Exam 5: Relevant Information for Decision Making With a Focus on Pricing Decisions

Gomez Company has no beginning and ending inventories,and reports the following data about its only product: Direct materials used \ 470,000 Direct labor \ 180,000 Fixed indirect manufacturing \ 130,000 Fixed selling and administrative \ 150,000 Variable indirect manufacturing \ 120,000 Variable selling and administrative \ 60,000 Selling price(per unit) \ 100 Units produced and sold 30,000 Gomez Company uses the contribution approach to prepare the income statement.What is the operating income?

The ________ approach is useful for short-run pricing decisions and the ________ approach is useful for long-run pricing decisions.

Markup is the amount by which cost exceeds price.

When managers use the decision process to make decisions,what is the output after using the prediction method?

Variable selling expenses affect the calculation of ________ on the contribution income statement.Variable selling expenses do NOT affect the calculation of ________ on the absorption income statement.

Nebraska Company uses activity-based costing.The company produces and sells 20,000 units at $20 per unit.Nebraska Company's product cost is calculated as follows: Variable costs \ 8 per unit Fixed costs \ 2 per unit Setup costs \ 3 per unit Total costs \ 13 per unit A total of 500 setups at a cost of $120 per setup are required to produce the 20,000 units.Nebraska Company has received a special order to sell 5,000 units at $11 per unit.Nebraska Company has excess capacity available,but these 5,000 units would require 60 setups.If Nebraska Company accepts the special order,what is Nebraska's increase in net income?

Barber Company has budgeted sales of $30,000 with the following budgeted costs: Direct materials \ 6,300 Direct labor \ 4,100 Variable factory overhead \ 3,700 Fixed factory overhead \ 5,600 Variable selling and administrative costs \ 2,400 Fixed selling and administrative costs \ 3,200 What is the average target markup percentage for setting prices as a percentage of total variable costs?

Historical data may have a direct bearing on a decision made today.

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

In the short run,when managers set prices for products,the minimum selling price should be equal to ________.

Variable administrative expenses affect the calculation of ________ on the contribution income Statement.Variable administrative expenses do NOT affect the calculation of ________ on the absorption income statement.

Camile Company has no beginning and ending inventories,and reports the following data about its only product: Direct materials used \ 100,000 Direct labor \ 80,000 Fixed indirect manufacturing \ 50,000 Fixed selling and administrative \ 220,000 Variable indirect manufacturing \ 20,000 Variable selling and administrative \ 75,000 Selling price(per unit) \ 84 Units produced and sold 10,000 Camile Company uses the absorption approach to prepare the income statement.What is the product cost per unit?

Full cost means the total of all manufacturing costs.

Arkansas Company has no beginning and ending inventories,and has obtained the following data for its only product: Selling price per unit \ 65 Direct materials used \ 150,000 Direct labor \ 225,000 Variable factory overhead \ 140,000 Variable selling and administrative expenses \ 60,000 Fixed factory overhead \ 370,000 Fixed selling and administrative expenses \ 30,000 Units produced and sold 20,000 Assume there is excess capacity.There is a special order outstanding for 1,000 units at $40.00 per unit.If Arkansas Company accepts the special order,net income would ________.

Kulvekowski Company has budgeted sales of $30,000 with the following budgeted costs: Direct materials \ 6,300 Direct labor \ 4,100 Variable factory overhead \ 3,700 Fixed factory overhead \ 5,600 Variable selling and administrative costs \ 2,400 Fixed selling and administrative costs \ 3,200 What is the average target markup percentage for setting prices as a percentage of total costs?

A manager is trying to decide which product to emphasize in promotion and advertising efforts.Following the decision process used by managers,predictions about the amounts of future sales of the two products are used as input to the ________.

Historical or past information has no ________ bearing on a decision made by management.Historical or past information can have a(n)________ bearing on a decision made by management.

A company is trying to decide which product to manufacture.The following information is available: Costs Product A Product B Direct Materials 1 \ 2.00 per unit \ 2.20 per unit Direct Materials 2 \ 1.25 per unit \ 1.50 per unit Direct Materials 3 \ 0.50 per unit \ 0.80 per unit Direct Labor \ 0.70 per unit \ 0.70 per unit Which product cost is irrelevant to the decision?

If perfectly accurate and relevant information is not available for decision making,the accountant should consider using information that is ________.

Stangle Company manufactures ties.When 28,000 ties are produced,the costs per unit are: Direct materials \0 .60 Direct manufacturing labor \ 3.00 Variable manufacturing overhead \ 1.20 ixed manufacturing overhead \1 .60 Variable selling \ 0.80 Fixed selling \ 1.13 The ties normally sell for $22 each.The company has received a special order for 2,000 ties at $8.00 per tie.The company will incur an additional variable selling cost of $1.50 per unit with the special order.The company has excess capacity. Required: Compute the amount by which the operating income would change if the order were accepted.