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

Margaret Company has been producing and selling 100,000 units per year.They have excess capacity,and there are no beginning and ending inventories.The following budget was prepared for the next year: Selling price per unit \ 11.00 Direct materials per unit \ 5.00 Direct labor per unit \ 3.00 Variable manufacturing overhead per unit \ 1.00 Variable selling and administrative per unit \0 .25 Total fixed manufacturing overhead costs \5 0,000 Total fixed selling and administrative \1 5,000 Required: A) Prepare an income statement using the contribution approach. B) Prepare an income statement using the absorption approach.

Companies use cost-plus pricing for products where management actions can influence the market price.

Target costing is most effective at reducing costs if used during the product design phase.

Bunch Company is considering the production of a new product.Bunch Company has the following data available: Expected product life 4 years Expected sales (units) over product life 2,000 Variable production costs \ 42 per unit Variable selling costs \ 16 per unit Annual fixed production costs \ 15,000 Annual fixed selling costs \ 5,000 Research and development costs \ 184,000 What is the total cost of the product over the product life cycle?

Which of the following statements is FALSE about information used for decision making?

When evaluating short-term special order decisions,which of the following types of income statements should be used?

In perfect competition,the profit-maximizing volume is the quantity at which ________.

Oak Creek Company uses activity-based costing,and normally produces 1,000,000 units per month.At this level of production,the costs per unit are as follows: Direct materials used \1 5 Direct labor \6 Variable indirect production \ 1 Setup costs \5 For 1,000,000 units,500 setups are required at a cost of $10,000 per setup.The company has received a special order for 100,000 units at $22 per unit.The company has excess capacity.The company estimates that 5 setups will be required for the special order.Variable selling costs of $1 per unit will also be incurred for the special order.What is the cost of the special order?

In target costing,managers design a product so that the product's cost does not exceed ________.

What are the qualitative aspects of a decision?

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

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

Stewart Company has no beginning and ending inventories,and reports the following information about its only product: Direct materials used \ 29,000 Direct labor \ 17,000 Variable indirect production \ 13,000 Fixed indirect production \ 18,000 Variable selling and administrative expenses \ 22,000 Fixed selling and administrative expenses \1 1,000 Units produced and sold 10,000 Selling price per unit \2 5 Required: A) Prepare an income statement using the contribution approach. B) Prepare an income statement using the absorption approach.

Precise but irrelevant information is worthless for decision making.

On the income statement,the contribution margin is computed using variable manufacturing costs and variable selling and administrative costs.

In imperfect competition,if prices have little or no effect on sales volume,demand is ________.

Each month Fig Company produces 11,000 units of a product that sells for $18 per unit,and has variable costs of $12 per unit.Total fixed costs for the month are $77,000.A special order is received for 5,000 units at a price of $14 per unit.Fig Company has adequate capacity for the special order.If Fig Company accepts the special order,what is the profit to Fig Company from the special order?

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

On the income statement,the absorption approach separates manufacturing costs from ________.

Texas Company produces and sells 22,000 units of a single product.Costs associated with this level of production are as follows: Direct materials \ 15 per unit Direct manufacturing labor \ 45 per unit Variable manufacturing overhead \ 25 per unit Fixed manufacturing overhead \ 40 per unit Variable selling costs \ 10 per unit The product normally sells for $160 per unit.Texas Company has received a special order to sell 2,000 units at $120 per unit.With the special order,variable selling costs will increase by $5 per unit to $15 per unit.Texas Company has excess production capacity. Required: Compute the amount by which the operating income of Texas Company would change if the special order was accepted.