Test 2

Question 1

Which of the following illustrates a purpose for allocating costs to cost​ objects?

A. to defer income and reduce taxes payable

B. to provide information for economic decisions

C. to determine employee benefit costs

D. to evaluate managers and employees

E. to reduce competition

Answer 1

B. to provide information for economic decisions

Question 1

Deciding whether to make a component part or to purchase​ it, would be an example of which cost allocation​ purpose?

A. to determine​ employee’s wages

B. to measure income and assets for reporting to external parties

C. to provide information for economic decisions

D. to motivate managers

E. to motivate employees

Answer 1

C. to provide information for economic decisions

Question 2

The belief that a corporate division with higher sales ought to be allocated more of the​ company’s advertising costs because it must have derived more benefit from the expenditures than a division with lower​ sales, is an example of which criteria for cost allocation​ decisions?

A. fairness and equity

B. benefit received

C. benefits expended

D. ability to bear

E. causality

Answer 2

B. benefit received

Question 3

Resource consumption accounting​ (RCA) employs an allocation procedure akin to a dual​-rate system. For each​ cost/resource pool, cost assignment rates for​ _______.

A. fixed and variable costs are based on budgeted quantities

B. fixed costs are based on actual quantity, while rates for variable costs are based on budgeted quantities

C. fixed costs are based on practical capacity supplied, while rates for variable costs are based on actual quantities

D. fixed costs are based on practical capacity supplied, while rates for variable costs are based on budgeted quantities

E. fixed and variable costs are based on actual output quantities

Answer 3

D. fixed costs are based on practical capacity supplied, while rates for variable costs are based on budgeted quantities

Question 4

Benefits of the single​-rate method include​ _______.

A. fixed costs that are transformed into variable costs for user decision making

B. there is a stronger cause and effect relationship

C. the low cost of implementation

D. information that leads to outsourcing decisions that benefit the organization as a whole

E. signals regarding how variable and fixed costs behave differently

Answer 4

C. the low cost of implementation

Question 5

The method that allocates costs in each cost pool using the same rate per unit is known as the​ _______.

A. dual-rate cost allocation method

B. single-rate cost allocation method

C. reciprocal cost allocation method

D. incremental cost allocation method

E. homogeneous cost allocation method

Answer 5

B. single-rate cost allocation method

Question 6

The method that allocates each​ department’s budgeted costs to operating departments only is called the​ _______.

A. sequential method

B. reciprocal method

C. step-down method

D. direct method

Answer 6

D. direct method

Question 7

In a​ firm’s value​ chain, upstream costs are categorized as​ ________.

A. design costs

B. customer service costs

C. marketing costs

D. distribution costs

E. advertising costs

Answer 7

A. design costs

Question 8

Which cost allocation method differentiates between variable and fixed​ costs?

A. heterogeneous method

B. single-rate method

C. fixed rate method

D. variable method

E. dual-rate method

Answer 8

E. dual-rate method

Question 9

Which of the following does NOT apply to support​ departments?

A. A support department is an operating department.

B. To obtain accurate product costs requires the inclusion of support department costs.

C. Direct support costs are always traced, indirect support department costs are allocated.

D. Support departments create special accounting problems when they provide reciprocal support to each other.

E. An example of a support department would be a personnel department.

Answer 9

C. Direct support costs are always traced, indirect support department costs are allocated.

Question 10

A disadvantage of allocating fixed costs using a budgeted rate and actual usage is that​ _______.

A. changes in one department’s usage should not affect another department’s allocation

B. the allocation would capture the cause-and-effect relationship

C. variation in usage will result in variances that need to be managed

D. some organizations offer rewards to managers who make accurate forecasts

E. supplying division managers may be tempted underestimate usage when budgeting unit costs

Answer 10

E. supplying division managers may be tempted underestimate usage when budgeting unit costs

Question 11

The costs of unused capacity are highlighted when​ _______.

A. budgeted usage allocations are used

B. the dual-rate cost allocation method allocates fixed costs based on actual usage

C. practical capacity based allocations are used

D. actual usage based allocations are used

E. variable cost variances are evaluated

Answer 11

C. practical capacity based allocations are used

Question 12

Benefits of the dual​-rate method include​ _______.

