48.25
B)$60.00
C)$45.60
D)$50.67
E)$90.00

Question 29

Manny's DVD Store encounters revenue allocation decisions with its bundled product sales.Here,two or more of the DVDs are sold as a single package.Managers at Max's are keenly interested in individual product profitability figures.Information pertaining to its three bundled products and the stand-alone selling prices of its individual products is as follows:

Required:
a.With cost as the weights,allocate the $17 packaged price of "New & Classics" using the stand-alone revenue allocation method.
b.Allocate the $17 packaged price of "New & Classics" using the incremental revenue allocation method.Assume New Releases is the primary product,followed by Older Releases,and then Classics.

Question 30

Answer the following questions using the information below:
Buzz's Educational Software Outlet sells two or more of the video games as a single package.Managers are keenly interested in individual product-profitability figures.Information pertaining to three bundled products and the stand-alone prices is as follows:

Using the stand-alone method with selling price as the weight for revenue allocation,what amount of revenue will be allocated to Reading Fun in the first package (Reading Fun & Math Fun)?

A)$20
B)$22
C)$19
D)$25

Question 31

Max's DVD Store encounters revenue allocation decisions with its bundled product sales.Here,two or more of the DVDs are sold as a single package.Managers at Max's are keenly interested in individual product profitability figures.Information pertaining to its three bundled products and the stand-alone selling prices of its individual products is as follows:

Required:
a.With selling prices as the weights,allocate the $25 packaged price of "All Three" to the three videos using the stand-alone revenue allocation method.
b.Allocate the $25 packaged price of "All Three" to the three types of videos using the incremental revenue allocation method.Assume New Releases is the primary product,followed by Older Releases,and then Classics.

Question 32

Roper's Cablevision encounters revenue allocation decisions with its bundled product sales.Two or more of its services are sold as a single package.Managers at Roper's are keenly interested in individual product profitability figures.Information pertaining to its three bundled products and the stand-alone prices of its individual products is as follows:

The unit variable costs are estimated at $4.00,$3.00,and $2.50 for Sports,Lifestyle,and TV Classics,respectively.Basic Sports is considered to be the primary product,Lifestyle the first incremental,and TV Classics the second incremental .
Required:
a.Allocate the bundled revenue to each product in the 'Sports & Classics' bundle,using selling prices as the base.
b.What is the allocated revenue to the Sports in each bundle,using the incremental revenue allocation method?

Question 33

Give examples of bundled products for each of the following industries:
a.Resort hotel
b.Bank
c.Restaurant
d.Computer store
e.Gasoline service station/convenience store
f.Software manufacturer

Question 34

Answer the following question(s)using the information below:
Elmo's Educational Software Outlet sells two or more of the video games as a single package.Managers are keenly interested in individual product profitability figures.Information pertaining to three bundled products and the stand-alone prices is as follows:
Assume Reading Fun is the primary product,followed by Math Fun,and then Analysis.
Using the stand-alone method with selling price as the weight for revenue allocation,what amount of revenue will be allocated to Math Fun in the package that contains all three products?

A)$48.25
B)$60.00
C)$45.60
D)$50.67
E)$33.60

Question 35

Answer the following question(s)using the information below:
The Appliance Store sells a refrigerator and a freezer as a single package for $1,000.Other data are in the chart below.

Using the stand-alone method with stand-alone product revenues as the weight for revenue allocation,what amount will be allocated to the refrigerator?

A)$687.50
B)$612.50
C)$625.00
D)$825.00
E)$505.31

Question 36

Answer the following question(s)using the information below:
Elmo's Educational Software Outlet sells two or more of the video games as a single package.Managers are keenly interested in individual product profitability figures.Information pertaining to three bundled products and the stand-alone prices is as follows:
Assume Reading Fun is the primary product,followed by Math Fun,and then Analysis.
Using the stand-alone method with selling price as the weight for revenue allocation,what amount of revenue will be allocated to Reading Fun in the first package (Reading Fun & Math Fun)?

A)$40
B)$44
C)$38
D)$50
E)$22

Question 37

Answer the following questions using the information below:
Buzz's Educational Software Outlet sells two or more of the video games as a single package.Managers are keenly interested in individual product-profitability figures.Information pertaining to three bundled products and the stand-alone prices is as follows:

Using the incremental method,what amount of revenue will be allocated to Math Fun in the package that contains all three products?

