Question 1

Refer to Figure 13-3. Assume that EBP can sell as many as 1,000 sinks and 500 tubs per year. How many tubs should EBP produce?

Accepted Answer

A)  1,000 
B)  500 
C)  410 
D)  675 
E)  0 
A)  1,000 
B)  500 
C)  410 
D)  675 
E)  0

Question 2

Moss Company charges cost plus 35%. What is the price of an item with cost equal to $65?

Accepted Answer

A)  $73.25 
B)  $95.80 
C)  $87.75 
D)  $65.50 
E)  $22.75 
A)  $73.25 
B)  $95.80 
C)  $87.75 
D)  $65.50 
E)  $22.75

Question 3

Fester Company was making a product for $60 and selling it for $80. A competitor began selling the same product for $68. If Fester is to meet the competition's price, and maintain the same amount of profit per unit, what is target cost?

Accepted Answer

A)  $40 
B)  $60 
C)  $48 
D)  $17 
E)  $63 
A)  $40 
B)  $60 
C)  $48 
D)  $17 
E)  $63

Question 4

Short-run decision making only involves short-run decisions that have nothing to do with the firm's overall strategy.

Accepted Answer

A) True 
 B)False

Question 5

Match each statement with the correct item below.
-Target costing

Accepted Answer

A) the difference in total cost between the alternatives in a decision 
B) determine whether or not a segment should be kept or dropped 
C) limited resources and limited demand for each product 
D) a specific set of procedures that produces a decision 
E) the point that products that have common processes and costs of production become distinguishable
F)method of determining the cost of a product based on the price that customers are willing to pay
G)decisions involving a choice between internal and external production
H)products that have common processes and costs of production up to a point
I)past costs that cannot be affected by future decisions
J)a percentage applied to the base cost to cover other costs plus profit
K)determine whether a specially priced order should be accepted or rejected
L)determine whether it is more profitable to process a joint product further 
A) the difference in total cost between the alternatives in a decision 
B) determine whether or not a segment should be kept or dropped 
C) limited resources and limited demand for each product 
D) a specific set of procedures that produces a decision 
E) the point that products that have common processes and costs of production become distinguishable
F)method of determining the cost of a product based on the price that customers are willing to pay
G)decisions involving a choice between internal and external production
H)products that have common processes and costs of production up to a point
I)past costs that cannot be affected by future decisions
J)a percentage applied to the base cost to cover other costs plus profit
K)determine whether a specially priced order should be accepted or rejected
L)determine whether it is more profitable to process a joint product further

Question 6

Victor's Detailing customers would be willing to pay $57 per detail. The company requires a 40% profit on each job. The average job would cost $30. Victor's uses target costing. Victor's Detailing should:

Accepted Answer

A)  sell their business. 
B)  ask their customers to pay more. 
C)  sell their services at the price customers are willing to pay. 
D)  find a way to reduce costs. 
E)  reduce their required percentage to stay in business. 
A)  sell their business. 
B)  ask their customers to pay more. 
C)  sell their services at the price customers are willing to pay. 
D)  find a way to reduce costs. 
E)  reduce their required percentage to stay in business.

Question 7

Abbott Company is considering purchasing a new machine to replace a machine purchased one year ago that is not achieving the expected results. The following information is available:   Which of these items is irrelevant?

Accepted Answer

A)  Expected maintenance costs of new machine 
B)  Purchase cost of existing machine 
C)  Expected maintenance costs of existing machine 
D)  Expected resale value of existing machine 
A)  Expected maintenance costs of new machine 
B)  Purchase cost of existing machine 
C)  Expected maintenance costs of existing machine 
D)  Expected resale value of existing machine

Question 8

Bellair Company produces a product that has manufacturing cost of $30 per unit. Bellair's policy is to charge a price equal to cost plus 30%. The 30% is pure profit to Bellair.

