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Horngren Introduction to Management Accounting ch 05

Operations management (‫)ةرهاقلا ةعماج‬

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Int
roduct
iontoManagementAccount
ing,16e,Gl
obalEdi
tion(
Horngr
en)
Chapter5 Re
levantI
nfor
ma t
ionforDec i
sionMakingwithaFoc
usonPric
ing
Decis
ions

5.
1 Que
sti
ons

1)Hi stori
calorpas ti nformati
onhasno________be ari
ngonade c
isi
onmadebymanage
ment
.Hi
stor
ical
orpas tinforma t
ionc anha vea(n)________bearingonade c
isionmadebymanage
ment.
A)indi rect
;direct
B)di rect
;indirect
C)me asurable;ma t
e rial
D)ma teri
al;si
gni ficant
Ans we r:B
Diff:1
LO:5- 1
AACSB:Re fle
c t
ivet hinkingskill
s
Lear ni
ngOut come :Di st
inguis
hbe tweenr e
levantandirr
elevantc
osts

2)Re levantinforma t
ionr ef
ersto________t
hatwilldi
ffe
ramongt healt
erna
tivec
our
sesofa
cti
on.
A)f uturecostsonl y
B)fut urerevenue sonly
C)pas tcos
tsandr e
ve nues
D)f uturecos t
sandr e venues
Ans we r:D
Diff:1
LO:5- 1
AACSB:Re flect
ivethinkingskill
s
Lear ningOut come :Di st
inguis
hbe tweenre
levantandirre
levantc
ost
s

3)Hi stori
calorpas tinforma ti
onc anhaveanindirec
tbearingonamana ge
r'sde
cis
ionbe
caus
e_______
_.
A)t hepas tdecisi
onr esultedinaf avor
ableoutcome
B)itc anhe l
ppr edictthef uture
C)t hepas tdecisi
onr esultedinabonusf orthema nage
r
D)t hemana gerwant stor epeatthepastdeci
sionsmades omeoftheti
me
Ans we r:B
Diff:1
LO:5- 1
AACSB:Re fle
c t
ivethinkings kil
ls
Lear ningOut come :Di st
inguishbe tweenre
levantandirr
e l
evantc
ost
s

1
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4)Whe nmana gersmakede cisi

ons,t
heaccountant'
spr
imaryr ol
eis________.
A)maki ngthede ci
sion
B)pr ovidinginforma ti
ont hatma ybeusef
ultot hemanager
C)unc ertainbe c
aus eitde pe
ndsont hedecisi
onbe i
ngmade
D)unc er t
ainbe causeitde pendsonthemana ger
Ans we r
:B
Diff:1
LO:5- 1
AACSB:Re fle
c t
ivethinkings ki
lls
Lear ni
ngOut come :Di s
tinguishbetwee
nr el
evantandirre
levantcos
ts

5)Inf ormati
oni srele
vanti nbus i
ne ssde cis
ionsifiti
sa(n)________.
A)e xpe ct
edf uturerevenueori tdiffersamongal t
ernati
ves
B)e xpe c
tedfut urerevenueandi tdi ffe
rsamongal te
rnati
ves
C)pas tre
venueandi tdiffe
rsamongal t
erna t
ives
D)e xpe ct
edf uturerevenuet hatdiffersfrom pastrevenue
Ans we r:B
Diff:1
LO:5- 1
AACSB:Re flecti
vethinkings ki
ll
s
Lear ningOut come :Di s
tinguishbe twe enrelevantandirre
levantcos
ts

6)Cant rallCompanyi stryingtode ci

dewhi c hproductt
omanuf actur
e.Expect
eddirectmateri
alscosts
are$4.00pe runi tforeachpr oduct.Thee xpecteddire
ctl
aborcostsare$2.
00perunitforoneproduc tand
$4.00pe runi tforanot herpr oduc
t.Inc hoosingbetweenthetwopr oducts
,thedir
ectma t
eri
alscost
sa re
________andt hedi rectl
aborc os
tsar e________.
A)r ele
vant ;irr
e l
e vant
B)irrelevant;relevant
C)r ele
vant ;relevant
D)i rre
levant ;i
rre le
vant
Ans we r
:B
Diff:2
LO:5- 1
AACSB:Anal ytics ki
ll
s
Lear ni
ngOut c
ome :Di st
inguishbe t
we enrelevantandir
rel
evantcosts

2
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7)Ac
ompanyi
str
yingt
ode
cidewhi
chpr
oduc
ttomanuf
act
ure
.Thef
oll
owi
ngi
nfor
mat
ioni
savai
labl
e:

Cost
s Produc
tA Produc
tB
Dir
ectMa t
eri
als1 $2.
00peruni
t $2.
20peruni
t
Dir
ectMa t
eri
als2 $1.
25peruni
t $1.
50peruni
t
Dir
ectMa t
eri
als3 $0.
50peruni
t $0.
80peruni
t
Dir
ectLabor $0.
70peruni
t $0.
70peruni
t

Whi c hpr oductc osti

sirrel
evantt
othedec
isi
on?
A)Di r
e c
tMa t
e r
ials1
B)Di rectMa terials2
C)Di r
e c
tMa t
erials3
D)Di rectLabor
Ans we r:D
Diff:2
LO:5- 1
AACSB:Anal yticski
lls
Lear ningOut come :Dist
inguishbet
weenrel
evantandi
rre
levantc
ost
s

8)Re le
vantinformationisthehist
ori
calcos
tsandrevenuest
hatdi
ffe
rduet
oal
ter
nat
ivec
our
sesofa
cti
on.
Ans we r
:FALSE
Diff:2
LO:5- 1
AACSB:Re fle
c t
ivethinkingskil
ls
Lear ni
ngOut come :Di s
tingui
shbetweenrel
evantandirr
ele
vantc
osts

9)Hi st
ori
calda t
ama yhaveadi r
ectbe
aringonade ci
si
onmadet oda
y.
Ans wer:FALSE
Diff:2
LO:5- 1
AACSB:Re fle
c t
ivethi
nkingskil
ls
Lear ni
ngOut come :Dist
ingui
shbetweenrel
evantandirr
ele
vantcos
ts

10)Whe nmana gersmakede c

isi
ons,t
heac
countanti
sse
enasthetec
hnic
ale
xpe
rtonfinanc
ialana
lys
is.
Ans wer:TRUE
Diff:1
LO:5- 1
AACSB:Re fle
c t
ivethi
nkingskil
ls
Lear ni
ngOut come :Dist
ingui
shbetweenr
ele
vantandir
rel
evantc
osts

3
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5.
2 Que
sti
ons

1)Whe nmana gersmakede ci

sions,t
hedecis
ionprocessusedhast hefoll
owingstepsintheorderof
occur r
e nc e:
A)Hi storicalandOt herI
nforma t
ion,Pr
edict
ionMode l,Pre
dicti
on,De ci
sionMode l,Deci
si
on,
Impl eme ntation,Feedback
B)Hi s
tor ic
alandOt he
rInforma t
ion,Dec
isi
onMode l
,Predic
tionMe thod,Implementati
on,Deci
sion,
Feedbac k
C)Hi st
or icalandOt herI
nforma t
ion,Deci
si
onMode l
,Predict
ionMe t
hod,De c
isi
on,Implementa
tion,
Feedbac k
D)Hi storicalandOt herInf
orma ti
on,Pr
edict
ionMe thod,Predic
tion,Decisi
onMode l
,Deci
si
on,
Impl eme ntation,Feedback
Ans we r :D
Diff:2
LO:5- 2
AACSB:Re flect
ivethi
nkingskill
s
Lear ningOut come :Dist
ingui
shbe twee
nr el
evantandi r
rel
evantc os
ts

2)Whe nmana gersusethede ci

sionproc es
stomakede c
isi
ons ,whic
hinf
orma
tioni
sus
edt
omake
predi c
t i
onsaboutt heamountofe xpectedsal
esforPr
oductXYZ?
A)hi stori
calda t
afrom theaccount i
ngs yst
em onl
y
B)da taoutsidet heaccounti
ngs ystem only
C)da t
aout s
idet heorganiza
tiononl y
D)AandB
Ans we r:D
Diff:1
LO:5- 2
AACSB:Re fle
c t
ivethi
nkings ki
lls
Lear ningOut come :Disti
nguishbe tweenrele
vantandirr
elevantcost
s

3)Amana ge ristryingtode cidewhichproduc ttoemphasizeinpromoti

onandadve
rti
singeffor
ts.
Followi ngt hede cis
ionpr ocessusedbymana ge rs
,predi
cti
onsabouttheamount
soffut
ur es
alesofthe
twopr oduc tsareus edasi nputtothe________.
A)pr e
di ct
ionmode l
B)pr edi c
tionme thod
C)de ci
s i
onmode l
D)e val uationmode l
Ans we r:C
Diff:2
LO:5- 2
AACSB:Re fle
c t
ivethinkingskill
s
Lear ningOut come :Di s
tinguishbetweenrelevantandirr
elevantc
ost
s

4
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4)Whe nmana gersusethedeci

sionproc
esst
omakede ci
si
ons ,whati
stheout
putaf
terus
ingt
he
predi ctionme thod?
A)de ci
s ion
B)impl eme ntati
on
C)pr e
di c t
ions
D)e val ua t
ion
Ans we r:C
Diff:2
LO:5- 2
AACSB:Re fle
c t
ivethi
nkingskil
ls
Lear ningOut come :Dist
ingui
shbe t
weenrel
evantandi
rre
levantcost
s

