Question 1

The product cost concept includes all manufacturing costs in the cost amount to which the markup is added to determine product price.

Accepted Answer

The product cost concept includes all direct materials, direct labor, and manufacturing overhead costs in the cost of a product. Markup is then added to determine the product price.

Question 2

In using the variable cost concept of applying the cost-plus approach to product pricing, variable manufacturing costs and variable selling and administrative expenses must be covered by the markup.

Accepted Answer

The answer of In using the variable cost concept of...

Question 3

In deciding whether to accept business at a special price when the company is operating below full capacity, the special price should be set high enough to cover both the fixed and variable costs.

Accepted Answer

When a company is operating below full capacity, the variable costs are lower due to the underutilization of resources. Therefore, the special price can be set lower than the regular price, as long as it covers the variable costs and contributes to covering the fixed costs. Setting the special price high enough to cover both fixed and variable costs would likely result in a price that is too high to attract customers and generate sales.

Question 4

The amount of increase or decrease in revenue that is expected from a particular course of action as compared with an alternative is termed:
A) manufacturing margin.
B) differential margin.
C) deferred revenue.
D) differential revenue.

Accepted Answer

The term "differential" generally means a comparison or a difference between two things. In this context, differential revenue refers to the difference in revenue that is expected from one course of action compared to another. This concept is important in decision-making, where businesses often need to compare different options to determine which one would be most profitable.

Question 5

When choosing whether or not to replace a fixed asset, management will consider the price at which the asset can be sold.

Accepted Answer

When deciding whether to replace a fixed asset, management will consider the price at which the asset can be sold as one of the factors in the decision-making process.

Question 6

A practical approach that is frequently used by managers when setting normal selling price is the cost-plus approach.

Accepted Answer

The cost-plus approach is a commonly used method for determining the normal selling price of a product. This approach involves adding a mark-up to the cost of producing the product in order to set a profitable selling price.

Question 7

In using the variable cost concept of applying the cost-plus approach to product pricing, fixed manufacturing costs and fixed selling and administrative expenses must be covered by the markup.

Accepted Answer

The answer of In using the variable cost concept of...

Question 8

In using the total cost concept of applying the cost-plus approach to product pricing, only profit is covered in the markup.

Accepted Answer

The total cost concept of cost-plus pricing includes all costs, including profit, in the markup.

Question 9

The product cost concept includes the selling and administrative expenses in the cost amount to which the markup is added to determine product price.

Accepted Answer

The product cost concept typically includes only the costs directly associated with producing the product (such as materials, labor, and manufacturing overhead) and does not include selling and administrative expenses.

Question 10

Manufacturers must conform to the Robinson-Patman Act, which prohibits price discrimination within the United States unless differences in prices can be justified by different costs.

Accepted Answer

The Robinson-Patman Act does prohibit price discrimination within the United States, except when differences in prices can be justified by different costs.

Question 11

The amount of increase or decrease in cost that is expected from a particular course of action as compared to an alternative is termed:
A) period cost.
B) product cost.
C) differential cost.
D) discretionary cost.

Accepted Answer

Differential cost is the amount of increase or decrease in cost that is expected from a particular course of action as compared to an alternative. Period cost and product cost are not directly related to comparing different courses of action, and discretionary cost refers to optional expenses that are not necessarily relevant to decision making.

Question 12

When standard costs are used in applying the cost-plus approach to product pricing, the standards should be based upon ideal levels of performance.

Accepted Answer

When standard costs are used in applying the cost-plus approach to product pricing, the standards should be based upon attainable levels of performance, not ideal levels. Ideal levels may not be achievable in the real world, leading to unrealistic pricing and potential losses.

Question 13

The total cost concept includes all manufacturing costs minus selling and administrative expenses in the total cost amount to which the markup is added to determine the product price.

Accepted Answer

The total cost concept includes all costs associated with the production of a product, including manufacturing costs as well as selling and administrative expenses, not minus these expenses.

Question 14

When standard costs are used in applying the cost-plus approach to product pricing, the standards should be based upon normal levels of performance.

Accepted Answer

Standard costs should be based on normal levels of performance, as this represents the expected level of efficiency and effectiveness in producing the product. Using above-normal levels of performance may result in inflated costs, while using below-normal levels may result in underestimating costs and therefore underpricing the product.

Question 15

In deciding whether to accept business at a special price when the company is operating at full capacity, the special price should be set high enough to cover all fixed and variable costs and expenses.

Accepted Answer

The special price should be set high enough to cover all fixed and variable costs and expenses to avoid operating at a loss when operating at full capacity.

Question 16

The product with the highest contribution margin per scarce resource is the most profitable.

Accepted Answer

The contribution margin per scarce resource indicates how much profit is earned for each unit of limited resource used in production. Therefore, if a product has a higher contribution margin per scarce resource, it means that it is more profitable as it generates more profit for each unit of scarce resource used.

Question 17

When choosing whether or not to replace an equipment, the analysis normally focuses on the costs of continuing to use the old equipment versus replacing the equipment.

Accepted Answer

This statement is true.

Question 18

The theory of constraints is a manufacturing strategy that focuses on reducing the influence of bottlenecks on production processes.

Accepted Answer

The theory of constraints is indeed a manufacturing strategy that aims to identify and reduce the impact of bottlenecks on production processes.

Question 19

A cost that has been incurred in the past and is irrelevant is termed a(n):
A) variable cost.
B) opportunity cost.
C) differential cost.
D) sunk cost.

Accepted Answer

A sunk cost is a cost that has already been paid and cannot be recovered. Therefore, it is irrelevant in decision-making going forward.

Question 20

In using the product cost concept of applying the cost-plus approach to product pricing, selling expenses, administrative expenses, and profit are covered in the markup.

Accepted Answer

The cost-plus approach to product pricing involves adding a markup (which covers selling expenses, administrative expenses, and profit) to the product's cost in order to determine the selling price.

Quiz 12: Differential Analysis and Product Pricing