Deck 16: Revenue and Customer Profitability Analysis

Question 1

________ ranks the individual products in a bundle and then uses this ranking to allocate the bundled revenues to these individual products.

A) The stand-alone revenue allocation method
B) The averaging approach
C) The incremental revenue-allocation method
D) The joint production costing method
E) The weighted averaging approach

Answer 1

C

Question 2

The first-ranked product is termed the incremental product in the incremental revenue-allocation method.

Answer 2

False

Question 3

________ uses product-specific information pertaining to products in the bundle to determine the weights used to allocate the bundled revenues to those individual products.

A) The stand-alone revenue allocation method
B) The averaging approach
C) The incremental revenue-allocation method
D) The joint production costing method
E) The weighted averaging approach

Answer 3

A

Question 4

Revenue allocation occurs where revenues can be identified with an individual product (service, customer, and so on) in an economically feasible (cost-effective) way.

Question 5

Which of the following statements is true?

A) The two main classes of revenue allocation methods are the step-up method and the incremental method.
B) The stand-alone revenue allocation method ranks the individual products in a bundle and then uses this ranking to allocate the bundled revenues to these individual products.
C) A bundled product is a package of two or more products or services, sold for multiple prices.
D) The issues discussed with revenue tracing and sales returns do not apply to cost tracing.
E) The two main classes of revenue allocation methods are the stand-alone method and the incremental method.

Question 6

The incremental revenue-allocation method uses product-specific information pertaining to products in the bundle to determine the weights used to allocate the bundled revenues to those individual products.

Question 7

The stand-alone revenue allocation method pertains to products that cannot be bundled together.

Question 8

Revenue allocation is required to determine the profitability of individual items within a bundled product.

Question 9

________ is a package of two or more products or services, sold for a single price, where the individual components of the package may also be sold as separate items, each with their own stand-alone price.

A) A revenue product
B) A byproduct
C) A bundled product
D) A joint product
E) A product package

Question 10

Under the incremental revenue-allocation method, there is an incentive to be the first-ranked user.

Question 11

A bundled product is a package of two or more products or services, sold for a single price, where the individual components of the bundle may also be sold as separate items, each with their own stand-alone prices.

Question 12

The stand-alone revenue allocation method is a weighted average method.

Question 13

An example of a bundled product is when a resort hotel charges a single price for lodging, food, and recreational activities.

Question 14

The stand-alone method may use selling price or unit costs to allocate revenues.

Question 15

It is most appropriate to base revenue allocation on the number of physical units when individual products in the bundle are of unequal value.

Question 16

________ occurs where revenues, related but not traceable to individual products (service, customer, and so on), are assigned to those individual products.

A) Revenue tracing
B) Revenue allocation
C) A bundled product
D) Joint product costing
E) Revenue shedding

Question 17

Which of the following statements is true?

A) Joint product allocation results in more accurate assignment of revenues to products than does revenue allocation.
B) Revenue allocation results in more accurate assignment of revenues to products than does revenue tracing.
C) Revenue tracing results in more accurate assignment of revenues to products than does revenue allocation.
D) Revenue allocation results in more accurate assignment of revenues to products than does joint product allocation.
E) Joint product allocation results in more accurate assignment of revenues to products than does revenue tracing.

Question 18

When allocating the revenues between a bundled product offering, there are only two methods which can be used: 1) the stand-alone revenue-method and 2) the incremental revenue-allocation method.

Question 19

Revenue tracing results in a more accurate assignment of revenues to products, than does revenue allocation.

Question 20

Use the information below to answer the following question(s).
John's Video Game Outlet encounters revenue-allocation decisions with its bundled product sales. Here, two or more of the video games are sold as a single package. Managers at John's are keenly interested in individual product-profitability figures. Information pertaining to its three bundled products and the stand-alone prices of its individual products is as follows:
The unit manufacturing costs are $3.60, $4.00, and $5.00 for games A, B, and C, respectively.
Calculate the allocation of packaged price for Game A in Package 1, using selling prices as the base.

A) $14.00
B) $20.00
C) $30.00
D) $25.00
E) $35.00

Question 21

Answer the following questions using the information below:
Elmo's Educational Software Outlet sells two or more of the video games as a single package. Managers are keenly interested in individual product-profitability figures. Information pertaining to three bundled products and the stand-alone prices is as follows:
Assume Reading Fun is the primary product, followed by Math Fun, and then Analysis.
Using the stand-alone method with selling price as the weight for revenue allocation, what amount of revenue will be allocated to Reading Fun in the first package (Reading Fun & Math Fun)?