5)Ifpe rfect
lyac c
ura t
eandr el
evanti
nfor
ma t
ionisnota
vail
ablefordeci
si
onmaki
ng,t
heac
count
ant
shoul dc onsi
de rusinginformati
onthati
s________.
A)pr e
c i
sebuti rr
elevant
B)impr eci
sebuti rr
e l
evant
C)impr ecis
ebutr elevant
D)i mpr ecis
ebutt ime l
y
Ans we r:C
Diff:1
LO:5- 2
AACSB:Anal yt i
cskill
s
Lear ningOut come :Di st
ingui
shbetweenrel
evantandir
rel
evantcost
s

6)Inde t
erminingwhe thertopur chasealabor-
savi
ngmachine,ext
remer
esi
stanc
etot
hemac
hineby
empl oye eswouldbea( n)________.
A)r elevantquali
tat
ivefactor
B)re le
vantquant i
tat
ivefactor
C)ir rel
evantquali
tati
vef act
or
D)i rrele
vantquantita
tivefactor
Ans we r:A
Diff:2
LO:5- 2
AACSB:Anal yti
cskill
s
Lear ningOutcome :Di st
inguishbe t
we e
nr el
evantandi
rre
levantcost
s

7)Inc ons i
deri
ngwhe t
hert oproduc
easingl
eproduct,t
heassoc
iat
eddir
ectma
ter
ial
sanddi
rec
tlabor
costswoul dpr obablybe________.
A)r elevantqualit
ativefactors
B)re le
vantquant it
a t
ivefactors
C)ir rel
evantqual i
tati
vef act
ors
D)i rrele
vantquant ita
tivefactor
s
Ans we r:B
Diff:2
LO:5- 2
AACSB:Anal yticskill
s
Lear ningOutcome :Di st
inguishbet
wee
nr el
evantandirr
ele
vantcost
s

8)Inde cisi
onmaki
ngs
itua
tions
,________as
pec
tsma ydomina
tequant
ita
tiveas
pec
tsi
nmanyde
cis
ions
.
A)r el
evant
B)pr eci
sion
C)ac curacy
D)qual itat
ive
Ans we r
:D
Diff:2
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LO:5-2
AACSB:Refle
c t
ivethi
nkingskil
ls
Lear
ningOutcome :Dist
ingui
shbetwe
enr
ele
vantandi
rre
levantc
ost
s

9)Wha taret
hequal i
tat
iveaspect
sofade ci
si
on?
A)t hosewhichar enotrel
evanttoadeci
sion
B)thos ewithaconc r
etedoll
aramount
C)t hoseforwhichme asurementindoll
arsandc ent
sisdifficul
tandimpr
eci
se
D)t hosewhichar eal
wa ysrel
evanttoadecis
ion
Ans wer :C
Diff:2
LO:5- 2
AACSB:Anal yticski
lls
Lear ni
ngOut come :Dist
inguis
hbe t
weenr e
levantandir
re levantcos
ts

10)Whi chofthefollowings t
a t
eme ntsisFALSEabouti nf
orma ti
onus edforde
cis
ionmaki
ng?
A)Pr e
c isebutirr
elevantinforma t
ioni sworthles
sfordeci
sionmaki ng.
B)Impr e ci
sebutrel
e vantinformationc anbeus ef
ulfordeci
sionmaki ng.
C)Re l
e vantinfor
ma tionmus tber easonablyaccurat
ebutnotpr eci
sel
ys o.
D)Re l
e vantinfor
ma t i
onmus tbetotall
yaccurateoriti
suseless
.
Ans we r :D
Diff:2
LO:5- 2
AACSB:Anal yti
cski l
ls
Lear ningOut c
ome :Di st
ingui s
hbe twe enr
elevantandirr
elevantcost
s

11)Pr e
cis
ebuti rrel
evanti nf
orma t
ioni
swort
hlessforde
cisi
onmaki ng.
Ans wer:TRUE
Diff:2
LO:5- 2
AACSB:Re fle
c t
ivethinkingskill
s
Lear ni
ngOut come :Di s
tinguis
hbe twe
enre
levantandirr
elevantc
osts

12)Thede greetowhi chi nfor

ma ti
onisrel
evantorprec
iseoft
endepe
ndsont
hede
gre
etowhi
chi
tis
qual i
tat
iveorquant i
tati
ve.
Ans we r
:TRUE
Diff:2
LO:5- 2
AACSB:Re fle
c t
ivethinkingskill
s
Lear ni
ngOut come :Di s
tinguis
hbe twee
nr el
evantandirr
ele
vantc
ost
s

13)Ac count
ant saresome ti
mesforce
dtotr
aderel
evanti
nformat
ionforac
cur
atei
nfor
mat
ion.
Ans wer:TRUE
Diff:2
LO:5- 2
AACSB:Re fle
c ti
vethinkingskil
ls
Lear ni
ngOut come :Di s
tingui
shbetwee
nrele
vantandir
rele
vantcos
ts

14)Impr e
cis
ebutr el
evanti nf
orma t
ioncanbeuseful
.
Ans wer:TRUE
Diff:2
LO:5- 2
AACSB:Re fle
c t
ivethinkingskill
s
Lear ni
ngOut come :Di s
tinguishbetwee
nr e
levantandi
rre
levantc
ost
s

6
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15)Qual i
tat
ivea spec
tsofi nf
ormati
onaret
hoseforwhi
chme asur
eme nti
ndol
lar
sandc
ent
sise
asyand
precise.
Ans wer:FALSE
Diff:2
LO:5- 2
AACSB:Re fle
c t
ivethinkingskil
ls
Lear ni
ngOut come :Di s
tingui
shbetwee
nrele
vantandi
rre
levantcos
ts

16)Qual it
ativea spec
tsofi nf
ormati
oncancar
rymoreweightthanquant
it
ati
veas
pec
tsi
nabus
ine
ss
decision.
Ans we r:TRUE
Diff:2
LO:5- 2
AACSB:Re fle
c t
ivethinkingskil
ls
Lear ningOut come :Di s
tingui
shbetwe
e nr
ele
vantandi
rrel
evantcos
ts

5.
3 Que
sti
ons

1)Fori nternalde c
ision-maki ngpur poses,manycompani
e suset
heincomesta
tementusi
ngt he________
appr oach.Fore xter
nalr epor ti
ng,mos tcompaniesus
etheincomesta
tementusi
ngthe________approach.
A)abs orpt i
on;abs orpt i
on
B)abs orption;c ontributi
on
C)c ontribution;abs orption
D)f ullcosting;var i
ablec osting
Ans we r:C
Diff:1
LO:5- 3
AACSB:Re fle
c t
ivethinki ngs ki
lls
Lear ni
ngOut come :De finebas icmana geri
alac
count
ingconcept
sandprepar
eanincomes t
atementfor
differe
ntt ype sofor ganiza t
ions

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2)Iti smi sl
e adingtous et heabs orpt
ioncosti
ngincomes t
ateme nttopredicttheeffec
tofchangesi
nsale
s
volumebe cause________.
A)var i
ablepr oduc ti
onc os tspe runi
tdonotc hangewithsmal lchangesinsalesvolume
B)t otalfix
e dpr oduc t
ionc ostsdonotchangewi t
hs mal
lchange sinsalesvolume
C)fix edpr oduc ti
onc ostspe runitdonotchangewi t
hsmal lchangesins al
esvolume
D)t otalvar i
ablepr oduc tionc ostsdonotchangewithsmallchange sinsalesvolume
Ans wer:B
Diff:3
LO:5- 3
AACSB:Re flecti
vethinki ngs kill
s
Lear ningOut come :De finebas icmanageri
alaccounti
ngconc eptsandpr epareani ncomesta
tementf
or
differenttype sofor ganiza ti
ons

3)Var i
ablesel
lingexpe nse saffectthecal
culat
ionof________ont hec
ontr
ibut
ioni
ncomestat
eme nt
.
Var i
abl esel
li
nge xpe nsesdoNOTaffe ctthecalc
ulati
onof________ontheabs
orpt
ioninc
omes ta
teme nt
.
A)gr os smargin;cont r
ibut i
onmar gin
B)ope rat
ingincome ;cont ri
but ionmargin
C)c ont ri
buti
onmar gin;gr ossmar gin
D)gr ossmargin;ope rati
ngi nc ome
Ans we r:C
Diff:2
LO:5- 3
AACSB:Re flecti
vethinki ngs kill
s
Lear ningOut come :De finebas icmana geri
alaccounti
ngconceptsandpre
pareani
ncomes t
ate
me ntfor
differenttypesofor ganiza t
ions

4)Fix e
ds ellinge xpens e saffectt
hec alcul
ati
onof________onthecontr
ibuti
onincomes t
ate
me nt.
Fixeds ell
inge xpe nse sdoNOTa ffec
tthecalcul
ati
onof________ontheabsorpti
onincomestat
eme nt
.
A)c ontributionmar gi n;gr ossmar gin
B)gr ossmar gin;cont ribut i
onmar gi
n
C)ope r
atingi ncome ;gr ossmar gin
D)ope r
a ti
ngi ncome ;cont ributi
onmar gi
n
Ans we r:C
Diff:2
LO:5- 3
AACSB:Re fle
c t
ivethi nki ngs ki
ll
s
Lear ni
ngOut come :De finebas i
cmana ger
ialac
counti
ngconceptsandprepareanincomestat
eme ntf
or
differe
ntt ype sofor gani za t
ions

