Deck 5: Relevant Information and Decision Making With a Focus on Pricing Decisions

Question 1

Qualitative aspects of information do not carry more weight than quantitative aspects in a business decision.

Answer 1

False

Question 2

In analyzing costs to decide whether to accept a special order, total variable costs should be investigated to see how much fixed manufacturing costs per unit will be changed by the special order.

Answer 2

False

Question 3

Fixed cost per unit of product = total fixed manufacturing costs / some selected volume level.

Answer 3

True

Question 4

Decision makers should be aware of unit costs, and when in doubt, they should convert all unit costs into total costs under each alternative to get "the big picture".

Question 5

There will not be occasions when irrelevant data will be included in the accountant's presentation of analysis.

Question 6

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

Question 7

The absorption approach emphasizes the distribution between fixed and variable costs.

Question 8

The absorption approach to the income statement is used by companies for external financial reporting.

Question 9

Qualitative aspects of information are those for which measures in dollars and cents is easy and precise.

Question 10

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

Question 11

Accountants are sometimes forced to trade relevant information for accurate information.

Question 12

The contribution margin is computed using variable manufacturing costs, and variable selling and administrative costs.

Question 13

If a small price increase causes large volume declines, demand is highly inelastic.

Question 14

Imprecise but relevant information can be useful.

Question 15

Decisions might affect the past.

Question 16

A decision model is any method used for making a choice, sometimes requiring elaborate qualitative procedures.

Question 17

Information may be relevant for one decision and the same information may be irrelevant for another decision.

Question 18

The accountant's role in decision making involves collecting the relevant information.

Question 19

Relevant information might have an element of difference among alternatives.

Question 20

Historical data might have a direct bearing on a decision.

Question 21

At some point, marginal costs begin to rise with increases in production because facilities become inefficient.

Question 22

In managerial accounting, marginal cost is essentially the variable cost.

Question 23

Full cost means the total of all variable manufacturing costs and all fixed manufacturing costs.

Question 24

Discriminatory pricing is the act of charging different prices to different customers for the same product or service.

Question 25

In the short run, the sales price of a good or service must be high enough to cover all costs.

Question 26

The profit-maximizing volume is the quantity at which the difference between the sales price and marginal cost is at its greatest.

Question 27

Overcapacity in some countries often causes aggressive pricing policies, particularly for a company's imported goods.

Question 28

The marginal cost often increases as production increases up to a point because of efficiencies created by larger amounts.

Question 29

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

Question 30

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

Question 31

Prices are most directly related to costs in industries where revenue is based on cost reimbursement.

Question 32

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

Question 33

In imperfect competition, marginal revenue usually increases as volume increases.

Question 34

According to courts in the United States, pricing is predatory only if companies set prices below their average total cost and actually lose money in order to drive their competitors out of business.

Question 35

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

Question 36

In perfect competition, all competing firms sell similar products at similar prices.

Question 37

In imperfect competition, a firm must increase the sales price to generate additional sales.

Question 38

Marginal revenue is the additional revenue resulting from the sale of an additional unit.

Question 39

As long as marginal cost is less than the sales price, additional production and sales are profitable.

Question 40

Markup is the amount by which cost exceeds price.

Question 41

Target costing is especially important when product life cycles are long.

Question 42

Marketing plays a limited role in target costing.

Question 43

Prices based on variable costs represent a contribution approach to pricing.

Question 44

The expected maximum sales price for a good or service depends on the costs associated with that good or service.

Question 45

Total manufacturing costs or full-cost pricing is more widely used in practice than the contribution margin approach to pricing.

Question 46

Product design affects a minimal amount of costs.

Question 47

A target cost is set after creating a product.

Question 48

Value engineering is used primarily during the production stage of the value chain.

Question 49

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

Question 50

A company will bid near the minimum sales price to establish a presence in new markets or with a new customer.

Question 51

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

Question 52

Managers may use different markup rates for different categories of costs.

Question 53

The contribution margin approach to pricing is always the best method.

Question 54

The total-manufacturing-cost and full-cost approaches often fail to highlight different cost behavior patterns.

Question 55

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

Question 56

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

Question 57

Target costing sets prices by computing an average cost then adding a desired markup.

Question 58

The difference between the gross margin and the market price is the target cost for a new product.

Question 59

Target pricing with full costing presumes a given volume level.