A) $40
B) $44
C) $38
D) $50
E) $22

Question 22

Max's DVD Store encounters revenue-allocation decisions with its bundled product sales. Here, two or more of the DVDs are sold as a single package. Managers at Max's are keenly interested in individual product-profitability figures. Information pertaining to its three bundled products and the stand-alone selling prices of its individual products is as follows:
Required:
a. With selling prices as the weights, allocate the $25 packaged price of "All Three" to the three videos using the stand-alone revenue-allocation method.
b. Allocate the $25 packaged price of "All Three" to the three types of videos using the incremental revenue-allocation method. Assume New Releases is the primary product, followed by Older Releases, and then Classics.

Question 23

Describe and discuss the two methods of allocating the revenues of a bundled package to the individual products in that package. Describe any special problems associated with the method.

Question 24

Answer the following questions using the information below:
The Appliance Store sells a refrigerator and a freezer as a single package for $1,000. Other data are in the chart below.

Using the stand-alone method with manufacturing cost per unit as the weight for revenue allocation, what amount will be allocated to the refrigerator?

A) $500.00
B) $612.50
C) $620.00
D) $775.00
E) $687.50

Question 25

Answer the following questions using the information below:
The Appliance Store sells a refrigerator and a freezer as a single package for $1,000. Other data are in the chart below.

Using the stand-alone method with physical units as the weight for revenue allocation, what amount will be allocated to the refrigerator?

A) $500.00
B) $20.00
C) $775.00
D) $825.00
E) $687.50

Question 26

Roper's Cablevision encounters revenue-allocation decisions with its bundled product sales. Here, two or more of its services are sold as a single package. Managers at Roper's are keenly interested in individual product-profitability figures. Information pertaining to its three bundled products and the stand-alone prices of its individual products is as follows:
The unit variable costs are estimated at $4.00, $3.00, and $2.50 for Sports, Lifestyle, and TV Classics, respectively. In all cases, Sports is considered to be the primary product.
Required:
a. Allocate the bundled revenue to each product in the 'Sports & Classics' bundle, using selling prices as the base.
b. What is the allocated revenue to the Sports in each bundle, using the incremental revenue-allocation method?

Question 27

Answer the following questions using the information below:
Elmo's Educational Software Outlet sells two or more of the video games as a single package. Managers are keenly interested in individual product-profitability figures. Information pertaining to three bundled products and the stand-alone prices is as follows:
Assume Reading Fun is the primary product, followed by Math Fun, and then Analysis.
Using the incremental method, what amount of revenue will be allocated to Math Fun in the package that contains all three products?

A) $48.25
B) $60.00
C) $45.60
D) $50.67
E) $90.00

Question 28

Why would businesses want to sell bundled products? What benefits, if any, are there for the consumer?

Question 29

Answer the following questions using the information below:
Elmo's Educational Software Outlet sells two or more of the video games as a single package. Managers are keenly interested in individual product-profitability figures. Information pertaining to three bundled products and the stand-alone prices is as follows:
Assume Reading Fun is the primary product, followed by Math Fun, and then Analysis.
Using the stand-alone method with selling price as the weight for revenue allocation, what amount of revenue will be allocated to Math Fun in the package that contains all three products?

A) $48.25
B) $60.00
C) $45.60
D) $50.67
E) $33.60

Question 30

Answer the following questions using the information below:
Elmo's Educational Software Outlet sells two or more of the video games as a single package. Managers are keenly interested in individual product-profitability figures. Information pertaining to three bundled products and the stand-alone prices is as follows:
Assume Reading Fun is the primary product, followed by Math Fun, and then Analysis.
Using the incremental method for revenue allocation, what amount of revenue will be allocated to Reading Fun in the first package (Reading Fun & Math Fun)? Assume Reading Fun is the primary product, followed by Math Fun, and then Analysis.

A) $40
B) $44
C) $38
D) $50
E) $28

Question 31

Easton Photography Ltd. sells cameras and related equipment. It often packages these into bundles for sale to consumers. Currently it is offering the following "package" deal- a camera, a photo printer, and a camera accessory pack that includes battery recharger, case and various lens adapters. The package deal is selling for $740. The individual prices and costs of these components are as follows:
Required:
Allocate the revenue among the products under each of the following:
a. Unit selling prices
b. Unit costs
c. Physical units

Question 32

Software For You encounters revenue-allocation decisions with its bundled product sales. Here, two or more of the programs are sold as a single package. Managers at Software For You are keenly interested in individual product-profitability figures. Information pertaining to its three bundled products and the stand-alone prices of its individual products is as follows:
The unit inventory costs is $18, $20, and $25 for WP, SS, and AS, respectively. Assume AS is the primary product, followed by SS, then WP.
Required:
Allocate the bundle revenue to each product in Package C, using inventory unit costs as the weighting factor.