8
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5)Fix e
di ndire ctproduc tionc os
tsaffe
ctt
hec al
culat
ionof________ontheabsorpt
ionincomesta
tement
.
Fixedi ndirectpr oductionc ostsdoNOTa ffe
ctthecalc
ula
tionof________onthecontr
ibuti
onincome
st
a teme nt.
A)c ontributi
onmar gin;gr ossmargin
B)gr ossmar gi n;contribut i
onmar gin
C)ope rat
ingi ncome ;gr ossmar gin
D)c ont r
ibuti
onmar gin;ope rati
ngincome
Ans we r:B
Diff:2
LO:5- 3
AACSB:Re flec t
ivethinki ngskill
s
Lear ni
ngOut c ome :De finebas i
cmana geri
alaccounti
ngconceptsandprepar
eani nc
omes tat
ementf
or
differe
ntt ypesofor ganiza t
ions

6)Var i
ableadmi ni
strativee xpe ns e
saffectt
hecalc
ula
tionof________ont hec
ontributi
oni
ncome
stateme nt.Var i
ableadmi nist rati
vee xpense
sdoNOTa ffe
ctthecalcul
ati
onof________ont
heabsorpt
ion
incomes tat
e me nt.
A)gr os smar gin;contr ibut ionmar gin
B)c ontributionmar gin;gr os smar gin
C)ope rati
ngi ncome ;c ont ribut ionmar gin
D)gr ossmar gin;ope rat i
ngi nc ome
Ans we r:B
Diff:2
LO:5- 3
AACSB:Re fle
c t
ivethinki ngs kill
s
Lear ningOut come :De finebas icmana geri
alacc
ounti
ngc onceptsandprepar
eani ncomest
ate
me ntf
or
differenttype sofor gani za tions

7)Unde rabsorptionc osti

ng,all________cost
sarepr
oductori
nvent
ori
abl
ecost
s.
A)i ndirectproduc t
ion
B)di rectandindi re
c tproduc ti
on
C)di rectproduc ti
on
D)s ell
ingandadmi nist
ra ti
ve
Ans we r:B
Diff:1
LO:5- 3
AACSB:Re flect
ivethinki ngskill
s
Lear ni
ngOut come :De finebas i
cmana ger
ialacc
ount
ingc
oncept
sandprepar
eaninc
omes
tat
eme
ntf
or
differe
ntt ypesofor ganiza t
ions

9
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on

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 lOMoARcPSD|4600191

8)Unde rthec ontri

butionapproacht
ot heinc
omesta
tement
,thediffe
rencebe
twee
ns al
esand________is
contr i
butionmar gi
n.
A)c ostofgoodss ol
d
B)manuf acturingcosts
C)al lvariableexpenses
D)al lfixe
de xpe nses
Ans we r:C
Diff:2
LO:5- 3
AACSB:Anal yti
cskill
s
Lear ningOut come :De finebas
icmanageri
alacc
ount
ingc
onceptsandpr e
pareani
ncomes t
ate
me ntfor
differenttypesofor ganizati
ons

9)Thec ontri
butionappr oachtotheinc
omes ta
teme ntemphas
ize
sthedi
sti
ncti
onbet
ween________.
A)val uec hai
nf unctions
B)di ffer
entfunctionalar easinafir
m
C)di ffer
entbus i
ne sssegme nt
s
D)var i
ableandfix edcos ts
Ans we r:D
Diff:1
LO:5- 3
AACSB:Anal yticskill
s
Lear ningOut come :De finebasicmanager
ialaccounti
ngconce
ptsandpr
epareaninc
omesta
teme ntf
or
differenttypesofor ganiza t
ions

10)Us ingabs orptioncos ti

ng,t hepri
maryc l
ass
ific
ati
onsofcost
sonthei
ncomesta
tementareby________.
A)c ostbeha vi
orpa t
terns
B)manuf acturingde par tme nts
C)ma jormana geme ntf unc tions
D)manuf acturings egme nts
Ans we r:C
Diff:2
LO:5- 3
AACSB:Re flecti
vethinki ngs kil
ls
Lear ni
ngOut come :De finebas icmanage
rialac
countingconce
ptsandpr
epareaninc
omes t
atementfor
differe
ntt ypesofor gani za t
ions

10
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ight©2014Pe
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on

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 lOMoARcPSD|4600191

11)Sant
anaCompanyhasnobe
ginni
ngande
ndi
ngi
nve
ntor
ies
,andr
epor
tst
hef
oll
owi
ngi
nfor
mat
ionf
or
it
sonlyproduc
t:

Dir
ectma ter
ialsused $250,
000
Dir
ectlabor $120,
000
Fi
xedindirectmanufacturi
ng $60,
000
Var
iabl
ei ndire
c tmanufact
uring $20,
000
Var
iabl
es el
lingandadmi nist
rat
ive $50,
000
Fi
xedse l
li
ngandadmi nis
trat
ive $10,
000

Uni
tspr
oduc
edands
old 40,
000

Sant anaCompanyus estheabsorpt

ionapproac
ht opr
epar
ethei
ncomes
tat
ement.Whati
sthepr
oduct
costpe runit
?
A)$11. 00
B)$11. 25
C)$12. 00
D)$12. 75
Ans we r:B
Diff:2
LO:5- 3
AACSB:Anal yt
ics
kill
s
Lear ningOutcome:De finebas
icmanager
ialacc
ounti
ngconc
ept
sandpr
epareaninc
omestat
ementf
or
differentt
ypesoforganizati
ons

11
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ight©2014Pe
ars
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on

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 lOMoARcPSD|4600191

12)Camil
eCompanyhasnobe
ginni
ngande
ndi
ngi
nve
ntor
ies
,andr
epor
tst
hef
oll
owi
ngda
taabouti
ts
onlypr
oduct
:

Dir
ectma ter
ialsused $100,
000
Dir
ectlabor $80,
000
Fi
xedindirectmanufacturi
ng $50,
000
Fi
xedse l
li
ngandadmi nis
trat
ive $220,
000
Vari
abl
ei ndire
c tmanufact
uring $20,
000
Vari
abl
es ell
ingandadmi nist
rat
ive $75,
000
Sel
li
ngpr ic
e(perunit) $84

Uni
tspr
oduc
edands
old 10,
000

Cami l
eCompanyusestheabs orpt
ionapproachtopr
epar
etheincomest
ate
me nt
.Wha ti
stheproduc
tcos
t
peruni t?
A)$20
B)$25
C)$27. 50
D)$32. 50
Ans we r:B
Diff:2
LO:5- 3
AACSB:Anal yt
ics
kill
s
Lear ni
ngOutcome:De finebasi
cmana ge
rialacc
ount
ingc
onceptsandpr
epareaninc
omes ta
tementf
or
di
ffe re
nttype
soforganizati
ons

13)Thec ontri
butionappr oachtot heincomes tat
eme ntoffersseveralbenefitstodeci
si
onmakers
.Which
oft hefoll
owi ngisNOTabe nefitofthi
sappr oach?
A)Thi sappr oachmake si teasi
ert ounde r
standtheimpac tofchange si
ns alesvolumeonoper
ati
ng
income .
B)Thi sappr oachs tr
essest heroleoffixedcos t
sinope rati
ngi ncome .
C)Thi sappr oachi susedwi thCVPanal ysi
s.
D)Thi sappr oachi saccept edbyU. S.Ge ner
allyAccept e
dAc counti
ngPr inciples.
Ans wer:D
Diff:2
LO:5- 3
AACSB:Anal yt
icskill
s
Lear ni
ngOut come :De finebasicmana ger
ialaccountingconc eptsandpr epar eaninc
omest
ate
me ntf
or
differe
ntt ypesofor ganiza t
ions

12
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ight©2014Pe
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on

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 lOMoARcPSD|4600191

14)SanchezCompanyhasnobe
ginni
ngande
ndi
ngi
nve
ntor
ies
,andr
epor
tst
hef
oll
owi
ngda
taabouti
ts
onlyproduct
:

Dir
ectma ter
ialsused $100,000
Dir
ectlabor $80,000
Fi
xedindirectmanufacturi
ng $100,000
Fi
xedse l
li
ngandadmi nis
trat
ive $170,000
Vari
abl
ei ndire
c tmanufact
uring $20,000
Vari
abl
es ell
ingandadmi nist
rat
ive $90,000
Sel
li
ngpr ic
e(perunit) $100

Uni
tspr
oduc
edands
old 12,
000

Sanc hezCompanyus est heabsorpt

ionapproac
htopreparet
hei
ncomes
tat
eme nt
.Whati
sthe
manuf ac t
uringcostofgoodss old?
A)$270, 000
B)$300, 000
C)$390, 000
D)$500, 000
Ans we r:B
Diff:2
LO:5- 3
AACSB:Anal ytics
kill
s
Lear ni
ngOut come:De finebasicmanager
ialac
count
ingconc
ept
sandpr
epareaninc
omestat
eme
ntf
or
differe
ntt ypesoforganizati
ons

13
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ight©2014Pe
ars
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on

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 lOMoARcPSD|4600191

15)Gonzal
ezCompanyhasnobe
ginni
ngande
ndi
ngi
nve
ntor
ies
,andr
epor
tst
hef
oll
owi
ngda
taabouti
ts
onlypr
oduct:

Dir
ectma ter
ialsused $300,
000
Dir
ectlabor $80,
000
Fi
xedindirectmanufacturi
ng $100,
000
Fi
xedse l
li
ngandadmi nis
trat
ive $190,
000
Vari
abl
ei ndire
c tmanufact
uring $20,
000
Vari
abl
es ell
ingandadmi nist
rat
ive $90,
000
Sel
li
ngpr ic
e(perunit) $50

