Question 1

The differential revenue of producing Product P over Product O is $82 per pound.

Accepted Answer

The statement lacks context or specific data to verify the differential revenue between Product P and Product O.

Question 2

If the total unit cost of manufacturing Product Y is currently $36 and the total unit cost after modifying the style is estimated to be $48, the differential cost for this situation is $12.

Accepted Answer

The differential cost is the difference in total unit cost before and after the modification, which is $48 - $36 = $12. Therefore, the statement is true.

Question 3

A cost that will not be affected by later decisions is termed a sunk cost.

Accepted Answer

A sunk cost is a cost that has already been incurred and cannot be recovered or changed, so it will not be affected by future decisions.

Question 4

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 of serving different customers.

Accepted Answer

The Robinson-Patman Act does indeed prohibit price discrimination within the United States unless differences in prices can be justified by different costs of serving different customers.

Question 5

Since the costs of producing an intermediate product do not change regardless of whether the intermediate product is sold or processed further, these costs are not considered in deciding whether to further process a product.

Accepted Answer

The statement is true. These costs are known as sunk costs and are not relevant in the decision-making process. The decision to further process the product should be based on the incremental cost and revenue associated with the additional processing.

Question 6

The differential cost of producing Product P over Product O is $13 per pound.

Accepted Answer

The statement indicates that it costs $13 more to produce one pound of Product P compared to one pound of Product O, which is a differential cost. Therefore, the statement is true.

Question 7

A cost that will not be affected by later decisions is termed an opportunity cost.

Accepted Answer

An opportunity cost represents the benefits an individual, investor, or business misses out on when choosing one alternative over another, whereas a cost that will not be affected by later decisions is termed a sunk cost.

Question 8

Differential revenue is the amount of increase or decrease in revenue expected from a particular course of action as compared with an alternative.

Accepted Answer

Differential revenue is defined as the change in revenue that results from choosing one course of action over an alternative. Therefore, the statement is true.

Question 9

The costs of initially producing an intermediate product should be considered in deciding whether to further process a product, even though the costs will not change, regardless of the decision.

Accepted Answer

The costs of initially producing an intermediate product are considered sunk costs and should not influence the decision on whether to further process a product, as these costs remain the same regardless of the decision.

Question 10

The differential revenue of producing Product P over Product O is $22 per pound.

Accepted Answer

The statement indicates that producing Product P would generate $22 more in revenue compared to producing Product O. This is known as differential revenue, which can be positive or negative.

Question 11

In deciding whether to accept business at a special price, the short-run price should be set high enough to cover all variable costs and expenses.

Accepted Answer

The short-run price should at least cover all variable costs and expenses to ensure that accepting the business will not result in losses. It is also important to consider the long-term implications of accepting business at a special price, such as potential damage to the company's brand and reputation if the lower price becomes the norm.

Question 12

If the total unit cost of manufacturing Product Y is currently $36 and the total unit cost after modifying the style is estimated to be $48, the differential cost for this situation is $48.

Accepted Answer

The differential cost is the difference between the cost of two alternatives. In this case, the differential cost would be $48 - $36 = $12.

Question 13

Make-or-buy options often arise when a manufacturer has excess productive capacity in the form of unused equipment, space, and labor.

Accepted Answer

This statement is true. When a manufacturer has excess productive capacity, they may consider whether it is more cost-effective to produce a particular product or service in-house (make) or to outsource it from another supplier (buy).

Question 14

The differential cost of producing Product P over Product O is $55 per pound.

Accepted Answer

The statement does not provide enough information to determine the differential cost as it does not compare specific costs or quantities between Product P and Product O. Differential cost refers to the difference in cost between two alternatives, which requires specific cost figures for each option to calculate.

Question 15

Differential analysis can aid management in making decisions on a variety of alternatives, including whether to discontinue an unprofitable segment and whether to replace usable plant assets.

Accepted Answer

Differential analysis involves comparing the costs and benefits of different alternatives, which can be helpful in making decisions about discontinuing unprofitable segments or replacing plant assets. Therefore, the statement is true.

Question 16

Differential revenue is the amount of income that would result from the best available alternative proposed use of cash.

Accepted Answer

Differential revenue refers to the difference in revenue between two alternative decisions, not specifically the income from the best alternative use of cash.

Question 17

The amount of income that would result from an alternative use of cash is called opportunity cost.

Accepted Answer

This is correct definition of opportunity cost.

Question 18

Opportunity cost is the amount of increase or decrease in cost that would result from the best available alternative to the proposed use of cash or its equivalent.

Accepted Answer

Opportunity cost refers to the benefit that is missed or given up when an investor, individual, or business chooses one alternative over another. It's not about the increase or decrease in cost but the value of the best forgone alternative.

Question 19

Differential analysis only considers the short-term 
(one-year) effects of discontinuing a product.

Accepted Answer

Differential analysis is a method used to compare the costs and benefits of different alternatives. It only considers the short-term effects of a decision, such as discontinuing a product for one year. Long-term effects are not taken into account.

Question 20

In addition to the differential costs in an equipment replacement decision, the remaining useful life of the old equipment and the estimated life of the new equipment are important considerations.

Accepted Answer

The remaining useful life and estimated life of the equipment are important factors to consider in an equipment replacement decision along with the differential costs.

Quiz 24: Differential Analysis, Product Pricing, and Activity-Based Costing