Question 33

Give examples of bundled products for each of the following industries:
a. Resort hotel
b. Bank
c. Restaurant
d. Computer store
e. Gasoline service station/convenience store
f. Software manufacturer

Question 34

Use the information below to answer the following question(s).
John's Video Game Outlet encounters revenue-allocation decisions with its bundled product sales. Here, two or more of the video games are sold as a single package. Managers at John's are keenly interested in individual product-profitability figures. Information pertaining to its three bundled products and the stand-alone prices of its individual products is as follows:
The unit manufacturing costs are $3.60, $4.00, and $5.00 for games A, B, and C, respectively.
Calculate the allocation of packaged price Game A in Package 3, using selling prices as the base.

A) $34.20
B) $30.00
C) $25.00
D) $22.80
E) $19.00

Question 35

Answer the following questions using the information below:
The Appliance Store sells a refrigerator and a freezer as a single package for $1,000. Other data are in the chart below.

Using the stand-alone method with selling price as the weight for revenue allocation, what amount will be allocated to the refrigerator?

A) $500.00
B) $825.00
C) $687.50
D) $625.00
E) $375.00

Question 36

Software For You encounters revenue-allocation decisions with its bundled product sales. Here, two or more units of the software are sold as a single package. Managers at Software For You are keenly interested in individual product-profitability figures. Information pertaining to its three bundled products and the stand-alone selling prices of its individual products is as follows:
Required:
a. Using the stand-alone revenue-allocation method, allocate the $380 packaged price of "All Three" to the three software products
b. Allocate the $380 packaged price of "All Three" to the three software products using the incremental revenue-allocation method. Assume Word Processing is the primary product, followed by Spreadsheet, and then Accounting Software.

Question 37

Use the information below to answer the following question(s).
John's Video Game Outlet encounters revenue-allocation decisions with its bundled product sales. Here, two or more of the video games are sold as a single package. Managers at John's are keenly interested in individual product-profitability figures. Information pertaining to its three bundled products and the stand-alone prices of its individual products is as follows:
The unit manufacturing costs are $3.60, $4.00, and $5.00 for games A, B, and C, respectively.
Calculate the allocation of packaged price for Game A in Package 1, using unit costs as the base.

A) $12.57
B) $13.97
C) $20.84
D) $22.00
E) $23.16

Question 38

Answer the following questions using the information below:
The Appliance Store sells a refrigerator and a freezer as a single package for $1,000. Other data are in the chart below.

Using the stand-alone method with stand-alone product revenues as the weight for revenue allocation, what amount will be allocated to the refrigerator?

A) $687.50
B) $612.50
C) $625.00
D) $825.00
E) $505.31

Question 39

To give more weight to the product that most likely drives the sales of the bundled product, the revenue allocation should be weighted using

A) selling prices.
B) unit costs.
C) physical units.
D) stand-alone product revenues.
E) total product costs.

Question 40

Use the information below to answer the following question(s).
John's Video Game Outlet encounters revenue-allocation decisions with its bundled product sales. Here, two or more of the video games are sold as a single package. Managers at John's are keenly interested in individual product-profitability figures. Information pertaining to its three bundled products and the stand-alone prices of its individual products is as follows:
The unit manufacturing costs are $3.60, $4.00, and $5.00 for games A, B, and C, respectively.
Calculate the revenue allocation for Game A in Package 1, using physical units as the base.

A) $12.57
B) $13.97
C) $20.84
D) $22.00
E) $23.16

Question 41

Clarke Industries collects information on two customers for the past year:
Clarke estimates the following activity-based costs:
An in-stock order is an order for which all the items included are in inventory at the time the order is received.
Required:
Compute the customer specific contribution of each customer for the year using:
a. 16% of revenues as the allocation rate for customer-related costs.
b. The activity based costing approach.

Question 42

Which item is NOT a category in the customer cost hierarchy?

A) customer output unit-level costs
B) customer batch-level costs
C) distribution-channel costs
D) corporate-sustaining costs
E) product-sustaining cost

Question 43

A customer cost hierarchy may include distribution-channel costs.

Question 44

The cost of visiting customers is an example of a customer output unit-level cost.

Question 45

24-hour customer service not traceable to an individual customer is an example of what type of cost?

A) corporate sustaining costs
B) distribution channel costs
C) customer sustaining costs
D) customer specific costs
E) warranty costs

Question 46

A customer cost hierarchy categorizes costs related to customers into different cost pools on the basis of using only one cost driver.

Question 47

In general, distribution-channel costs are more easily influenced by customer actions than customer batch-level costs.

Question 48

The cost of visiting customers would MOST likely be classified as a

A) customer output unit-level cost.
B) customer batch-level cost.
C) customer-sustaining cost.
D) corporate-sustaining cost.
E) distribution-channel cost.