A. increased costs of implementation

B. information that leads to outsourcing decisions that benefit the organization as a whole

C. variable costs that are transformed into fixed costs for user decision making

D. avoidance of expensive analysis for categorizing costs as either fixed or variable

E. the low cost of implementation

Answer 12

B. information that leads to outsourcing decisions that benefit the organization as a whole

Question 13

Which purpose of cost allocation is used to encourage sales representatives to push high​-margin products or​ services?

A. to motivate managers and other employees

B. to measure income and assets for reporting to external parties

C. to justify costs

D. to provide information for economic decisions

E. to compute reimbursement

Answer 13

A. to motivate managers and other employees

Question 14

Which of the following is TRUE concerning cost allocation in a multi​-product ​company?

A. When the indirect costs are fixed and each product is assembled sequentially, the causality criterion can guide the choice of a cost allocation base.

B. When the indirect costs are variable and each product is assembled sequentially, the causality criterion can guide the choice of a cost allocation base.

C. When the indirect costs are fixed and each product is not assembled sequentially, the causality criterion can guide the choice of a cost allocation base.

D. When the indirect costs are fixed and the products are produced jointly, it is possible to identify specific cause-and-effect relationships between work on an individual product and total costs incurred.

E. When the indirect costs are variable and each product is not assembled sequentially, the causality criterion can guide the choice of a cost allocation base.

Answer 14

E. When the indirect costs are variable and each product is not assembled sequentially, the causality criterion can guide the choice of a cost allocation base.

Question 15

To discourage unnecessary use of a support​ department, management might

A. allocate a fixed amount of support department costs to each department regardless of use.

B. issue memos on useful services provided by the support department.

C. allocate support department costs based upon user department usage.

D. allocate only variable costs based on budgeted usage.

E. not allocate any support department costs to user departments.

Answer 15

C. allocate support department costs based upon user department usage.

Question 16

Under which of the following methods of cost allocation is there no distinction between fixed and variable​ costs?

A. fixed method

B. homogeneous method

C. dual-rate method

D. standard cost method

E. single-rate method

Answer 16

E. single-rate method

Question 17

For the economic decision purpose:

A. period costs are not allocated.

B. costing is only related to product pricing.

C. the costs in all six business functions should be included.

D. costs for only one function is included.

E. only inventoriable costs under ASPE/IFRS should be included

Answer 17

C. the costs in all six business functions should be included.

Question 18

Fixed cost allocation rates should be determined using​ _______.

A. short-term expected usage

B. past production capacity

C. long-term expected usage

D. actual usage

E. short-term average usage

Answer 18

C. long-term expected usage

Question 19

In a​ firm’s value​ chain, downstream costs are categorized as​ ________.

A. manufacturing quality control costs

B. research and development costs

C. customer service costs

D. design costs

E. production costs

Answer 19

C. customer service costs

Question 20

Which of the following methods of allocating support department costs is both simple and​ intuitive?

A. hybrid method

B. linear equation method

C. direct allocation method

D. reciprocal method

E. step-down method

Answer 20

C. direct allocation method

Question 21

An advantage to using budgeted​ usage, rather than actual​ usage, for the allocation base is that​ _______.

A. ASPE/IFRS requires it for comparability to previous years

B. it is consistent with a short-run time horizon

C. management does not have to be accountable for actual costs since the system only deals with budgeted costs

D. variable costs are lower

E. user divisions will know their allocated costs in advance

Answer 21

E. user divisions will know their allocated costs in advance

Question 22

Which of the following is the first step in the cost​-allocation decision​ process?

A. Calculate the cost-allocation rate for each indirect cost pool.

B. Analyze the alternatives and select the best one for the denominator.

C. Identify the relevant indirect costs included in the cost pool(s) or numerator(s).

D. Identify the purpose of the cost allocation.

E. Identify the direct inputs that are already measured.

Answer 22

D. Identify the purpose of the cost allocation.

Question 23

When choosing between using budgeted​ rates, and actual​ rates, which of the following is​ TRUE?

