Question 1

Flexible resources may have unused capacity.

Accepted Answer

A) True 
 B)False

Question 2

In target costing, the actual cost of production is not relevant.

Accepted Answer

A) True 
 B)False

Question 3

Entertech Company is designing a tablet aimed at families travelling with young children. The company believes that the product can be sold for $150, and it requires a 25% profit on new products. What is the target cost of the tablet?

Accepted Answer

A)  $28.00 
B)  $112.50 
C)  $140.00 
D)  $187.50 
A)  $28.00 
B)  $112.50 
C)  $140.00 
D)  $187.50

Question 4

Alora Company produces a product that has a manufacturing cost of $40 per unit. Alora's policy is to charge a price equal to cost plus $25%. The 25% is pure profit to Alora.

Accepted Answer

A) True 
 B)False

Question 5

Island Princess Pineapples purchases pineapples from area farmers and processes them into rings, juice, and skins. The cost of the pineapples is a joint cost, as is the initial processing in which the fruits are skinned, cored, and sliced into rings. At the split-off point, Island Princess sells the skins for fertilizer. Juice and rings are processed further (further processing costs occurs for cooking and canning). Data for the three products follows: $$\begin{array}{l}
\text { Sales }\
\begin{array} { l l } 
\text { Rings } & \$ 2,000 \
\text { Juice } & \$ 1,500 \
\text { Fertilizer } & \$ 400 \
\text { Further processing costs: } & \
\text { Rings } & \$ 500 \
\text { Juice } & \$ 300 \
\text { Joint costs } & \$ 1,600
\end{array}
\end{array}$$ A. Prepare a segmented income statement for Island Princess, showing results for rings, juice, fertilizer, and the total. Do not allocate joint costs individually.
B. Now suppose that Island Princess is considering the option of processing the skins further into pet food that would sell for $1,000. Additional costs would be $450. Should this be done?

Accepted Answer

@#IMG-DLM& B. Yes, the company will add

Question 6

Match each of the following terms with their correct description from the items listed below.* Each term may be used more than once, and it is possible that one or more of the classifications may not be used at all.
-A specific set of procedures that produces a decision

Accepted Answer

A) Differential cost 
B) Keep-or-drop decision 
C) Constraints 
D) Decision-making model 
E) Split-off point
F)Joint products
G)Make-or-buy decision
H)Target costing
I)Sunk costs
J)Markup
K)Special-order decision
L)Sell-or-process-further decision
M)Relevant costs
N)Opportunity cost
O)Cost-based pricing 
A) Differential cost 
B) Keep-or-drop decision 
C) Constraints 
D) Decision-making model 
E) Split-off point
F)Joint products
G)Make-or-buy decision
H)Target costing
I)Sunk costs
J)Markup
K)Special-order decision
L)Sell-or-process-further decision
M)Relevant costs
N)Opportunity cost
O)Cost-based pricing

Question 7

Match each of the following terms with their correct description from the items listed below.* Each term may be used more than once, and it is possible that one or more of the classifications may not be used at all.
-Future costs that differ between alternatives

Accepted Answer

A) Differential cost 
B) Keep-or-drop decision 
C) Constraints 
D) Decision-making model 
E) Split-off point
F)Joint products
G)Make-or-buy decision
H)Target costing
I)Sunk costs
J)Markup
K)Special-order decision
L)Sell-or-process-further decision
M)Relevant costs
N)Opportunity cost
O)Cost-based pricing 
A) Differential cost 
B) Keep-or-drop decision 
C) Constraints 
D) Decision-making model 
E) Split-off point
F)Joint products
G)Make-or-buy decision
H)Target costing
I)Sunk costs
J)Markup
K)Special-order decision
L)Sell-or-process-further decision
M)Relevant costs
N)Opportunity cost
O)Cost-based pricing

Question 8

Home Hardware sets prices at cost plus 90% of cost. The cost of a cordless drill kit is $45. What is the selling price for the cordless drill kit?

Accepted Answer

A)  $27.50 
B)  $34.00 
C)  $42.00 
D)  $85.50 
A)  $27.50 
B)  $34.00 
C)  $42.00 
D)  $85.50

Question 9

Determining the optimal product mix is equally complicated whether there is only one or whether there are multiple constrained resources.