Accepted Answer

A) True 
 B)False

Question 9

Match each statement with the correct item below.
-Sunk costs

Accepted Answer

A) the difference in total cost between the alternatives in a decision 
B) determine whether or not a segment should be kept or dropped 
C) limited resources and limited demand for each product 
D) a specific set of procedures that produces a decision 
E) the point that products that have common processes and costs of production become distinguishable
F)method of determining the cost of a product based on the price that customers are willing to pay
G)decisions involving a choice between internal and external production
H)products that have common processes and costs of production up to a point
I)past costs that cannot be affected by future decisions
J)a percentage applied to the base cost to cover other costs plus profit
K)determine whether a specially priced order should be accepted or rejected
L)determine whether it is more profitable to process a joint product further 
A) the difference in total cost between the alternatives in a decision 
B) determine whether or not a segment should be kept or dropped 
C) limited resources and limited demand for each product 
D) a specific set of procedures that produces a decision 
E) the point that products that have common processes and costs of production become distinguishable
F)method of determining the cost of a product based on the price that customers are willing to pay
G)decisions involving a choice between internal and external production
H)products that have common processes and costs of production up to a point
I)past costs that cannot be affected by future decisions
J)a percentage applied to the base cost to cover other costs plus profit
K)determine whether a specially priced order should be accepted or rejected
L)determine whether it is more profitable to process a joint product further

Question 10

____________________ consists of choosing among alternatives with an immediate or limited end in view.

Accepted Answer

Short-run

Question 11

In determining the target price of a good, the company must first determine the target cost and the desired profit.

Accepted Answer

A) True 
 B)False

Question 12

Target costing involves much more up-front work than cost-based pricing.

Accepted Answer

A) True 
 B)False

Question 13

Shear-it, Inc., produces paper shredders. Shear-it is considering a new shredder design for home offices. The marketing vice president believes that a basic unit in a variety of attractive colors could be sold for $70. Shear-it requires that all new products yield 30% profit. What is the target cost of the new shredder?

Accepted Answer

A)  $21 
B)  $91 
C)  $49 
D)  $100 
E)  $63.70 
A)  $21 
B)  $91 
C)  $49 
D)  $100 
E)  $63.70

Question 14

Houston Corporation manufacturers a part for its production cycle. The costs per unit for 5,000 units of this part are as follows:   Johnson Company has offered to sell Houston Corporation 5,000 units of the part for $112 per unit. If Houston Corporation accepts Johnson Company's offer, total fixed costs will be reduced to $60,000. What alternative is more desirable and by what amount is it more desirable?
Alternative Amount

Accepted Answer

A)  Make $ 20,000 
B)  Make $120,000 
C)  Buy $ 40,000 
D)  Buy $100,000 
A)  Make $ 20,000 
B)  Make $120,000 
C)  Buy $ 40,000 
D)  Buy $100,000

Question 15

Miller Company produces speakers for home stereo units. The speakers are sold to retail stores for $30. Manufacturing and other costs are as follows:   The variable distribution costs are for transportation to the retail stores. The current production and sales volume is 20,000 per year. Capacity is 25,000 units per year.
A Tennessee manufacturing firm has offered a one-year contract to supply speakers at a cost of $17.00 per unit. If Miller Company accepts the offer, it will be able to rent unused space to an outside firm for $18,000 per year. All other information remains the same as the original data. What is the effect on profits if Miller Company buys from the Tennessee firm?

Accepted Answer

A)  decrease of $8,000 
B)  increase of $9,000 
C)  increase of $8,000 
D)  decrease of $6,000 
A)  decrease of $8,000 
B)  increase of $9,000 
C)  increase of $8,000 
D)  decrease of $6,000

Question 16

Which of the following costs is not relevant to a decision to sell a product at split-off or process the product further and then sell the product?