A. Actual rates let users know in advance what their costs are.

B. When budgeted rates are used, users must wait till the end of the budget period to know what their costs are.

C. With actual rates, a support department, rather than a user department, bears the risk of unfavourable cost variances.

D. Budgeted rates based on user department estimates may lead to outsourcing needed work, rather than relying on an internal support department.

E. Budgeted rates may help the manager of a support department to improve efficiency.

Answer 23

E. Budgeted rates may help the manager of a support department to improve efficiency.

Question 24

Which of the following criteria subsidizes poor performers at the expense of the best​ performers? A. benefits expended B. benefit received C. fairness and equity D. causality E. ability to bear

Answer 24

E. ability to bear

Question 25

Ben Tool Company is a tool manufacturer. Production capacity is 3,000 units per month; however, they are considering alternative ways to increase capacity to 3,500 units. One of the alternatives involves purchasing new equipment. In this alternative, there are two choices: machine A will provide increased capacity of 4,000 units per month, with unit costs of $14 at capacity, and machine B will increase capacity to 3,600 units per month with unit costs of $15 at capacity. Both machines are adequate since Ben's does not intend to go beyond the 3,500 units per month level for the foreseeable future. Relevant information for this decision includes __________. A. whether other costs will change solely due to a capacity increase B. excess capacity of either machine C. Ben's planned capacity utilization D. the different unit cost of production between the two machines at their capacity levels E. the different unit cost of production between the two machines at Ben's planned capacity levels

Answer 25

E. the different unit cost of production between the two machines at Ben's planned capacity levels

Question 26

The Good Gameshop manufactures specialized board games. Management is attempting to search for ways to reduce costs and is considering two alternatives for an upcoming project of special games that must be delivered to the customer in 12 months' time. Management agreed to the special project job as they have an idle plant that is scheduled for demolition 18 months from now, and either alternative will easily meet the delivery deadline. Alternative 1 requires 10 machine operators and 2.5 individuals to handle direct materials. Employee pay averages $17.50 per hour and will increase to $18.50 at the mid-point (July 1) of next year. Each employee currently works 2,500 hours but will decrease to 2,400 hours if Alternative 2 is implemented. The second proposal only requires 8.5 workers. Which of the following items of information are relevant to this decision? A. the timing of the wage increase B. hourly wage rates C. the delivery deadline D. the number of employees required in each alternative E. property taxes for the idle plant

Answer 26

D. the number of employees required in each alternative

Question 27

Which of the following would not be considered in a make or buy decision? A. potential rental income from space occupied by production area B. variable costs of production C. qualitative factors D. unchanged fixed costs E. potential usage of manufacturing capacity

Answer 27

D. unchanged fixed costs

Question 28

A company has two manufacturing facilities: one in Alberta that produces a bulk chemical that it sells to many different retailers and one in Ontario that is dedicated to producing a specialty chemical for one client only. The annual profit from the single client is $150,000, and the profit from the other facility's sales is $1,500,000 after allocating combined fixed costs based on units produced. Another company has offered to lease the Ontario facilities for $260,000. Which of the following is TRUE? A. The $260,000 is an opportunity cost of continuing to use the Ontario plant. B. Incremental costs exceed incremental revenues if the plant is rented. C. Incremental revenues exceed total costs if the plant is rented. D. The company incurred a $260,000 opportunity cost for the past years, but this was not recorded on its books. E. The company needs to determine the contribution margin for each product before making any decisions.