Uni
tspr
oduc
edands
old 10,
000

Gonzal ezCompanyus est heabsor

pti
onapproacht
opr e
par et
heincomest
ate
ment
.Whati
sthegr
oss
mar gin?
A)$0
B)$20, 000
C)$100, 000
D)$120, 000
Ans we r:A
Diff:2
LO:5- 3
AACSB:Anal yt
ics
kill
s
Lear ni
ngOut come:De finebasi
cmanager
ialacc
ounti
ngc once
ptsandpre
pareani
ncomes
tat
ementf
or
di
ffe re
ntt ype
soforganizati
ons

16)Whe nabs orptionc os ti

ngi susedfort
hei nc
omestat
ement,thediffe
rencebet
weensal
esand________
isgros smargin.
A)manuf act
ur ingc ostofgoodss old
B)s ell
ingexpe nses
C)s ell
ingandadmi nistrati
vee xpenses
D)var iabl
ee xpe nses
Ans we r:A
Diff:2
LO:5- 3
AACSB:Anal yt i
cs ki
lls
Lear ni
ngOut come :De finebas i
cmana ge
rialacc
ount
ingconc
e ptsandpr epar
eaninc
omes t
ate
mentfor
differe
nttype sofor gani zations

14
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 lOMoARcPSD|4600191

17)Gar
ciaCompanyhasnobe
ginni
ngande
ndi
ngi
nve
ntor
ies
,andr
epor
tst
hef
oll
owi
ngda
taabouti
ts
onlypr
oduct:

Dir
ectma ter
ialsused $270,
000
Dir
ectlabor $180,
000
Fi
xedindirectmanufacturi
ng $130,
000
Fi
xedse l
li
ngandadmi nis
trat
ive $150,
000
Vari
abl
ei ndire
c tmanufact
uring $120,
000
Vari
abl
es ell
ingandadmi nist
rat
ive $60,
000
Sel
li
ngpr ic
e(perunit) $99

Uni
tspr
oduc
edands
old 30,
000

Gar ciaCompanyus estheabsorpt

ionappr
oachtoprepar
etheincomes
tat
ement
.Whati
stheoper
ati
ng
i
ncome ?
A)$2, 060,000
B)$2, 120,000
C)$2, 240,000
D)$2, 970,000
Ans we r:A
Diff:2
LO:5- 3
AACSB:Anal ytics
kill
s
Lear ningOut come:De finebas
icmanager
ialac
count
ingconc
eptsandpre
par
eaninc
omes t
ate
mentfor
di
ffe renttypesoforganizati
ons

15
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ight©2014Pe
ars
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on

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 lOMoARcPSD|4600191

18)GomezCompanyhasnobe
ginni
ngande
ndi
ngi
nve
ntor
ies
,andr
epor
tst
hef
oll
owi
ngda
taabouti
ts
onlypr
oduct
:

Dir
ectma ter
ialsused $470,000
Dir
ectlabor $180,000
Fi
xedindirectmanufacturi
ng $130,000
Fi
xedse l
li
ngandadmi nis
trat
ive $150,000
Vari
abl
ei ndire
c tmanufact
uring $120,000
Vari
abl
es ell
ingandadmi nist
rat
ive $60,000
Sel
li
ngpr ic
e(perunit) $100

Uni
tspr
oduc
edands
old 30,
000

Gome zCompanyus esthec ont

ribut
ionapproac
ht opre
paretheinc
omesta
tement
.Whati
stheopera
ting
i
ncome ?
A)$1, 890,000
B)$2, 100,000
C)$2, 190,000
D)$2, 250,000
Ans we r:A
Diff:2
LO:5- 3
AACSB:Anal ytics
kill
s
Lear ningOut come:De finebas
icmanageri
alaccount
ingconc
e pt
sandpr
epareani
ncomest
ate
me ntf
or
di
ffe renttypesoforganizati
ons

19)Unde rabs or ptionc osti

ng,fixedmanuf
acturi
ngcostsareusedtoc
alc
ulate________ont
heinc
ome
st
a teme nt.
A)c ont r
ibutionmar gin
B)manuf actur ingc ostofgoodss old
C)t otalvariablec osts
D)t otalfixe
dc os ts
Ans we r:B
Diff:3
LO:5- 3
AACSB:Anal yt icskill
s
Lear ningOut c ome :De finebasicmanager
ialac
counti
ngc once
ptsandprepareanincomest
ate
me ntf
or
differenttype sofor ganizati
ons

16
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ight©2014Pe
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20)The________appr oac hisusef

ulfors
hor t
-runpri
cingdeci
si
onsandthe________appr
oachi
susef
ul
forlong- runpr icingde ci
s i
ons.
A)c ont r
ibut i
on;abs or ption
B)abs orpt i
on;c ont ribut i
on
C)f ullcosting;tar getc os ti
ng
D)f ullcos t
ing;c ont ribut i
on
Ans we r:A
Diff:1
LO:5- 3
AACSB:Anal ytics ki l
ls
Lear ningOut come :De finebasicmanage
rialaccount
ingconc
eptsandpr
e par
eani nc
omestat
ementf
or
differenttype sofor gani zations

21)Ont hei ncomes tat

eme nt,theabs
orpt
ionapproac
hs e
para
tesmanufac
turi
ngcost
sfrom ________.
A)s omenonmanuf acturingc ost
s
B)al lnonmanuf acturingc ost
s
C)al lvariablec ost
s
D)al lfixe
dc osts
Ans we r:B
Diff:2
LO:5- 3
AACSB:Anal yticskill
s
Lear ningOut come:De finebasicmanage
rialac
count
ingconc
eptsandprepar
eanincomestatementfor
differenttype sofor ganizati
ons

17
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ight©2014Pe
ars
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 lOMoARcPSD|4600191

22)WinterCompanyhasnobe
ginni
ngande
ndi
ngi
nve
ntor
ies
,andr
epor
tst
hef
oll
owi
ngda
taabouti
ts
onlyproduct
:

Dir
ectma ter
ialsused $200,000
Dir
ectlabor $80,000
Fi
xedindirectmanufacturi
ng $100,000
Fi
xedse l
li
ngandadmi nis
trat
ive $300,000
Vari
abl
ei ndire
c tmanufact
uring $20,000
Vari
abl
es ell
ingandadmi nist
rat
ive $60,000
Sel
li
ngpr ic
e(perunit) $150

Uni
tspr
oduc
edands
old 10,
000

Wint erCompanyus estheabs or

pti
onapproachtopr
epar
et heincomest
atement
.Whati
sthegros
s
mar gin?
A)$740, 000
B)$1, 040,
000
C)$1, 100,
000
D)$1, 160,000
Ans we r:C
Diff:2
LO:5- 3
AACSB:Anal ytics
kill
s
Lear ningOut come:De finebasi
cmanager
ialacc
ount
ingconceptsandprepar
eaninc
omestat
ementf
or
di
ffe renttypesoforganizati
ons

18
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ight©2014Pe
ars
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23)La
tinovi
chCompanyhasnobe
ginni
ngande
ndi
ngi
nve
ntor
ies
,andr
epor
tst
hef
oll
owi
ngda
taabout
it
sonl
ypr oduc
t:

Dir
ectma ter
ialsused $200,000
Dir
ectlabor $80,000
Fi
xedindirectmanufacturi
ng $180,000
Fi
xedse l
li
ngandadmi nis
trat
ive $150,000
Vari
abl
ei ndire
c tmanufact
uring $130,000
Vari
abl
es ell
ingandadmi nist
rat
ive $160,000
Sel
li
ngpr ic
e(perunit) $150

Uni
tspr
oduc
edands
old 10,
000

LatinovichCompanyus e sthec
ontr
ibuti
onapproachtopr
eparet
heinc
omestat
ement.Wha
tisthe
contr i
butionmar gi
n?
A)$600, 000
B)$910, 000
C)$930, 000
D)$1, 090,000
Ans we r:C
Diff:2
LO:5- 3
AACSB:Anal ytics
kill
s
Lear ningOut come:De finebas
icmanageri
alac
counti
ngconce
ptsandpre
par
eanincomest
atementf
or
differenttypesoforganizati
ons

19
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ight©2014Pe
ars
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on

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24)ZemanCompanyhasnobe
ginni
ngande
ndi
ngi
nve
ntor
ies
,andr
epor
tst
hef
oll
owi
ngda
taabouti
ts
onlyproduc
t:

Dir
ectma ter
ialsused $200,
000
Dir
ectlabor $180,
000
Fi
xedindirectmanufacturi
ng $100,
000
Fi
xedse l
li
ngandadmi nis
trat
ive $150,
000
Vari
abl
ei ndire
c tmanufact
uring $120,
000
Vari
abl
es ell
ingandadmi nist
rat
ive $60,
000
Sel
li
ngpr ic
e(perunit) $75

Uni
tspr
oduc
edands
old 10,
000

ZemanCompanyus esthec ont

ribut
ionapproachtopre
paretheinc
omest
ate
me nt
.Whati
sthe
contr i
butionmargi
n?
A)$150, 000
B)$190, 000
C)$250, 000
D)$370, 000
Ans we r:B
Diff:2
LO:5- 3
AACSB:Anal yt
ics
kill
s
Lear ningOutcome:De finebas
icmana ge
rialac
count
ingconc
e pt
sandpr
epareaninc
omest
ate
mentf
or
differenttype
soforganizati
ons