Accepted Answer

A)  joint costs allocated to the product 
B)  the selling price of the product at split-off 
C)  the additional processing costs after split-off 
D)  the selling price of the product after further processing 
A)  joint costs allocated to the product 
B)  the selling price of the product at split-off 
C)  the additional processing costs after split-off 
D)  the selling price of the product after further processing

Question 17

Junior Company currently buys 30,000 units of a part used to manufacture its product at $40 per unit. Recently the supplier informed Junior Company that a 20% increase will take effect next year. Junior has some additional space and could produce the units for the following per-unit costs (based on 30,000 units):
   
If the units are purchased from the supplier, $200,000 of fixed costs will continue to be incurred. In addition, the plant can be rented out for $20,000 per year if the parts are purchased externally.
Required: Should Junior Company buy the part externally or make it internally?

Accepted Answer

Produce internally;

Question 18

Welker Company is designing an all-in-one grill and cooler aimed at sports fans. The company believes that the product can be sold for $180; and it requires a 30% profit on new products. What is the target cost of the all-in-one grill and cooler?

Accepted Answer

A)  $140 
B)  $54 
C)  $175 
D)  $126 
E)  $168 
A)  $140 
B)  $54 
C)  $175 
D)  $126 
E)  $168

Question 19

Match each statement with the correct item below.
-Differential cost

Accepted Answer

A) the difference in total cost between the alternatives in a decision 
B) determine whether or not a segment should be kept or dropped 
C) limited resources and limited demand for each product 
D) a specific set of procedures that produces a decision 
E) the point that products that have common processes and costs of production become distinguishable
F)method of determining the cost of a product based on the price that customers are willing to pay
G)decisions involving a choice between internal and external production
H)products that have common processes and costs of production up to a point
I)past costs that cannot be affected by future decisions
J)a percentage applied to the base cost to cover other costs plus profit
K)determine whether a specially priced order should be accepted or rejected
L)determine whether it is more profitable to process a joint product further 
A) the difference in total cost between the alternatives in a decision 
B) determine whether or not a segment should be kept or dropped 
C) limited resources and limited demand for each product 
D) a specific set of procedures that produces a decision 
E) the point that products that have common processes and costs of production become distinguishable
F)method of determining the cost of a product based on the price that customers are willing to pay
G)decisions involving a choice between internal and external production
H)products that have common processes and costs of production up to a point
I)past costs that cannot be affected by future decisions
J)a percentage applied to the base cost to cover other costs plus profit
K)determine whether a specially priced order should be accepted or rejected
L)determine whether it is more profitable to process a joint product further

Question 20

Figure 13-8. Kerrigan Lumber Yard receives 12,000 large trees each year that they process into rough logs. Currently, Kerrigan sells the rough logs for $75 each. Kerrigan is considering processing the logs further into refined lumber. Each log can be processed into 200 feet of refined lumber at an additional cost of $0.40 per foot. The refined lumber can be sold for $0.95 per foot.
-Refer to Figure 13-8. Should Kerrigan process the rough logs into refined lumber?

Accepted Answer

A)  Yes, income will increase by $35 per log. 
B)  Yes, income will increase by $110 per log. 
C)  Yes, income will increase by $75 per log. 
D)  No, income will decrease by $35 per log. 
E)  No, income will decrease by $110 per log. 
A)  Yes, income will increase by $35 per log. 
B)  Yes, income will increase by $110 per log. 
C)  Yes, income will increase by $75 per log. 
D)  No, income will decrease by $35 per log. 
E)  No, income will decrease by $110 per log.

Refer to Figure 13-3. Assume that EBP can sell as many as 1,000 sinks and 500 tubs per year. How many tubs should EBP produce?

Moss Company charges cost plus 35%. What is the price of an item with cost equal to $65?

Fester Company was making a product for $60 and selling it for $80. A competitor began selling the same product for $68. If Fester is to meet the competition's price, and maintain the same amount of profit per unit, what is target cost?

Short-run decision making only involves short-run decisions that have nothing to do with the firm's overall strategy.