Answer 28

A. The $260,000 is an opportunity cost of continuing to use the Ontario plant.

Question 29

Koch Brothers purchased a new production machine for $200,000. It is capable of producing 400,000 units over its useful life, thus the manufacturer's salesperson claimed the unit cost would only be $0.50. Koch's own engineers recommended that the company acquire a machine that would have a unit cost of production of no more than $0.48 (with a $0.03 variance). A competitor of the vendor, who also was trying to sell Koch some equipment, claimed that the $0.50 is understated by $0.04 per unit. The total anticipated demand over the asset's useful life is 300,000 units. Relevant information includes ___________. A. the fact that the $0.50 falls below the $0.48 + $0.03 variance B. being able to produce at excess capacity C. the $0.50 unit cost D. the unit cost at Koch's planned capacity utilization E. the different unit costs of production between the two vendors' machines

Answer 29

D. the unit cost at Koch's planned capacity utilization

Question 30

The variation in total costs between two alternatives is known as __________. A. predictable cost B. differential cost C. analyzed cost D. expected cost E. irrelevant cost

Answer 30

B. differential cost

Question 31

Which of the following is TRUE concerning opportunity costs? A. They are relevant for the make/buy decision. B. They require accounting journal entries. C. They entail cash disbursements. D. They are incorporated into formal financial accounting reports. E. They entail cash receipts.

Answer 31

A. They are relevant for the make/buy decision.

Question 32

Past costs that are unavoidable and unchangeable are known as _____. A. operating costs B. sunk costs C. product production costs D. constraining costs E. fixed overhead costs

Answer 32

B. sunk costs

Question 33

When considering a project that will require production using otherwise idle​ resources, which of the following are​ TRUE? A. Only the variable costs of the project are relevant. B. Avoidable fixed costs are irrelevant. C. In the short​ run, even if revenue is less than the total costs of​ production, the project could help the​ company's overall operating income. D. Only financial factors should be considered. E. The project should not be undertaken if total revenue from the project is less than the total costs of production.

Answer 33

C. In the short​ run, even if revenue is less than the total costs of​ production, the project could help the​ company's overall operating income.

Question 34

Sunk costs​ ________. A. are relevant B. are differential C. are evaluated to determine if they are relevant or not evaluating alternatives D. have future implications E. are irrelevant and ignored when evaluating alternatives

Answer 34

E. are irrelevant and ignored when evaluating alternatives

Question 35

Which of the following should management consider to avoid the pitfalls of relevant​-cost ​analysis? A. Historic revenues and costs for items that differ according to alternatives should be considered. B. Assume that all variable costs are relevant. C. Assume that all fixed costs are irrelevant. D. Consider all current revenues and costs. E. Include any item of revenue or cost that is either an expected future revenue or expected future​ cost, and, differs between the alternatives.

Answer 35

E. Include any item of revenue or cost that is either an expected future revenue or expected future​ cost, and, differs between the alternatives.

Question 36

Which of the following represents a qualitative​ factor? A. the timing of variable costs B. any nonfinancial factor C. historical costs D. an outcome that cannot be measured in numerical terms E. relevant costs

Answer 36

D. an outcome that cannot be measured in numerical terms

Question 37

The last step in the decision process is normally to​ _______. A. make assumptions and predictions B. perform quantitative analysis C. choose alternatives D. gather information E. evaluate and explain outcomes

Answer 37

E. evaluate and explain outcomes

Question 38

When making​ decisions, it is best to use​ _______. A. fixed costs that would be incurred B. variable costs that would be incurred C. average costs D. relevant costs E. unit​ cost, rather than total cost

Answer 38

D. relevant costs

Question 39

Unit cost data can mislead decisions by including irrelevant costs or by​ _______. A. not computing unit costs at the relevant output level B. computing administrative costs C. including qualitative data D. not computing fixed overhead costs E. computing labour and materials costs only

Answer 39

A. not computing unit costs at the relevant output level

Question 40

Companies periodically confront decisions about discontinuing or adding branches or business segments. In order to determine the best course of​ action, a​ ________ should be performed in order to make the optimal decision. A. relevant​-risks and relevant​-loss analysis B. relevant capital and relevant cash flow analysis C. relevant feasibility study D. relevant risk assessment E. relevant​-revenue and relevant​-cost analysis

Answer 40

E. relevant​-revenue and relevant​-cost analysis

Question 41

The feedback obtained in the decision process cannot affect​ _______. A. the prediction method B. implementation C. future predictions D. the decision model E. past performance