20
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ight©2014Pe
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on

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25)Schaef
erCompanyhasnobe
ginni
ngande
ndi
ngi
nve
ntor
ies
,andr
epor
tst
hef
oll
owi
ngda
taabouti
ts
onlyproduct
:

Dir
ectma ter
ialsused $200,
000
Dir
ectlabor $80,
000
Fi
xedindirectmanufacturi
ng $100,
000
Fi
xedse l
li
ngandadmi nis
trat
ive $150,
000
Vari
abl
ei ndire
c tmanufact
uring $20,
000
Vari
abl
es ell
ingandadmi nist
rat
ive $60,
000
Sel
li
ngpr ic
e(perunit) $50

Uni
tspr
oduc
edands
old 10,
000

Schae ferCompanyus e
st hecontr
ibut
ionappr oachtopre
parethei
ncomest
atement.Whati
sthe
contr i
butionmargi
n?
A)$100, 000
B)$140, 000
C)$200, 000
D)$220, 000
Ans we r:B
Diff:2
LO:5- 3
AACSB:Anal yt
ics
kill
s
Lear ningOutcome:De finebasi
cmana ge
rialaccounti
ngconc
eptsandpr
epareanincomest
atementf
or
differenttype
soforganizati
ons

26)Theabs or pti
onc ostingappr oacht
otheincomest
atementi
susedbycompani
esfore
xte
rnalfinanci
al
repor t
ing.
Ans we r:TRUE
Diff:2
LO:5- 3
AACSB:Re flect
ivethinki ngski
lls
Lear ni
ngOut come :De finebasicmanager
ialacc
ount
ingconce
ptsandpr
epareaninc
omestat
eme ntfor
differe
nttype sofor ganiza t
ions

27)Theabs or pti
onappr oac htothei
ncomes t
ate
me ntemphasi
zesthedi
sti
ncti
onbet
we e
nfix
edand
variablecosts.
Ans we r:FALSE
Diff:2
LO:5- 3
AACSB:Re flect
ivethinki ngskil
ls
Lear ni
ngOut come :De finebas i
cmanager
ialaccount
ingconc
eptsandprepar
eanincomest
ateme
ntfor
differe
nttype sofor ganiza t
ions

21
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ight©2014Pe
ars
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on

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28)Ont heincomes tat

eme nt,thecontr
ibutionmargi
nisc
omput
edusi
ngvar
iabl
emanuf
act
uringcos
ts
andvar iabl
es elli
ngandadmi nist
rat
ivecosts.
Ans we r:TRUE
Diff:2
LO:5- 3
AACSB:Re fle
c t
ivethinki ngs kil
ls
Lear ni
ngOut come :De finebas icmana ge
rialacc
ount
ingc
onc
ept
sandpre
pareaninc
omest
ate
me ntf
or
differe
nttype sofor ganiza t
ions

22
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ight©2014Pe
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on

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29)Whitne
yCompanyhasjustc
omple
teditsfir
styearofopera
tions
.Thecompany'
sac
count
anthas
prepar
edanabs
orpt
ioncos
tinginc
omesta
teme ntfortheyea
rass ee
nbelow:

Sal
es(35,
000uni t
sat$25) $875,
000
Begi
nningI nvent
ory 0
CostofGoodsManuf acture
d(35,000×$12)+$160,
000= 580,
000
CostofGoodsAvai l
able 580,
000
EndingInventory 0
CostofGoodsSol d 580,
000
GrossMar gin 295,
000
Sel
li
ngandAdmi ni
stra
tiveExpenses 280,
000
NetIncome $15,
000

Thevariableproduct
ioncost
speruni
tar
ede
ter
mine
dasf
oll
ows
:
Dir
ectma teri
als $5
Dir
ectlabor 6
Var
iabl
epr oduc t
ion 1
Tot
alvariableproduct
ioncos
ts $12

Thecompany'
sfixedproduct
ioncost
sar
e$160,
000pe
ryear
.Thecompany'
sse
lli
ngandadmini
str
ati
ve
expe
nsescons
istof$210,
000peryea
rinfix
edexpe
nse
sand$2peruniti
nvari
ablee
xpens
es.

Requi r
ed:
Pre parethec ompany' sincomestat
ementi
nt hecont
ribut
ionformat
.
Ans we r
:Sales $875,
000
Var iableExpe ns
e s:
Produc ti
onCos t
s (
35,000×$12) $420,
000
SellingandAdmi nist
rati
ve(35,
000×$2) 70,
000
TotalVar iabl
eExpe nses 490,
000
Cont ri
butionMar gin 385,
000
Fixe dExpe nses:
Produc ti
onCos t
s 160,
000
SellingandAdmi nist
rati
ve 210,
000
TotalFi xedExpe nses 370,
000
Ne tI ncome $15,
000
Diff:3
LO:5- 3
AACSB:Anal yt
icskills
Lear ningOut come :De finebasi
cmanager
ialacc
ountingconcept
sandpr
epareaninc
omes
tat
eme
ntf
or
differenttypesofor ganizati
ons

23
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ight©2014Pe
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on

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 lOMoARcPSD|4600191

30)St
ewartCompanyhasnobe
ginni
ngande
ndi
ngi
nve
ntor
ies
,andr
epor
tst
hef
oll
owi
ngi
nfor
mat
ion
abouti
tsonl
yproduct
:

Dir
ectma ter
ialsus ed $29,
000
Dir
ectlabor $17,
000
Var
iabl
ei ndire
c tproducti
on $13,
000
Fi
xedindirectpr oducti
on $18,
000
Var
iabl
es el
lingandadmi nist
rati
veexpens
es $22,
000
Fi
xedse l
li
ngandadmi nis
tra
tiveexpens
es $11,
000

Unit
sproduce
dandsol
d 10,
000
Se
lli
ngpric
eperuni
t $25

Requi
red:
A)Prepar
eani
ncomest
ateme
ntusi
ngt
hecontr
ibuti
onapproac
h.
B)Pre
pareani
ncomes
tate
mentus
ingt
heabsor
ptionappr
oach.

24
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Ans we r:
A)
Sales(10,000×$25) $250,
000
Variablee xpe nses:
Directma terials $29,
000
Directlabor 17,
000
Variableindi rectpr oduc
tion 13,
000
Variablemanuf act uri
ngcostofgoodssol
d 59,
000
Variables ellingandadmi n.expenses 22,
000
Totalvariabl ee xpe nses 81,
000
Cont r
ibut ionmar gin 169,
000
Fixede xpe ns es:
Indirectpr oduc tion 18,
000
Sell
ingandadmi n. 11,
000
Totalfixede xpens e s 29,
000
Ope rati
ngi nc ome $140,
000

B)
Sales $250,
000
Manuf acturingc ostofgoodss old:
Dir ectma teri
als $29,
000
Dir ectlabor 17,
000
Var i
abl eindirectproduc tion 13,
000
Fixedi ndirectpr oduction 18,
000
Manuf acturingc ostofgoodss old 77,
000
Gr ossmar gin 173,
000
Selli
ngandadmi nistr
ativeexpenses 33,
000
Ope ra t
ingi ncome $140,
000
Diff:2
LO:5- 3
AACSB:Anal yticskill
s
Lear ningOut come :De finebasi
cmanage
rialac
count
ingconce
ptsandpr
epar
eani
ncomes
tat
eme
ntf
or
differenttype sofor ganizati
ons

25
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ight©2014Pe
ars
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on

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 lOMoARcPSD|4600191

31)Margare
tCompanyhasbeenproduc
ingandsel
li
ng100,
000uni
tsperyear
.Theyhaveexc
essc
apaci
ty,
andthe
r earenobe
ginni
ngandendingi
nvent
ori
es.Thef
oll
owingbudgetwaspre
pare
df ort
henextye
ar:

Sel
li
ngpr ic
epe runit $11.00
Dir
ectma ter
ialsperunit $5.00
Dir
ectlaborpe runit $3.00
Vari
ablemanuf actur
ingove
rheadpe runit $1.00
Vari
ablesell
ingandadmi ni
str
ati
vepe runit $0.25
Tot
alfixe
dmanuf act
uri
ngoverheadcosts $50,000
Tot
alfixe
ds ell
ingandadminist
rati
ve $15,000

Requi
red:
A)Prepar
eani
ncomest
ateme
ntusi
ngt
hecontr
ibuti
onapproac
h.
B)Pre
pareani
ncomes
tate
mentus
ingt
heabsor
ptionappr
oach.