A)$24.12
B)$30.00
C)$22.80
D)$25.33

Question 38

Use the information below to answer the following question(s).
John's Video Game Outlet encounters revenue-allocation decisions with its bundled product sales.Here,two or more of the video games are sold as a single package.Managers at John's are keenly interested in individual product-profitability figures.Information pertaining to its three bundled products and the stand-alone prices of its individual products is as follows:
The unit manufacturing costs are $3.60,$4.00,and $5.00 for games A,B,and C,respectively.
Calculate the revenue allocation for Game A in Package 1,using physical units as the base.

A)$12.57
B)$14.67
C)$20.84
D)$22.00
E)$23.16

Question 39

Answer the following question(s)using the information below:
The Appliance Store sells a refrigerator and a freezer as a single package for $1,000.Other data are in the chart below.

Using the stand-alone method with manufacturing cost per unit as the weight for revenue allocation,what amount will be allocated to the refrigerator?

A)$500.00
B)$612.50
C)$620.00
D)$775.00
E)$687.50

Question 40

Use the information below to answer the following question(s).
John's Video Game Outlet encounters revenue-allocation decisions with its bundled product sales.Here,two or more of the video games are sold as a single package.Managers at John's are keenly interested in individual product-profitability figures.Information pertaining to its three bundled products and the stand-alone prices of its individual products is as follows:
The unit manufacturing costs are $3.60,$4.00,and $5.00 for games A,B,and C,respectively.
Calculate the allocation of packaged price for Game A in Package 1,using selling prices as the base.

A)$14.00
B)$20.00
C)$30.00
D)$25.00
E)$35.00

Question 41

To more accurately assess customer profitability,corporate-sustaining costs should be allocated.

Question 42

The cost of visiting customers is an example of a customer output unit-level cost.

Question 43

An activity-based costing system may focus on customers rather than products.

Question 44

Costs incurred to handle each unit sold would MOST likely be classified as a

A)customer output unit-level cost.
B)customer batch-level cost.
C)customer-sustaining cost.
D)corporate-sustaining cost.
E)distribution-channel cost.

Question 45

Which item is NOT a category in the customer cost hierarchy?

A)customer output unit-level costs
B)customer batch-level costs
C)distribution-channel costs
D)corporate-sustaining costs
E)product-sustaining cost

Question 46

Top management and general administration costs would MOST likely be classified as a

A)customer output unit-level cost.
B)customer batch-level cost.
C)customer-sustaining cost.
D)corporate-sustaining cost.
E)distribution-channel cost.

Question 47

Describe and discuss the two methods of allocating the revenues of a bundled package to the individual products in that package.Describe any special problems associated with the method.

Question 48

Costs incurred to process orders would MOST likely be classified as a

A)customer output unit-level cost.
B)customer batch-level cost.
C)customer-sustaining cost.
D)corporate-sustaining cost.
E)distribution-channel cost.

Question 49

Why would businesses want to sell bundled products? What benefits,if any,are there for the consumer?

Question 50

Under the stand-alone method,which weights better capture the benefits received by customers who purchase a bundled product?

Question 51

In general,distribution-channel costs are more easily influenced by customer actions than customer batch-level costs.

Question 52

A customer cost hierarchy categorizes costs related to customers into different cost pools on the basis of using only one cost driver.

Question 53

A customer cost hierarchy may include customer -sustaining costs.

Question 54

If one of four distribution channels is discontinued,corporate-sustaining costs such as general administration costs will most likely be reduced by 25%.

Question 55

The cost of the manager of a retail distribution channel would MOST likely be classified as a

A)customer-sustaining cost.
B)distribution-channel cost.
C)customer batch-level cost.
D)corporate-sustaining cost.
E)customer output unit-level cost.

Question 56

The cost of visiting customers would MOST likely be classified as a

A)customer output unit-level cost.
B)customer batch-level cost.
C)customer-sustaining cost.
D)corporate-sustaining cost.
E)distribution-channel cost.

Question 57

Easton Photography Ltd.sells cameras and related equipment.It often packages these into bundles for sale to consumers.Currently it is offering the following "package" deal: a camera;a photo printer;and,a camera accessory pack that includes battery recharger,case and various lens adapters.The package deal is selling for $740.The individual prices and costs of these components are as follows:

Required:
Allocate the revenue among the products under each of the following:
a.Unit selling prices
b.Unit costs
c.Physical units

Question 58

A customer cost hierarchy may include distribution-channel costs.