Accepted Answer

A) True 
 B)False

Question 10

Target costing is a method of determining the price of a product or service based on the cost that the business has to pay.

Accepted Answer

A) True 
 B)False

Question 11

Shredder Inc. produces paper shredders. The company is considering a new shredder design for home offices. The marketing vice president believes that a basic unit in a variety of attractive colours could be sold for $100. The company requires that all new products yield 35% profit. What is the target cost of the new shredder?

Accepted Answer

A)  $21 
B)  $35 
C)  $65 
D)  $135 
A)  $21 
B)  $35 
C)  $65 
D)  $135

Question 12

Enzo Company manufactures a variety of athletic shoes: basketball, running, and tennis. Sales of the tennis shoes have fallen off. Enzo is considering several options: (1) drop the tennis shoe line; (2) replace the tennis shoe line with golf shoes; or (3) retool the tennis shoe line to make "Airtennies" instead of tennis shoes. Price and cost data are as follows: $\begin{array}{lrrrrr}&\text { Basketball } &\text { Running }&\text { Tennis }&\text { Golf }&\text { Airtennies }\
\text { Price } & \$ 90 & \$ 65 & \$ 40 & \$ 60 & \$ 70 \
\text { Variable cost/unit } & \$ 45 & \$ 40 & \$ 35 & \$ 43 & \$ 50 \
\text { Fixed costs } & \$ 200,000 & \$ 210,000 & \$ 50,000 & \$ 50,000 & \$ 90,000 \
\text { Number of units } & 10,000 & 15,000 & 2,500 & 25,000 & 6,000
\end{array}$ If the tennis shoe line is dropped, the $50,000 fixed cost is totally avoidable.
Required:
A. Calculate the impact on operating income, using relevant amounts only, for keeping the tennis shoe line.
B. Calculate the impact on operating income, using relevant amounts only, for option 1.
C. Calculate the impact on operating income, using relevant amounts only, for option 2.
D. Calculate the impact on operating income, using relevant amounts only, for option 3.
E. Which option is best?

Accepted Answer

As is. Increase Income Increase Income I

Question 13

In cost-based pricing, the markup includes desired profit and any costs NOT included in the base cost.

Accepted Answer

A) True 
 B)False

Question 14

Match each of the following terms with their correct description from the items listed below.* Each term may be used more than once, and it is possible that one or more of the classifications may not be used at all.
-The difference in total cost between the alternatives in a decision

Accepted Answer

A) Differential cost 
B) Keep-or-drop decision 
C) Constraints 
D) Decision-making model 
E) Split-off point
F)Joint products
G)Make-or-buy decision
H)Target costing
I)Sunk costs
J)Markup
K)Special-order decision
L)Sell-or-process-further decision
M)Relevant costs
N)Opportunity cost
O)Cost-based pricing 
A) Differential cost 
B) Keep-or-drop decision 
C) Constraints 
D) Decision-making model 
E) Split-off point
F)Joint products
G)Make-or-buy decision
H)Target costing
I)Sunk costs
J)Markup
K)Special-order decision
L)Sell-or-process-further decision
M)Relevant costs
N)Opportunity cost
O)Cost-based pricing

Question 15

Which term refers to the act of choosing among alternatives with an immediate or limited end in view?

Accepted Answer

A)  strategic decision making 
B)  short-run decision making 
C)  constructing a decision model 
D)  assessing feasible alternatives 
A)  strategic decision making 
B)  short-run decision making 
C)  constructing a decision model 
D)  assessing feasible alternatives

Question 16

Many companies start with cost to determine price since revenue must cover cost for the firm to make a profit.

Accepted Answer

A) True 
 B)False

Question 17

What is the decision called when a manager must decide whether or not to outsource a product?

Accepted Answer

A)  make-or-buy 
B)  special-order 
C)  keep-or-drop 
D)  sell-or-process-further 
A)  make-or-buy 
B)  special-order 
C)  keep-or-drop 
D)  sell-or-process-further

Question 18

A situation in which management tells divisions that they must reduce costs by 10% is called target costing.

Accepted Answer

A) True 
 B)False

Question 19

Tucker Company charges cost plus 30%. What is the price of an item with cost equal to $65?

Accepted Answer

A)  $12.50 
B)  $50.00 
C)  $60.00 
D)  $84.50 
A)  $12.50 
B)  $50.00 
C)  $60.00 
D)  $84.50

Question 20

Sunk costs are always irrelevant.