Ans we r:
A)
Sal
e s(100,000×$11. 00) $1,
100,
000
Variableexpe nse
s :
Directma terials 500,
000
Directlabor 300,
000
Variableove rhead 100,
000
Variablemanuf act uringcostofgoodss
old 900,
000
Variablesellingandadmi n.expense 25,
000
Totalvariablee xpe ns es 925,
000
Cont r
ibutionmar gin 175,
000
Fix
e de xpens es:
Manuf acturing 50,
000
Sel
lingandadmi n.e xpense 15,
000
Totalfixede xpens e s 65,
000
Ope rati
ngi nc ome $110,
000

B)
Sales $1,100,
000
Manuf acturingc os
tofgoodss old:
Dir ectma teri
als $500,
000
Dir ectlabor 300,
000
Var i
abl eove r
he ad 100,
000
Fixedove rhead 50,
000
Manuf acturingc os
tofgoodss old 950,
000
Gr ossmar gin 150,
000
Selli
ngandadmi nis
tra
tiveexpense 40,
000
Ope ra t
ingi ncome $110,
000
Diff:2
LO:5- 3
AACSB:Anal yticski
ll
s
Lear ningOut come:De finebasi
cmana
ger
ialac
count
ingc once
ptsandpr
epar
eani
ncomes
tat
eme
ntf
or
differenttype soforganizati
ons

5.
4 Que
sti
ons

1)Whe ne
valuatingshort
-ter
ms peci
alor
derdeci
si
ons,whic
hofthefol
lowi
ngt
ype
sofi
ncomes
tat
eme
nts
shoul
dbeus ed?
A)me t
hoduse dforexte
rnalrepor
ting
B)methodthatfoll
owsU. S.Gener
allyAc
cepte
dAc c
ounti
ngPri
ncipl
es
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 lOMoARcPSD|4600191

C)abs orpt
ionappr oach
D)c ontri
buti
onappr oach
Ans we r
:D
Diff:1
LO:5- 4
AACSB:Re fle
c t
ivethinkingskil
ls
Lear ni
ngOut come :Di s
tingui
shbetwe
enr
ele
vantandi
rre
levantc
ost
s

2)Ins pecialor de rsituations,unitcost

sareus e
fulforpredi
cti
ngtotal________.I
nspe
cialor
ders
itua
tions
,
unitc ost
sar enotus e fulforpredict
ingtotal________.
A)mi xedc osts;stepc osts
B)ste pcosts;mi x edc osts
C)var iabl
ec osts;fix
e dc os t
s
D)fix edcos ts;var i
ablec os t
s
Ans we r:C
Diff:2
LO:5- 4
AACSB:Re flect
ivet hinki ngskil
ls
Lear ningOut come :Di st
inguishbet weenrel
evantandi r
rel
evantcosts

3)Frankli
nCompanyus e
sac
tivi
ty-
base
dc ost
ing,andnormal
lypr
oduc
es1,
000,
000uni
tspe
rmont
h.At
thi
slevelofpr
oduc
tion,t
hecost
sperunitar
easf ol
lows
:

Dir
ectmater
ialsused $14
Dir
ectl
abor $6
Vari
abl
eindire
c tpr
oduc
tion $1
Set
upcosts $3

For1, 000,
000uni ts,500s e
tupsar erequi
redatac ostof$6,000perset
up.Thecompanyhasrec
eive
da
spec i
alorde rfor100,000uni t
sa t$22perunit.Thecompanyhase xc
esscapac
ity
.Thecompanyest
ima
tes
that5s etupswi llber equir
edf orthespeci
alorder.Wha tisthecos
tofthespeci
alor
der?
A)$2, 100,000
B)$2, 130,
000
C)$2, 400,000
D)$2,430, 000
Ans we r:B
Diff:3
LO:5- 4
AACSB:Anal yt
ics ki
ll
s
Lear ningOut come :Di sti
nguishbe t
we e
nr el
evantandi rr
e l
evantc
osts

27
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ight©2014Pe
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4)OakCreekCompanyusesac
tivi
ty-bas
e dcos
ting,andnor
mal
lypr
oduc
es1,
000,
000uni
tspe
rmont
h.At
thi
sle
velofpr
oduct
ion,t
hecost
spe runitar
easf ol
lows:

Dir
ectmater
ialsused $15
Dir
ectl
abor $6
Vari
abl
eindire
c tpr
oduc
tion $1
Set
upcosts $5

For1, 000,
000uni ts,500s e
tupsar erequiredatac ostof$10,000persetup.Thecompanyhasrece
iveda
spec i
alorde rfor100,000uni t
sa t$22pe runit.Thecompanyhase xces
sc apac
ity
.Thecompanyesti
mat
es
that5s etupswi llber equire
df orthes peci
alorder.Vari
ables e
lli
ngcostsof$1peruni
twillal
sobe
incur redforthes pecialorder.Wha tisthecostofthespecialorder?
A)$2, 300,000
B)$2, 350,
000
C)$2, 700,000
D)$2, 800,000
Ans we r:B
Diff:3
LO:5- 4
AACSB:Anal ytics ki
lls
Lear ningOut come :Di sti
ngui s
hbe twe e
nr el
evantandi r
relevantcost
s

5)Whi choft hef oll

owi ngitemsi susual
lyNOTi mport
anttospec
ialorde
rde
cis
ions
?
A)affe ctofs pecialorderonr egularbusine
ss
B)whe theridl ecapacityisavailabl
e
C)tot alfix
edc osts
D)i ncreasei nvar i
ablec ost
spe runitduetospec
ialor
der
Ans we r:C
Diff:2
LO:5- 4
AACSB:Re fle
c t
ivethinkingskills
Lear ningOut come :Di sti
nguishbe t
we e
nrele
vantandirr
ele
vantcost
s

6)Mi ssour iCompanyhasac urre

ntpr oducti
onc apac i
tylevelof200,000unitspermont h.Atthislevelof
produc tion,var i
abl ecost
sare$0.60pe runitandfixe dcostsare$0.50pe runit
.Cur rentmonthlysalesare
173,000uni ts.Ga tesCompanyhasc ont act
edMi ssouriCompanyaboutpur chasi
ng20, 000unit
sa t$1.00
each.Cur r
e ntsaleswoul dnotbea ffec
te dbythes pecialorderandnoaddi t
ionalfix
edc ost
swoul dbe
incur redont hes pe ci
alorder.I
ftheor de risacce
pt ed,wha tisMissouriCompany' schangeinpr ofit
s?
A)$8, 000i nc rease
B)$8, 000de creas e
C)$10, 000i ncrease
D)$10, 000de cr ease
Ans we r :A
Diff:2
LO:5- 4
AACSB:Anal yticskill
s
Lear ningOut come :Di s
tinguis
hbe twee nrel
evantandi r
rele
vantcosts

7)Wi s
consi
nCompanyhasac urr
entpr oducti
onc apacitylevelof200,000unitspe rmonth.Atthi slevelof
produc ti
on,var iablecost
sare$1.
00pe runitandfixedc ost
sar e$0.
50pe runit
.Cur rentmonthlys alesare
164,500units.Ga t
esCompanyhasc ontactedWi s
cons i
nCompanyaboutpur chasing20,000unitsa t$2.
00
each.Cur rentsal eswouldnotbeaffe
ctedbyt hespec i
alorde randnoaddi t
ionalfixe
dc ost
swoul dbe
incurredont hes peci
alorde
r.Var
iablecostswouldi ncreas
e$0. 10peruni twiththes peci
alorder.Ifthe
orde risacc
e pted,wha tisWisc
onsinCompany' sincreaseinope rat
ingi ncome?
A)$8, 000
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 lOMoARcPSD|4600191

B)$18,000
C)$20,000
D)$24, 000
Ans wer :B
Diff:2
LO:5- 4
AACSB:Anal yti
cski
ll
s
Lear ni
ngOutc
ome :Dis
tingui
shbe
twe
enr
ele
vantandi
rre
levantc
ost
s

8)Eac hmont hFigCompanypr oduc es11,

000unitsofaproductthatsell
sfor$18pe runit,andhas
variablecost
sof$12pe runit.Tot
alfixedcost
sforthemont hare$77,000.As pec
ialorderisrec e
ivedfor
5,
000uni t
satapr i
ceof$14pe runit.FigCompanyhasade qua t
ecapacityforthespecialorder.IfFi
g
Companyac cept
st hespeci
alorder,wha ti
stheprofitt
oFigCompanyf rom thespecialorder?
A)$0
B)$10,000
C)$22,000
D)$99, 000
Ans we r:B
Diff:2
LO:5- 4
AACSB:Anal yticskil
ls
Lear ni
ngOut come:Di st
inguishbetwe enrel
evantandirr
elevantcosts

9)Eac hmont hNe wtonCompanypr oduces30, 000unit

sofapr oduc tt
hathasvar iabl
ecost
sof$70per
unit.Totalfixedcostsforthemont hare$99,000.As pe
cialorderisrecei
ve dfor1,000uni
tsatapri
ceof$80
peruni t
.Ne wtonCompanyhasade quat
ec apac i
tyf
orthes peci
alorder.IfNe wtonCompanyac c
eptst
he
spec i
alorde r
,wha tistheprofitt
oNe wtonCompanyf rom thes peci
alorde r
?
A)$0
B)$6, 700
C)$7, 000
D)$10, 000
Ans we r:D
Diff:2
LO:5- 4
AACSB:Anal yticskil
ls
Lear ningOut come:Di sti
nguishbetweenr ele
vantandi rr
elevantcosts

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10)Minnesot
aCompanyhasnobe
ginni
ngande
ndi
ngi
nve
ntor
ies
,andhast
hef
oll
owi
ngda
taabouti
ts
onlyproduct
:

Fi
xedmanufact
uri
ngcosts $92,000
Fi
xedsel
li
ngandadmi ni
str
ati
vecos
ts $69,000
Vari
abl
emanufact
uri
ngc os
ts $1,
030,000
Vari
abl
esel
li
ngandadmi ni
str
ati
vecos
ts $120,000
Sel
li
ngpri
ce(
perunit
) $125

Uni
tspr
oduc
edands
old 23,
000

Assumet hereise x
c e
sscapaci
ty.Thecompanyhasrec
eivedas peci
alorde
rfor1,
000uni
tsa
t$60.
00pe
r
unit.Ift hespecialorderisacc
e pte
d,whatwil
lbetheeffe
ctonne tinc
ome?
A)ne tincomei ncreasesby$3,000
B)ne tinc omei ncreasesby$6,
000
C)ne tincomei ncreasesby$10,000
D)ne tincomei nc r
easesby$15,220
Ans we r:C
Diff:2
LO:5- 4
AACSB:Anal yticskil
ls
Lear ningOut come :Disti
ngui
s hbetwee
nrele
vantandirrel
evantcost
s