Match each statement with the correct item below. -Target costing

Victor's Detailing customers would be willing to pay $57 per detail. The company requires a 40% profit on each job. The average job would cost $30. Victor's uses target costing. Victor's Detailing should:

Abbott Company is considering purchasing a new machine to replace a machine purchased one year ago that is not achieving the expected results. The following information is available: Which of these items is irrelevant?

Bellair Company produces a product that has manufacturing cost of $30 per unit. Bellair's policy is to charge a price equal to cost plus 30%. The 30% is pure profit to Bellair.

Match each statement with the correct item below. -Sunk costs

____________________ consists of choosing among alternatives with an immediate or limited end in view.

In determining the target price of a good, the company must first determine the target cost and the desired profit.

Target costing involves much more up-front work than cost-based pricing.

Which of the following costs is not relevant to a decision to sell a product at split-off or process the product further and then sell the product?

Welker Company is designing an all-in-one grill and cooler aimed at sports fans. The company believes that the product can be sold for $180; and it requires a 30% profit on new products. What is the target cost of the all-in-one grill and cooler?

Match each statement with the correct item below. -Differential cost

Introduction to Managerial Accounting

Basic Managerial Accounting Concepts

Cost Behavior

Cost-Volume-Profit Analysis: a Managerial Planning Tool

Job-Order Costing

Process Costing

Activity-Based Costing and Management

Absorption and Variable Costing, and Inventory Management

Profit Planning

Standard Costing: a Managerial Control Tool

Flexible Budgets and Overhead Analysis

Performance Evaluation and Decentralization

Capital Investment Decisions

Statement of Cash Flows

Financial Statement Analysis

Filters

Exam 13: Short-Run Decision Making: Relevant Costing

Refer to Figure 13-3. Assume that EBP can sell as many as 1,000 sinks and 500 tubs per year. How many tubs should EBP produce?

Moss Company charges cost plus 35%. What is the price of an item with cost equal to $65?

Fester Company was making a product for $60 and selling it for $80. A competitor began selling the same product for $68. If Fester is to meet the competition's price, and maintain the same amount of profit per unit, what is target cost?

Short-run decision making only involves short-run decisions that have nothing to do with the firm's overall strategy.

Match each statement with the correct item below. -Target costing

Victor's Detailing customers would be willing to pay $57 per detail. The company requires a 40% profit on each job. The average job would cost $30. Victor's uses target costing. Victor's Detailing should:

Abbott Company is considering purchasing a new machine to replace a machine purchased one year ago that is not achieving the expected results. The following information is available: Which of these items is irrelevant?

Bellair Company produces a product that has manufacturing cost of $30 per unit. Bellair's policy is to charge a price equal to cost plus 30%. The 30% is pure profit to Bellair.

Match each statement with the correct item below. -Sunk costs

____________________ consists of choosing among alternatives with an immediate or limited end in view.

In determining the target price of a good, the company must first determine the target cost and the desired profit.

Target costing involves much more up-front work than cost-based pricing.

Which of the following costs is not relevant to a decision to sell a product at split-off or process the product further and then sell the product?

Welker Company is designing an all-in-one grill and cooler aimed at sports fans. The company believes that the product can be sold for $180; and it requires a 30% profit on new products. What is the target cost of the all-in-one grill and cooler?

Match each statement with the correct item below. -Differential cost

Introduction to Managerial Accounting

Basic Managerial Accounting Concepts

Cost Behavior

Cost-Volume-Profit Analysis: a Managerial Planning Tool

Job-Order Costing

Process Costing

Activity-Based Costing and Management

Absorption and Variable Costing, and Inventory Management

Profit Planning

Standard Costing: a Managerial Control Tool

Flexible Budgets and Overhead Analysis

Performance Evaluation and Decentralization

Capital Investment Decisions

Statement of Cash Flows

Financial Statement Analysis

Filters