Answer 41

E. past performance

Question 42

For make​-or​-buy ​decisions, relevant costs include​ _______. A. incremental costs plus opportunity costs B. variable costs plus fixed overhead C. direct material costs plus direct labour costs D. differential costs plus sunk costs E. incremental costs plus fixed costs

Answer 42

A. incremental costs plus opportunity costs

Question 43

If Henry Inc.​ doesn't use one of its limited resources in the best possible​ way, the lost contribution to income could be called​ ________. A. a constraining factor B. an alternative cost C. a resource cost D. an opportunity cost E. a total alternative cost

Answer 43

D. an opportunity cost

Question 44

Which of the following costs are never relevant in the decision​-making ​process? A. relevant costs B. fixed costs C. opportunity costs D. historical costs E. variable costs

Answer 44

D. historical costs

Question 45

Which of the following anticipated future costs always differ among alternative courses of​ actions? A. relevant costs B. indirect costs C. historical costs D. direct materials costs E. direct labour costs

Answer 45

A. relevant costs

Question 46

Opportunity cost is a cost of capital for which of the following sources of​ funds? A. short-term debt sold at a discount B. preferred shares C. internally generated cash flow D. common shares E. long-term debt

Answer 46

C. internally generated cash flow

Question 47

The income tax depreciation method referred to as CCA: A. allows amortization over the asset's useful life as determined by management. B. provides an organization some flexibility in choosing a method of amortization. C. ignores estimated salvage value. D. allows a corporation some flexibility in choosing the class to which an asset is assigned. E. only applies to businesses organized as corporations.

Answer 47

C. ignores estimated salvage value.

Question 48

When considering the net cash inflows resulting from a capital budgeting​ decision, taxes will: A. increase the amount of the cash savings by (1 + tax rate). B. reduce the amount of the cash savings by (1 + tax rate). C. increase the amount of the cash savings by (1 - tax rate). D. reduce the amount of the cash savings by (1 - tax rate). E. increase the amount of the cash savings by the tax rate.

Answer 48

C. increase the amount of the cash savings by (1 - tax rate).

Question 49

In selecting capital​ projects, organizations choose: A. the alternative that matches the RRR. B. the alternative that provides benefits that exceed predicted costs by the greatest amount. C. the alternative that has revenues that exceed its costs. D. the alternative that has the highest revenues. E. the alternative that has the longest time horizon, but also exceeds the RRR.

Answer 49

B. the alternative that provides benefits that exceed predicted costs by the greatest amount.

Question 50

When the present value of expected cash inflows from a project equals the present value of expected cash outflows of a​ project, the discount rate is the: A. net present value rate. B. inflation rate. C. universal rate. D. required rate. E. internal rate of return.

Answer 50

E. internal rate of return.

Question 51

A​ project's net present value is increased if: A. the company's net income is negative during the life of the project. B. the CCA rate is increased. C. the discount rate is increased. D. the rate of inflation rises. E. the CCA rate is decreased.

Answer 51

B. the CCA rate is increased.

Question 52

Which of the following is​ TRUE, concerning​ NPV? A. When the NPV is​ positive, the project recovers the initial investment and earns a return greater than the RRR. B. When the NPV is​ positive, the sum of the cash flows from the project equal the initial investment. C. The project just recovers the initial​ investment, discounted by the hurdle rate. D. The IRR is less than the RRR when the NPV is​ positive, after using the RRR as the discount rate. E. When the NPV is​ negative, the sum of the cash flows from the project must also be negative.

Answer 52

A. When the NPV is​ positive, the project recovers the initial investment and earns a return greater than the RRR.

Question 53

The first step in the capital budgeting decision process model is to: A. Identify potential capital investments that agree with the organization's strategy. B. Establish assumptions common for each potential capital investment. C. Manage the control of non-quantitative factors. D. Obtain appropriate sources of financing for investments. E. Analyze the present value of future cash inflow and outflow and relevant qualitative factors.

Answer 53

A. Identify potential capital investments that agree with the organization's strategy.

Question 54

The consequences of capital expenditures are: A. quantitative and qualitative. B. nonfinancial and irrelevant. C. quantitative and financial. D. appropriate and inappropriate. E. qualitative and nonfinancial.

