Question 1

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 product cost concept of applying the cost-plus approach to product pricing includes covering selling expenses, administrative expenses, and profit in the markup.

Question 2

What is the differential revenue of producing Product D?
A)$14 per pound
B)$8.75 per pound
C)$7 per pound
D)$5.25 per pound

Accepted Answer

Differential revenue is the difference between the selling price and the variable cost per unit. For Product D, the selling price is $20 per pound and the variable cost is $11.25 per pound. Therefore, the differential revenue is $20 - $11.25 = $8.75 per pound.

Question 3

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)contribution margin.
C)differential cost.
D)differential revenue.

Accepted Answer

Differential revenue refers to the difference in revenue between two alternatives. It helps in making decisions by showing the expected increase or decrease in revenue from a course of action. Therefore, option D is the correct answer. The other options (A, B, and C) are not relevant to the given definition.

Question 4

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 using standard costs in the cost-plus approach to product pricing, the standards should be based upon achievable levels of performance, not ideal levels. Ideal levels may not be practical or attainable in the real world, leading to inaccurate pricing and potential losses.

Question 5

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 used in applying the cost-plus approach to product pricing should be based upon normal levels of performance, as these costs reflect the expected costs of producing a product at a certain level of efficiency and effectiveness. If the standards are based on exceptional performance, the resulting prices may not accurately reflect the true cost of production, which could have negative consequences for the profitability of the company.

Question 6

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

Setting the short-run price at least high enough to cover all variable costs and expenses ensures that the business can still make a profit, even if it may be smaller in the short term.

Question 7

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 statement is true. The Robinson-Patman Act prohibits price discrimination unless differences in prices can be justified by different costs of serving different customers.

Question 8

A practical approach that is frequently used by managers when setting normal long-run prices is the cost-plus approach.

Accepted Answer

The cost-plus approach is a commonly used method for setting long-run prices in which a company calculates the total cost of producing a product and adds a markup to determine the selling price. This approach is practical because it ensures that the company is able to cover all costs and make a profit.

Question 9

When choosing whether or NOT to replace usable fixed assets,management should consider the price at which the asset can be sold.

Accepted Answer

When making decisions about fixed assets, it is important for management to consider the resale value of the asset, as it can affect the overall cost-benefit analysis of replacement.

Question 10

When choosing whether or not to replace usable fixed assets,management should consider the future costs,but not the prior costs,of continuing to use the asset versus the costs and benefits of replacement.

Accepted Answer

When deciding whether to replace a fixed asset, management should focus on the future costs and benefits, rather than the sunk costs of acquiring and using the asset in the past. It is important to consider factors such as maintenance costs, operating efficiency, and potential technological advances that could make replacement more beneficial in the long run.

Question 11

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

Accepted Answer

Contribution margin is the difference between revenue and variable costs. Scarce resources are those resources that are limited in supply and have a higher demand than their availability. Therefore, if a product or service generates the highest contribution margin per scarce resource, it means that it is most profitable and utilizes the limited resources more efficiently. So, the statement is true.

Question 12

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 states that all manufacturing costs, including direct materials, direct labor, and manufacturing overhead, are included in the cost amount of the product. This cost amount is used as the basis for adding a markup to determine the product price.

Question 13

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 answer of In using the total cost concept of...

Question 14

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

Accepted Answer

The theory of constraints (TOC) is a manufacturing strategy that places emphasis on identifying and addressing bottlenecks in a process in order to increase efficiency and productivity.

Question 15

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

Accepted Answer

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

Question 16

What is the differential cost of producing Product D?
A)$7 per pound
B)$5.25 per pound
C)$14 per pound
D)$8.75 per pound

Accepted Answer

The answer of What is the differential cost of producing...

Question 17

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 18

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 19

In deciding whether to accept business at a special price,the short- run price should be set high enough to cover all costs and expenses,plus provide a reasonable amount for profit.

Accepted Answer

In the short run, a business may accept a special price that covers only variable costs and contributes to fixed costs, even if it doesn't cover all costs and expenses, to utilize excess capacity or gain market entry.

Question 20

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