11)DakotaCompanyhasbeenproduci
ngandsel
li
ng42,
000hat
sayear
.The
rearenobegi
nningand
endi
ngi nve
ntor
ies
.TheDakotaCorpor
ati
onhast
hecapaci
tyt
oproduc
e52,
000hats
.Thefol
lowi
ngdat
ais
avai
labl
e:

Sel
li
ngpri
ceperunit $30
Vari
abl
emanufact
uri
ngc
ostsperunit $13
Vari
abl
esel
li
ngandadmini
str
ati
vecost
spe
runi
t $7

Tot
alfix
edmanufac
tur
ingc
osts $126,
000
Tot
alfix
eds
ell
ingandadmini
str
ati
vec
ost
s $84,
000

Ifas pecialorderisaccept
edfor10,
000hat
satapr i
ceof$25perunit
,neti
ncomewoul
d________.
A)inc reaseby$20,000
B)inc r
eas eby$50,000
C)inc reaseby$90,000
D)de c
re aseby$24,000
Ans we r
:B
Diff:2
LO:5- 4
AACSB:Anal yt
icskil
ls
Lear ni
ngOut come :Disti
ngui
shbetweenrel
evantandir
rel
evantcos
ts

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ight©2014Pe
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on

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12)Ar
kansasCompanyhasnobe
ginni
ngande
ndi
ngi
nve
ntor
ies
,andhasobt
aine
dthef
oll
owi
ngda
taf
or
it
sonl
yproduct:

Sel
li
ngpr ic
epe runit $65
Dir
ectma ter
ial
sus e
d $150,
000
Dir
ectlabor $225,
000
Vari
abl
ef act
oryoverhead $140,
000
Vari
abl
es ell
ingandadmi ni
str
ati
veexpens
es $60,
000
Fi
xedfactoryoverhead $370,
000
Fi
xedse l
li
ngandadmi ni
str
ati
veexpens
es $30,
000

Uni
tspr
oduc
edands
old 20,
000

Assumet hereisexc es
scapacit
y.Therei
sas pe ci
alorderoutst
andi
ngf or1,
000uni
tsa
t$40.
00pe
runi
t.I
f
Arkans asCompanyac ce
ptsthespeci
alorder,netincomewoul d________.
A)inc reaseby$40, 000
B)inc re
as eby$11, 250
C)de c
reas eby$28, 750
D)de cr
e aseby$10, 000
Ans we r:B
Diff:2
LO:5- 4
AACSB:Anal yti
cs kil
ls
Lear ni
ngOut come :Di sti
nguishbet
we e
nr e
le vantandirre
levantc
osts

13)KansasCompanyusesac
tivi
ty-bas
edcost
ing.Thecompanypr
oduc
esands
ell
s20,
000uni
tsa
t$22pe
r
unit
.KansasCompany'
sproductcosti
scal
culat
eda sf
oll
ows:

Variablecos
ts $10pe
runi
t
Fix
e dcosts $2pe
runi
t
Setupc os
ts $3pe
runi
t
Totalcost
s $15pe
runi
t

At otalof500s etupsa tac os

tof$120pe rse
tupa r
er e
quiredtoproducet
he20,
000unit
s.KansasCompany
hasr eceivedas peci
alor dertosel
l5,000unit
sat$12pe runit
.KansasCompanyhasexce
sscapacit
y
available,butt
he se5,000uni t
swouldr equi
re60s e
tups.IfKansasCompanyacc
eptst
hes pe
cialor
der
,
wha tist heinc
r eas
eorde cre
aseinne ti
ncome?
A)$0
B)de c
rease$5,000
C)de cre
ase$15,000
D)i ncrease$2,800
Ans we r:D
Diff:2
LO:5- 4
AACSB:Anal yticski
lls
Lear ningOut c
ome :Di s
tinguis
hbe t
we enrel
evantandi r
rel
evantcos
ts

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ight©2014Pe
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on

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14)Nebras
kaCompanyusesac
tivity-
bas
edcost
ing.Thec
ompanyproduc
esands
ell
s20,
000uni
tsa
t$20
perunit
.Nebr
askaCompany'
spr oductc
osti
scalc
ulat
edasf
oll
ows:

Variablecos
ts $8pe
runi
t
Fix
e dcosts $2pe
runi
t
Setupc os
ts $3pe
runi
t
Totalcost
s $13pe
runi
t

At otalof500s etupsa tac ostof$120pers e

tupa r
erequir
edt oproducethe20,000uni
ts.Nebr
aska
Companyhasr ece i
vedas pe ci
alordertosell5,
000unit
sat$11pe runit
.Ne br
askaCompanyhase x
cess
capac it
ya vail
able ,butthe se5,000unit
swoul drequi
re60s e
tups.IfNebras
kaCompanyac c
eptsthespeci
al
orde r,wha ti
sNe braska'sincreaseinnetincome?
A)inc r
ease$5,000
B)inc rease$7,800
C)de creas
e$2, 800
D)de crease$5,000
Ans we r:B
Diff:2
LO:5- 4
AACSB:Anal yticskil
ls
Lear ningOut come :Di s
tinguishbe t
we e
nr ele
vantandirr
elevantcos
ts

15)As mal lappli

anc emanuf acturerisdecidingwhe t
hertoacceptorrej
ectaspeci
alorderfor1,
750
appl iances.Thereiss ufficientcapac i
tyavailableforthespec
ialorder.Whatisre
levantinf
orma t
ionf
ort
he
decisionwhe thertoac ceptorre je
c tt
hespe cialorder?
A)t hec ostofthepar tsfort he1,750applianc es
B)thes upe r
visor'
ss alaryi nthepr oductionar ea
C)t hede pr ec
iati
ononas s e
mbl ye quipme nt
D)t heac countant'ss alary
Ans we r:A
Diff:2
LO:5- 4
AACSB:Anal yti
cs kills
Lear ningOut come :Di stinguis
hbe tweenr elevantandirr
ele
vantc os
ts

16)Inas peci
alor derde cisi
on,whichofthef
ollowingc
ostsareus
uall
yir
rel
evantt
othede
cis
ion?
A)var iablemanuf ac t
uringc ost
s
B)fix e
dmanuf acturingc osts
C)var iablesel
lingc osts
D)var iableindirectproduc ti
onc os
ts
Ans we r:B
Diff:2
LO:5- 4
AACSB:Re fle
c t
ivethinki ngskil
ls
Lear ningOut come :Di st
inguishbetweenrel
evantandir
rele
vantcos
ts

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17)Surl
yCompanymake ssmallboa
ts.Thec ompanyproducesandsel
ls5,
500boat
spe ryearatas
ell
ing
pric
eof$160perboat
.Surl
yCompanyhase xces
scapac
ityandistryi
ngtogetspe
cialorders
.Anew
ret
ail
erwantstopur
chase1,
000boatsfor$125perboat
.SurlyCompanyisgoingt
ode cli
nethespec
ial
orderbecaus
eitc
ost
s$130tomakeas ingleboatass
eenbelow:

Directmate
rial
s $50pe
runi
t
Directmanufac
t ur
inglabor $55pe
runi
t
Variabl
emanufac t
uri
ngove r
head $10pe
runi
t
Fix
e dmanufacturi
ngove r
head $15pe
runi
t
Total $130pe
runi
t

Requi red:
A)Shoul dSur lyCompanyr ejectthespecialorderfrom t hene wr etai
ler
?Why?
B)How muc hwi l
lSur ly'snetincomei ncreasewitht hes pecialoffer?
Ans we r:
A)No,be caus eneti ncomewi l
li ncr
easewi ththes pecialorde r
.
B)Ther elevantc ostofmaki ngaboa tis:
Dire ctma terials $50pe runit
Dire ctmanuf acturingl abor $55pe runit
Variabl emanuf actur i
ngove rhead $10pe runit
Totalc ost $115pe runit
So,thepr ofitone achboa twillbe$10pe rboa t,whi c
he qual
s$125-$115.$10time
s1,
000boa
tse
qual
s
$10,000i ncre aseinne ti ncomewi t
ht hespecialorder.
Diff:2
LO:5- 4
AACSB:Anal yti
cs kill
s
Lear ningOut c
ome :Di sti
nguishbe tweenr el
evantandi rrel
evantc osts

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18)TexasCompanyproduc
esands
ell
s22,
000uni
tsofas
ingl
epr
oduc
t.Cos
tsas
soc
iat
edwi
tht
hisl
eve
lof
producti
onareasf
oll
ows:

Dir
ectmate
rial
s $15pe
runi
t
Dir
ectmanufacturinglabor $45pe
runi
t
Var
iabl
emanuf ac t
uringover
head $25pe
runi
t
Fi
xedmanufactur i
ngove r
head $40pe
runi
t
Var
iabl
esel
lingc osts $10pe
runi
t

Theproductnormal
lyse
llsf
or$160pe runit
.TexasCompanyhasrec
eivedaspeci
alor
dertos
ell2,
000
uni
tsat$120peruni
t.Wit
hthespecialorder
,variables
ell
ingc
ost
swil
lincr
easeby$5peruni
tto$15per
uni
t.TexasCompanyhasexce
ssproduc t
ioncapacity
.