Question 59

Software For You encounters revenue allocation decisions with its bundled product sales.Two or more of the programs are sold as a single package.Managers at Software For You are keenly interested in individual product profitability figures.Information pertaining to its three bundled products and the stand-alone prices of its individual products is as follows:

The unit inventory costs is $18,$20,and $25 for WP,SS,and AS,respectively.Assume AS is the primary product,followed by SS,then WP.
Required:
Allocate the bundle revenue to each product in Package C,using inventory unit costs as the weighting factor.

Question 60

It is common to find that a small number of customers generate a high percentage of operating income.

Question 61

A favorable total sales-mix variance arises when the actual sales-mix percentage for the higher contribution margin products is less than the budgeted sales-mix percentage.

Question 62

The sales-volume variance is favourable assuming the sales-mix variance and the sales-quantity variances are favourable.

Question 63

The sales-quantity variance is favorable when budgeted unit sales exceed actual unit sales.

Question 64

________ categorizes costs related to customers into different cost pools on the basis of either different classes of cost drivers or different degrees of difficulty in determining the cause-and-effect (or benefits-received)relationships.

A)Customer profitability analysis
B)Customer revenues
C)Customer cost hierarchy
D)Price discounting
E)Customer allocation

Question 65

The president's salary,interest on corporate debt and corporate donations are all examples of what type of costs?

A)customer support costs
B)corporate-sustaining costs
C)customer specific costs
D)distribution-channel costs
E)sales costs

Question 66

24-hour customer service not traceable to an individual customer is an example of what type of cost?

A)corporate-sustaining costs
B)distribution-channel costs
C)customer-sustaining costs
D)customer specific costs
E)warranty costs

Question 67

Clarke Industries collects information on two customers for the past year:

An in-stock order is an order for which all the items included are in inventory at the time the order is received.
Required:
Compute the customer specific contribution of each customer for the year using:
a.16% of revenues as the allocation rate for customer-related costs.
b.The activity-based costing approach.

Question 68

The market-share variance is caused solely by the actual market share being different than the budgeted market share.

Question 69

Boxwood Ltd.is reviewing two of its customers using ABC analysis.It has identified the following customer related activities and their rates:

The company has the following information regarding Enbright Ltd.and Jackson Inc.:

Sales for Ecobright and Samson are $285,000 and $146,000 respectively.The cost of goods sold on these sales are the same at 48%.
Required:
Using Customer ABC Analysis,analyze the relative profitability of Ecobright and Samson.

Question 70

ABC systems use the concept of a ________ to identify the cost drivers that best demonstrate the cause-and-effect relationship between each activity and the costs in the related cost pool.

A)cost hierarchy
B)cost pool
C)cost allocation
D)cost driver

Question 71

The static-budget variance for revenues is the difference between the actual revenues and the budgeted revenues from the static budget.

Question 72

The sales-mix variance is calculated using the budgeted contribution margin per composite unit of the sales mix.

Question 73

The sales-mix variance is the difference between two amounts: (1)the budgeted amount based on actual quantities sold of all products and the budgeted mix,and (2)the amount in the static budget.

Question 74

Lynnwood Ltd.is reviewing two of its customers using ABC analysis.It has identified the following customer related activities and their rates:

The company has the following information regarding Enbright Ltd.and Jackson Inc.:

Sales for Enbright and Jackson are $280,000 and $148,000 respectively.The cost of goods sold on these sales are the same at 52%.
Required:
Using Customer ABC Analysis,analyze the relative profitability of Enbright and Jackson.

Question 75

List at least three different levels of costs in a customer-cost hierarchy and an example of each.

Question 76

A composite unit is a hypothetical unit with weights based on the mix of individual units.

Question 77

The sales-quantity variance can be unfavourable if both the market-share and market-size variances are favourable.

Question 78

Additional insight can be gained by separating the sales-mix variance into the flexible-budget variance and the sales-volume variance.

Question 79

A favorable market-size variance results with a decrease in market size.

Question 80

The market-size variance is the difference between two amounts: (1)the budgeted amount at budgeted mix based on the actual market size in units and the actual market share,and (2)the budgeted amount at budgeted mix based on actual market size in units and the budgeted market share.