Question 49

Under the stand-alone method, which weights better capture the benefits received by customers who purchase a bundled product?

Question 50

Top management and general administration costs would MOST likely be classified as a

A) customer output unit-level cost.
B) customer batch-level cost.
C) customer-sustaining cost.
D) corporate-sustaining cost.
E) distribution-channel cost.

Question 51

A customer cost hierarchy may include customer-sustaining costs.

Question 52

An activity-based costing system may focus on customers rather than products.

Question 53

Lynnwood Ltd. is reviewing two of its customers using ABC analysis. It has identified the following customer related activities and their rates:
The company has the following information regarding Enbright Ltd. and Jackson Inc.:
Sales for Enbright and Jackson are $280,000 and $148,000 respectively. The gross margins on these sales are the same at 52%.
Required:
Using Customer ABC Analysis, analyze the relative profitability of Enbright and Jackson.

Question 54

________ categorizes costs related to customers into different cost pools on the basis of either different classes of cost drivers or different degrees of difficulty in determining the cause-and-effect (or benefits-received) relationships.

A) Customer-profitability analysis
B) Customer revenues
C) Customer cost hierarchy
D) Price discounting
E) Zero sum game

Question 55

To more accurately assess customer profitability, corporate-sustaining costs should be allocated.

Question 56

Costs incurred to process orders would MOST likely be classified as a

A) customer output unit-level cost.
B) customer batch-level cost.
C) customer-sustaining cost.
D) corporate-sustaining cost.
E) distribution-channel cost.

Question 57

Costs incurred to handle each unit sold would MOST likely be classified as a

A) customer output unit-level cost.
B) customer batch-level cost.
C) customer-sustaining cost.
D) corporate-sustaining cost.
E) distribution-channel cost.

Question 58

The president's salary, interest on corporate debt and corporate donations are all examples of what type of costs?

A) customer support costs
B) corporate sustaining costs
C) customer specific costs
D) distribution channel costs
E) sales costs

Question 59

The cost of the manager of a retail distribution channel would MOST likely be classified as a

A) customer-sustaining cost.
B) distribution-channel cost.
C) customer batch-level cost.
D) corporate-sustaining cost.
E) customer output unit-level cost.

Question 60

If one of four distribution channels is discontinued, corporate-sustaining costs such as general administration costs will most likely be reduced by 25%.

Question 61

The sales-quantity variance can be unfavourable if both the market-share and market-size variances are favourable.

Question 62

The sales-quantity variance is favorable when budgeted unit sales exceed actual unit sales.

Question 63

The market-size variance is the difference between two amounts: (1) the budgeted amount at budgeted mix based on the actual market size in units and the actual market share, and (2) the budgeted amount at budgeted mix based on actual market size in units and the budgeted market share.

Question 64

The sales-volume variance is favourable assuming the sales-mix variance and the sales-quantity variances are favourable.

Question 65

The sales-mix variance is the difference between two amounts: (1) the budgeted amount based on actual quantities sold of all products and the budgeted mix, and (2) the amount in the static budget.

Question 66

List at least three different levels of costs in a customer-cost hierarchy and an example of each.

Question 67

Companies that only record the invoice price can usually track the magnitude of price discounting.

Question 68

A composite unit is a hypothetical unit with weights based on the mix of individual units.

Question 69

Additional insight can be gained by dividing the sales-mix variance into the flexible-budget variance and the sales-volume variance.

Question 70

Which of the following is one of the items that are important to managers when analyzing sales-volume variance information?

A) the static-budget variance
B) the flexible-budget variance
C) direct materials price variance
D) the sales-mix variance
E) direct labour efficiency variance

Question 71

A difficulty with the market share and market size variances is that accurate measures of market share and market size often do not exist.

Question 72

The market-share variance is caused solely by the actual market share being different than the budgeted market share.

Question 73

A favorable market-size variance results with a decrease in market size.

Question 74

The purpose of price discounting is to encourage increases in customer purchases.

Question 75

Customer revenues are calculated independently from price discounts.

Question 76

Which of the following is not a sales related variance?

A) sales volume variance
B) sales quantity variance
C) market size variance
D) direct materials yield variance
E) market share variance

Question 77

Price discounting is the reduction of selling prices below listed levels in order to encourage an increase in purchases by customers.

Question 78

The sales-mix variance can be explained in terms of the budgeted contribution margin per composite unit of the sales mix.

Question 79

A favorable sales-mix variance arises when the actual sales-mix percentage is less than the budgeted sales-mix percentage.

Question 80

The static-budget variance for revenues is the difference between the actual revenues and the budgeted revenues from the static budget.