Exam 5: Relevant Information for Decision Making With a Focus

Georgia Company has been producing and selling 100,000 units per year.They have excess capacity.The following budget was prepared for the next year: Required: A)Prepare an income statement using the contribution approach. B)Prepare an income statement using the absorption approach.

Relevant information is the historical costs and revenues that differ due to alternative courses of action.

Market focus group studies and surveys may be used by a firm to determine the price of a product or service.

The only decision for a manager to make with perfect competition is how much to produce.

Under the contribution approach,variable selling and administrative expenses are used to calculate ________.Under the absorption approach,variable selling and administrative expenses are used to calculate ________.

Marginal cost is the additional cost resulting from producing and selling one additional unit.

Penn Company has the following data about its only product: Penn Company uses the absorption approach.What is the gross margin?

Wisconsin Company has a current production capacity level of 200,000 units per month.At this level of production,variable costs are $0.90 per unit and fixed costs are $0.50 per unit.Current monthly sales are 164,500 units.Gates Company has contracted Wisconsin Company about purchasing 20,000 units at $2.00 each.Current sales would not be affected by the special order and no additional fixed costs would be incurred on the special order.If the order is accepted,what is Wisconsin Company's increase in costs?

The degree to which information is relevant or precise often depends on the degree to which it is qualitative or quantitative.

Which is NOT a popular markup formula for pricing?

With perfect competition,at some point marginal costs begin to rise with increases in production because facilities become inefficient.

Under absorption costing,product costs include direct manufacturing costs and ________.

Discriminatory pricing occurs when a firm sets ________.

In imperfect competition,________.

The contribution approach offers several benefits to decision makers.Which of the following is NOT a benefit of this approach?

Full cost or fully allocated cost means the total of all manufacturing costs.

Precise but irrelevant information may still be useful for decision making.

Qualitative aspects of information can carry more weight than quantitative aspects in a business decision.

Pricing is not discriminatory if it reflects a cost differential incurred in providing the good or service.

In perfect competition,the marginal revenue curve is a vertical line equal to the price per unit at all volumes of sales.