Accepted Answer

A) True 
 B)False

Flexible resources may have unused capacity.

In target costing, the actual cost of production is not relevant.

Entertech Company is designing a tablet aimed at families travelling with young children. The company believes that the product can be sold for $150, and it requires a 25% profit on new products. What is the target cost of the tablet?

Alora Company produces a product that has a manufacturing cost of $40 per unit. Alora's policy is to charge a price equal to cost plus $25%. The 25% is pure profit to Alora.

Match each of the following terms with their correct description from the items listed below.* Each term may be used more than once, and it is possible that one or more of the classifications may not be used at all. -A specific set of procedures that produces a decision

Match each of the following terms with their correct description from the items listed below.* Each term may be used more than once, and it is possible that one or more of the classifications may not be used at all. -Future costs that differ between alternatives

Home Hardware sets prices at cost plus 90% of cost. The cost of a cordless drill kit is $45. What is the selling price for the cordless drill kit?

Determining the optimal product mix is equally complicated whether there is only one or whether there are multiple constrained resources.

Target costing is a method of determining the price of a product or service based on the cost that the business has to pay.

In cost-based pricing, the markup includes desired profit and any costs NOT included in the base cost.

Match each of the following terms with their correct description from the items listed below.* Each term may be used more than once, and it is possible that one or more of the classifications may not be used at all. -The difference in total cost between the alternatives in a decision

Which term refers to the act of choosing among alternatives with an immediate or limited end in view?

Many companies start with cost to determine price since revenue must cover cost for the firm to make a profit.

What is the decision called when a manager must decide whether or not to outsource a product?

A situation in which management tells divisions that they must reduce costs by 10% is called target costing.

Tucker Company charges cost plus 30%. What is the price of an item with cost equal to $65?

Sunk costs are always irrelevant.

Introduction to Managerial Accounting

Basic Managerial Accounting Concepts

Cost Behaviour

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

Budgeting, Production, Cash, and Master Budget

Standard Costing: a Managerial Control Tool

Flexible Budgets and Overhead Analysis

Performance Evaluation and Decentralization

Capital Investment Decisions

Filters

Exam 13: Short-Run Decision Making: Relevant Costing

Flexible resources may have unused capacity.

In target costing, the actual cost of production is not relevant.

Entertech Company is designing a tablet aimed at families travelling with young children. The company believes that the product can be sold for $150, and it requires a 25% profit on new products. What is the target cost of the tablet?

Alora Company produces a product that has a manufacturing cost of $40 per unit. Alora's policy is to charge a price equal to cost plus $25%. The 25% is pure profit to Alora.

Match each of the following terms with their correct description from the items listed below.* Each term may be used more than once, and it is possible that one or more of the classifications may not be used at all. -A specific set of procedures that produces a decision

Match each of the following terms with their correct description from the items listed below.* Each term may be used more than once, and it is possible that one or more of the classifications may not be used at all. -Future costs that differ between alternatives

Home Hardware sets prices at cost plus 90% of cost. The cost of a cordless drill kit is $45. What is the selling price for the cordless drill kit?

Determining the optimal product mix is equally complicated whether there is only one or whether there are multiple constrained resources.

Target costing is a method of determining the price of a product or service based on the cost that the business has to pay.

In cost-based pricing, the markup includes desired profit and any costs NOT included in the base cost.

Match each of the following terms with their correct description from the items listed below.* Each term may be used more than once, and it is possible that one or more of the classifications may not be used at all. -The difference in total cost between the alternatives in a decision

Which term refers to the act of choosing among alternatives with an immediate or limited end in view?

Many companies start with cost to determine price since revenue must cover cost for the firm to make a profit.

What is the decision called when a manager must decide whether or not to outsource a product?

A situation in which management tells divisions that they must reduce costs by 10% is called target costing.

Tucker Company charges cost plus 30%. What is the price of an item with cost equal to $65?

Sunk costs are always irrelevant.

Introduction to Managerial Accounting

Basic Managerial Accounting Concepts

Cost Behaviour

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

Budgeting, Production, Cash, and Master Budget

Standard Costing: a Managerial Control Tool

Flexible Budgets and Overhead Analysis

Performance Evaluation and Decentralization

Capital Investment Decisions

Filters