Answer 54

A. quantitative and qualitative.

Question 55

Which of the following methods utilizes discounted cash flows when analyzing potential capital​ expenditures? ​Methods: 1. Accrual accounting rate​-of​-return 2. Internal Rate of Return​ (IRR) 3. Payback Period 4. Net Present Value​ (NPV) A. 1 and 3 B. 1 only C. 1 and 2 D. 2 and 4

Answer 55

D. 2 and 4

Question 56

In situations where the required rate of return is not constant for each year of the​ project, it is advantageous to use: A. sensitivity analysis. B. the adjusted rate of return method. C. the payback method. D. the net present value method. E. the internal rate of return method.

Answer 56

D. the net present value method.

Question 57

In capital budgeting​ decisions, relevant cash flows: A. are expected future cash flows that do not differ between alternatives. B. are actual cash flows that do not differ between alternatives. C. are actual cash flows that differ between alternatives. D. are expected future cash flows that differ between alternatives. E. are past cash flows lost.

Answer 57

D. are expected future cash flows that differ between alternatives.

Question 58

If the net present value analyses of a project resulted in a positive value and the company does not accept the​ project, it may be assumed that: A. an alternative project has a lower NPV. B. the net initial investment cannot be recovered. C. quantitative factors outweigh the benefit of the investment. D. the return is greater than that required by the company. E. qualitative factors outweigh the benefit of the investment.

Answer 58

E. qualitative factors outweigh the benefit of the investment.

Question 59

When all future cash inflows and outflows are discounted to the present using the required rate of​ return, the method used is: A. discounted cash flow. B. required rate of return. C. capital budgeting. D. payback method. E. net present value.

Answer 59

E. net present value.

Question 60

A ​"what​-​if" technique that examines how a result will change if the original predicted data are not​ achieved, or if an underlying assumption​ changes, is called: A. payback method. B. sensitivity analysis. C. net present value analysis. D. internal rate of return analysis. E. adjusted rate of return analysis.

Answer 60

B. sensitivity analysis.

Question 61

The net present value method is better than the internal rate of return because: A. IRR focuses more on accounting income. B. it considers the source of cash flows. C. the NPV's of different projects can be added together, and investments may have multiple required rates of return. D. managers generally find the NPV method easier to understand. E. it always yields the same result as IRR.

Answer 61

C. the NPV's of different projects can be added together, and investments may have multiple required rates of return.

Question 62

In NPV​ analysis, if the IRR exceeds the RRR: A. the NPV is positive when project cash flows are discounted at the IRR. B. the project should be rejected. C. the NPV is negative when project cash flows are discounted at the RRR. D. the NPV is positive when project cash flows are discounted at the RRR. E. the NPV will be negative (when discounted at the IRR).

Answer 62

D. the NPV is positive when project cash flows are discounted at the RRR.

Question 63

Which of the following are not considered in capital​-​budgeting? A. recurring after-tax operating flows B. initial machine investment C. cash flow from current disposal of old machine D. cash flow from terminal disposal of new machine E. depreciation

Answer 63

E. depreciation

Question 64

The discount​ rate, hurdle​ rate, or​ (opportunity) cost of capital all refer to the: A. required rate of return. B. discounted cash flow. C. internal rate of return. D. payback period. E. net present value.

Answer 64

A. required rate of return.

Question 65

Which of the following incorporates the amount of investment into the performance​ measure? A. return on investment B. dividend income C. residual income D. both residual income and return on investment E. both dividend income and residual

Answer 65

D. both residual income and return on investment

Question 66

Keeping all other factors​ constant, which of the following would NOT cause an increase in the return on​ investment? A. actions that decrease expense B. actions that decrease investments C. actions that increase revenues D. actions that increase sales E. actions that increase liabilities

Answer 66

E. actions that increase liabilities

Question 67

Which of the following performance measures is more likely to promote goal​ congruence? A. contribution margin B. inventory turnover C. return on investment D. residual income E. marginal income

Answer 67

D. residual income

Question 68

What disadvantage is there in using ROI​ and/or RI as performance​ measures? A. RI is measured in absolute dollars but ROI is in percentages. B. A manager's bonus will decrease when ROI decreases. C. ROI may decrease when business expands if income does not increase in line with the new investment. D. Imputed costs that are deducted in the RI calculation, are not recognized in accrual accounting, and are therefore not included in the operating figure used in calculating ROI. E. RI and ROI are both single-period measures.