Question 60

Managers usually can compute the change in total costs by multiplying any change in volume by the full unit cost.

Question 61

_____ is are) defined as any method for making a choice.

A)A decision model
B)The implementation model
C)Relevant costs
D)The prediction method

Question 62

In determining whether to purchase a labor saving machine, extreme resistance to the machine would be an) _____.

A)relevant qualitative factor
B)relevant quantitative factor
C)irrelevant qualitative factor
D)irrelevant quantitative factor

Question 63

In considering whether to produce a single product, the associated direct materials and direct labor costs would probably be an) _____.

A)relevant qualitative factor
B)relevant quantitative factor
C)irrelevant qualitative factor
D)irrelevant quantitative factor

Question 64

The absorption approach to the computation of manufacturing cost differs from the contribution approach because the absorption approach includes _____.

A)variable selling and administrative costs
B)fixed overhead
C)all fixed costs
D)all selling and administrative costs

Question 65

_____ are never relevant in the decision-making process.

A)Fixed costs
B)Historical costs
C)Material costs
D)Variable costs

Question 66

Couch Company can produce either product A or product B.If Couch Company produces product A, expected direct material cost would be $24,000.If Couch Company produces product B, expected direct material cost would be $24,000.In choosing between these alternatives, the $24,000 direct material cost is _____.

A)relevant because it is an expected future cost
B)relevant because it is a product cost
C)irrelevant because it is an estimated cost
D)irrelevant because it does not differ between alternatives

Question 67

Information is relevant if it is an) _____.

A)expected future cost or it differs among alternatives
B)expected future cost and it differs among alternatives
C)historical cost and it differs among alternatives
D)expected future cost that differs from a past cost

Question 68

_____ is the predicted future costs and revenues that will differ among alternative courses of action.

A)Relevant information
B)Sunk costs and revenues
C)Historical information
D)Predictable information

Question 69

Which of the following is the key question in decision making?

A)What are the fixed costs of each alternative?
B)What are the past costs of each alternative?
C)What difference will the choice make?
D)What are the irrelevant costs?

Question 70

The choice of the absorption or contribution approach affects the manufacturing cost per unit because the manufacturing cost per unit is _____.

A)higher if the absorption approach is used
B)higher if the contribution approach is used
C)the same regardless of the approach
D)independent of the approach

Question 71

Factors that are usually important in determining the feasibility of earning the desired target profit margin include inflation and interest rates.

Question 72

The choice of the absorption or contribution approach affects a firm's contribution margin because _____.

A)contribution margin is higher if the contribution approach is used
B)contribution margin is lower if the contribution approach is used
C)contribution margin is independent of the approach
D)none of these answers is correct

Question 73

Santa Company provided the following information regarding its only product--skateboards. $$\begin{array} { l r } \text { Direct materials used } & \$ 450,000 \\\text { Direct labor } & 170,000 \\\text { Fixed overhead } & 80,000 \\\text { Variable overhead } & 20,000 \\\text { Variable selling and administrative } & 40,000 \\& \\\text { Units produced and sold } & 40,000\end{array}$$ The manufacturing cost per unit by using the absorption approach is _____.

A)$13.00
B)$13.50
C)$14.75
D)$18.00

Question 74

Which of the following is correct?

A)The contribution income statement provides a gross margin.
B)The absorption income statement provides a contribution margin.
C)Both statements are correct.
D)Neither statement is correct.

Question 75

In a decision-making process, the accountant's primary role is _____.

A)making the decision
B)collecting relevant information
C)choosing the least costly alternative
D)identifying all possible courses of action

Question 76

_____ is true about prediction methods.

A)That prediction methods generate inputs for the decision model
B)That prediction methods use outputs from the decision model
C)That prediction methods are the same as decision models
D)That prediction methods are the same as implementation methods

Question 77

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

A)precise but irrelevant
B)imprecise but irrelevant
C)imprecise but relevant
D)all of these answers are correct

Question 78

_____ is not normally included in the account?ing information provided to the decision maker.

A)Consumer needs analysis
B)Evaluation of the performance of the implemented decision
C)Cost predictions
D)Methods of obtaining information

Question 79

_____ is the process of putting a decision into action.

A)Prediction
B)Feedback
C)Implementation
D)Evaluation of performance

Question 80

With increased global competition in many industries, companies are increasingly limited in influencing market prices.