Answer 68

E. RI and ROI are both single-period measures.

Question 69

The most popular approach to incorporating the investment base into a performance measure is​ _______. A. return on investment B. residual income C. economic value added D. opportunity cost E. income on return

Answer 69

A. return on investment

Question 70

The cost of capital that is recognized in a residual income calculation is also called the​ _______ cost. A. operating income B. cash accounting C. incremental D. opportunity E. imputed

Answer 70

E. imputed

Question 71

Which of the following is TRUE concerning the ROI performance​ measure? A. Is also called the accounting rate of return. B. The usual formulation is [total assets/ income]. C. Some companies use net assets (assets minus liabilities) as the numerator. D. ROI is based on cash flow. E. Net assets are sometimes used as the denominator, and net assets are sometimes used as the numerator.

Answer 71

A. Is also called the accounting rate of return.

Question 72

The DuPont method of profitability analysis is​ _______. A. ROI x RI B. ROI x WACC C. ROI / WACC D. TA - CL / operating income E. [revenue / investment] x [income / revenue]

Answer 72

E. [revenue / investment] x [income / revenue]

Question 73

Which of the following approaches include investment in the performance​ measure? A. ROI and ROS B. ROS and RI C. EVA and ROI D. ROI and RI E. ROI, EVA, and RI

Answer 73

E. ROI, EVA, and RI

Question 74

Most of a​ product's life​-cycle costs are locked in by decisions made during the​ ________ business function of the value chain. A. marketing B. customer-service C. design D. manufacturing E. research

Answer 74

C. design

Question 75

When the firm uses the target​-costing approach to​ pricing, the target cost per unit is the difference between the per unit target price and the per unit target​ _______. A. contribution margin B. gross margin C. production costs D. operating income E. fixed costs

Answer 75

D. operating income

Question 76

Which of the following is TRUE concerning value​-​engineering? A. The goal of value-engineering is to eliminate locked-in costs. B. When and how costs are locked in are more important than when and how costs are incurred. C. Value-engineering activities reduce both value-added and non-value-added costs. D. After a product's design has been value-engineered, costs are difficult to influence. E. Value-engineering does not work when dealing with direct costs.

Answer 76

C. Value-engineering activities reduce both value-added and non-value-added costs.

Question 77

Target pricing is based on​ _______. A. what customers are willing to pay B. full product cost C. variable manufacturing and nonmanufacturing costs D. engineered cost E. full manufacturing cost

Answer 77

A. what customers are willing to pay

Question 78

The strategy in which companies systematically evaluate all aspects of the value​-chain business functions with the objective of reducing costs to meet​ customers' needs is referred to as​ _______. A. designed-in costs B. cost incurrence C. value analysis D. full costing E. value engineering

Answer 78

E. value engineering

Question 79

For long​-run pricing​ decisions, using stable prices has the advantage of​ _______. A. reducing the need to change cost structures frequently B. increasing margins C. helping build buyer-seller relationships D. minimizing the need to monitor competitors prices frequently E. reducing competition

Answer 79

C. helping build buyer-seller relationships

Question 80

When target costing and target pricing are used together​ _______. A. target costs are higher than current costs because of inflation over time B. the target price is set to undercut the competition C. the target cost per unit is the estimated long-run price per unit that enables a product or service to achieve the target profit per unit D. target price is the estimated price for a product or service that a potential customer will be willing to pay E. the target cost is established first, then the target price

Answer 80

D. target price is the estimated price for a product or service that a potential customer will be willing to pay

Question 81

When are a​ product's direct materials cost most likely to be locked​ in? A. when the materials are used in production B. when materials are received from the supplier C. when purchasing commits to buying the materials D. when the bill for the materials is paid E. when the product is designed

Answer 81

E. when the product is designed

Question 82

The target pricing approach is easier when​ _______. A. products highly differentiated and the consumer life cycle is longer B. products are not well differentiated and the consumer life cycle is shorter C. products are not well differentiated and the consumer life cycle is longer D. products highly differentiated and the consumer life cycle is shorter E. little is known about market factors

Answer 82

C. products are not well differentiated and the consumer life cycle is longer

Question 83

Which of the following statements is TRUE of costs and pricing​ decisions? A. Companies supply products as long as there is a demand for the product in the market regardless of the price at which the products are sold. B. Companies get profit from selling products only when they are the price makers. C. Companies supply products as long as the price the customer is willing to pay for their products exceeds the price that is charged by the competitor. D. Companies supply products as long as the revenues from selling the additional units exceed the cost of producing them.

Answer 83

D. Companies supply products as long as the revenues from selling the additional units exceed the cost of producing them.

Question 84

Eliminating non​-value added activities by reducing their cost​ drivers, is referred to as​ _______. A. price engineering B. cost incurrence costing C. value-added pricing D. value engineering E. value-added activity based pricing

Answer 84

D. value engineering

Question 85

The three major influences on pricing decisions are​ _______. A. competition, demand, and production efficiency B. continuous improvement, customer satisfaction, and a dual internal/external focus C. economic, qualitative, and costs D. variable costs, fixed costs, and mixed costs E. competition, costs, and customers

Answer 85

E. competition, costs, and customers

Question 86

Which of the following is TRUE of long​-run ​pricing? A. It is generally a function of the market factors, and the cost involved in production is generally not a consideration. B. It is fixed at a level that recovers the variable costs of the company and a predetermined profit markup. C. It is based only on internal requirements like cost and estimated rate of return since, in the long run, these requirements are the driving factors of any organization. D. It is a strategic decision designed to build long-run relationships with customers based on stable and predictable prices.

Answer 86

D. It is a strategic decision designed to build long-run relationships with customers based on stable and predictable prices.

Question 87

Decisions on the price to bid on a one​-time​-only special order should include​ _______. A. cost data and potential bids of competitors B. existing fixed manufacturing overhead C. only cost data D. cost data, and the use of variable costing income statements E. only the potential bids of competitors

Answer 87

A. cost data and potential bids of competitors

Question 88

For setting long​-term prices a company should use full product costs. Full product costs for pricing purposes​ _______. A. include all direct costs plus an appropriate allocation of the indirect costs of all business functions B. equals manufacturing and selling costs C. does not include fixed overhead D. include all manufacturing costs only E. include direct costs only

Answer 88

A. include all direct costs plus an appropriate allocation of the indirect costs of all business functions

Question 89

A price​-bidding decision for a one​-time​-only special order includes an analysis of​ _______. A. all cost drivers B. only fixed manufacturing costs C. only marketing costs D. all costs of each function in the value chain E. indirect costs of each category in the value chain

Answer 89

D. all costs of each function in the value chain

Question 90

Pricing for one​-time​-only special orders​ is, typically​ _______. A. a short-run decision B. a pricing decision using the time horizon C. based on fixed costs alone D. higher in variable costs than usual E. a long-run decision

Answer 90

A. a short-run decision

Question 91

Which of the following is TRUE of alternative long​-run pricing​ approaches? A. A market-based approach only considers how customers will react. B. A market-based approach only considers costs. C. A cost-based approach only considers how customers will react. D. A market-based approach is more logical in a competitive market. E. In cost-plus pricing, selling price ignores market forces when setting the markup.

Answer 91

D. A market-based approach is more logical in a competitive market.

Question 92

Which of the following statements is TRUE about the factors that affect pricing​ decisions? A. An increase in the price of a substitute product does not affect pricing decisions. B. Information about a competitor in a perfect market affects pricing decisions. C. Managers must always be aware of the competition when pricing their products. D. Information about competitors' technologies is not useful for pricing decisions.

Answer 92

C. Managers must always be aware of the competition when pricing their products.