Requi red:
Comput etheamountbywhi chtheoper
ati
ngincomeofTe xasCompanywoul
dchangei
fthes
pec
ialor
der
wasac cepted.
Ans we r:Addi t
ionalsal e
s(2,000×$120) $240,
000
Variabl ecosts:
Direc tma teri
als(2,
000×$15) $30,
000
Direc tlabor(2,000×$45) $90,
000
Variabl esell
ing( 2,
000×$15) $30,
000
Variabl emanuf .ove r
he ad(2,000×$25) $50,
000
Addi tionalope rati
ngi ncome $40,
000
Diff:2
LO:5- 4
AACSB:Anal yticskil
ls
Lear ningOut c
ome :Di s t
inguishbet
weenrele
vantandirre
levantc
ost
s

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19)St
angl
eCompanymanuf
act
ure
sti
es.Whe
n28,
000t
iesar
epr
oduc
ed,t
hec
ost
spe
runi
tar
e:

Dir
ectmate
rial
s $0.
60
Dir
ectmanufactur
inglabor $3.
00
Var
iabl
emanuf act
uri
ngove r
head $1.
20
Fi
xedmanufacturi
ngove r
head $1.
60
Var
iabl
esel
ling $0.
80
Fi
xedsel
li
ng $1.
13

Theti
esnormal
lysel
lfor$22eac
h.Thec ompanyhasr
ece
ive
das pe
cialor
derf
or2,000t
iesat$8.
00pert
ie.
Thecompanywilli
ncuranaddit
ionalvari
abl
esel
li
ngcos
tof$1.
50perunitwi
ththespeci
alorder
.The
companyhasex
cesscapaci
ty.

Requi red:
Comput etheamountbywhi chtheope r
ati
ngincomewouldchangei
ftheorde
rwe
reac
cept
ed.
Ans we r:Addi t
ionalsal e
s(2,000×$8.00) $16,
000
Addi tionalexpe nses:
Direc tma ter
ials(2,
000×$0. 60) $1,
200
Direc tlabor(2,000×$3. 00) 6,
000
Variabl emanuf .ove r
he ad(2,000×$1.20) 2,
400
Variabl esell
ing( 2,
000×$2. 30) 4,
600 14,
200
Addi tionalope rati
ngi ncome $1,
800
Diff:2
LO:5- 4
AACSB:Anal yticskil
ls
Lear ningOut c
ome :Di s t
inguishbet
we enrele
vantandi
rre
levantc
ost
s

5.
5 Que
sti
ons

1)Ini mpe r
fectcompe t
iti
on,i
fpri
cesha
vel
it
tl
eornoe
ffe
ctons
ale
svol
ume
,de
mandi
s________.
A)s table
B)uni form
C)hi ghlyelastic
D)hi ghlyine l
astic
Ans we r:D
Diff:2
LO:5- 5
AACSB:Re flect
ivethi
nkings
kil
ls
Lear ningOut come :None

35
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ight©2014Pe
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2)Ini mpe rf
ectc ompe t
it
ion,firmss houl
dpr
oduc
eands
elluni
tsunt
ilt
he________e
qual
sthe________
.
A)a veragereve nue ;mar ginalcost
B)mar ginalr e
ve nue ;averager evenue
C)a veragereve nue ;averagec ost
D)mar ginalreve nue;mar ginalc ost
Ans we r:D
Diff:2
LO:5- 5
AACSB:Re fle
c ti
vet hinkings kill
s
Lear ni
ngOut come :None

3)Inmana gerialaccounti
ng,________c
anbear
eas
onabl
eappr
oxi
mat
ionofmar
ginalc
osti
nmany
si
tua ti
ons .
A)fix edc ost
B)mi x
e dc ost
C)s tepc ost
D)var iablec ost
Ans we r:D
Diff:2
LO:5- 5
AACSB:Re fle
c t
ivethinki
ngskill
s
Lear ni
ngOut come :None

4)Inpe rf
ectcompe ti
ti
on,al lfir
msc har
get
hes
amemar
ketpr
ice
.Theonl
yde
cis
ionf
ormana
ger
sis
________.
A)how t omi ni
mi zecosts
B)how t omaxi mizeaverager evenue
C)how muc htopr oduce
D)how t omi nimizemar ginalcosts
Ans wer:C
Diff:2
LO:5- 5
AACSB:Re flect
ivethinkings kil
ls
Lear ni
ngOut come :None

5)________i stheadditionalc
ostres
ult
ingf
rom pr
oduc
ingands
ell
ingoneaddi
ti
onaluni
t.
A)Mar ginalcost
B)Commonc ost
C)Oppor tunityc os
t
D)Tar getcos t
Ans we r:A
Diff:1
LO:5- 5
AACSB:Re flect
ivethi
nkingskil
ls
Lear ni
ngOut come :None

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6)Pr iceelas
tic
ityme as
uresthe________.
A)e ffectofsal
e svolumec hangesonpr i
ces
B)e ffe
c tofcostchangesonpr ic
es
C)e ffectofpricechangesons ale
svolume
D)c us t
ome rs'att
it
ude stowardpr i
cechanges
Ans we r:C
Diff:1
LO:5- 5
AACSB:Re fle
c t
ivethinkingskil
ls
Lear ningOut come :None

7)Inpe r
fectcompe tit
ion,theprofit
-maximi
zingvol
umei
sthequant
it
yatwhi
ch________.
A)mar ginalcostequalspr i
ce
B)cont ri
but i
onmar ginequalsfix
edc os
t
C)mar ginalrevenuee qualsprice
D)pr i
cee xc
eedsmar ginalcos
t
Ans we r:A
Diff:2
LO:5- 5
AACSB:Re flect
ivethinkingskill
s
Lear ningOut come :None

8)Inpe r
fec
tc ompe tit
ion,addit
ionalsaleswillbeprofit
abl
eif________.
A)t hemar ginalc os
tislessthanmar ginalre
ve nue
B)sal espri
cee xceedsthevar i
ableproduc tc
os t
C)tot alvar
iablec osti
slessthans al
espr i
ce
D)t hefixedc ostequalsthecontribut
ionmar gin
Ans we r:A
Diff:2
LO:5- 5
AACSB:Re flect
ivethinkingskil
ls
Lear ningOut come :None

9)Ini mperfectcompe t
iti
on,________.
A)afir m willpr oduceasmanyuni tsasi tc
ans e
ll
B)thepr iceafirmc hargesf
orauni tinfluencest
hequantityofunit
sitse
lls
C)afir m doe snotha vetoreducepr ic
est ogenerat
eadditi
onalsal
es
D)afir ms houl dproduc eands el
lunitsunt i
lthemarginalre
venuee x
ceedsthemar
ginalc
ost
Ans we r
:B
Diff:2
LO:5- 5
AACSB:Re flect
ivethinkingskil
ls
Lear ni
ngOut come :None

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10)Ifas mal
lpr i
c ei
ncreas
ecausesl
argevol
umede
cli
nes
,de
mandi
shi
ghl
yine
las
tic
.
Ans wer:FALSE
Diff:2
LO:5- 5
AACSB:Re fle
c t
ivethi
nkingski
ll
s
Lear ni
ngOut come :None

11)Mar gi
nalc osti
stheaddi
ti
onalcos
tre
sul
ti
ngf
rom pr
oduc
ingands
ell
ingoneaddi
ti
onaluni
t.
Ans wer:TRUE
Diff:2
LO:5- 5
AACSB:Re fle
c t
ivethi
nki
ngskil
ls
Lear ni
ngOut come :None

12)Wi thperfe
c tcompe t
it
ion,a tsomepoi
ntmar
gina
lcos
tsbe
gint
ori
sewi
thi
ncr
eas
esi
npr
oduc
tion
becausefac
ilit
iesbe c
omei neffici
ent.
Ans wer:TRUE
Diff:2
LO:5- 5
AACSB:Re fle
c ti
vethinki
ngs kill
s
Lear ni
ngOut come :None

13)Wi t hpe
r fe
c tcompeti
ti
on,margi
nalr
eve
nuei
stheaddi
ti
onalr
eve
nuer
esul
ti
ngf
rom t
hes
aleofan
addi ti
onaluni t
.
Ans we r:TRUE
Diff:2
LO:5- 5
AACSB:Re fle
c ti
vethi
nkingski
ll
s
Lear ningOut come :None

14)Inpe r
fectcompe ti
ti
on,t
hemar gi
nalr
eve
nuec
urvei
save
rti
call
inee
qualt
othepr
icepe
runi
tatal
l
volume sofsales.
Ans wer:FALSE
Diff:2
LO:5- 5
AACSB:Re fle
c t
ivethi
nkingski
ll
s
Lear ni
ngOut come :None

15)Inpe r
fectcompe ti
ti
on,theprofit
-maxi
mizingvol
umei
sthequant
it
yatwhi
cht
hedi
ffe
renc
ebe
twe
en
thes al
espri
c eandmar ginalc
ostisatit
sgrea
test
.
Ans wer:FALSE
Diff:2
LO:5- 5
AACSB:Re flect
ivethi
nkingskil
ls
Lear ni
ngOut come :None

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16)Inimperfectc ompet
it
ion,afir
m mus
tde
cre
aset
hes
ale
spr
icet
oge
ner
ateaddi
ti
onals
ale
s.
Ans wer:TRUE
Diff:2
LO:5- 5
AACSB:Re fle
c t
ivethi
nkingski
lls
Lear ni
ngOut come :None

17)Inimperfectc ompet
it
ion,margi
nalr
eve
nueus
ual
lyde
cre
ase
sasvol
umei
ncr
eas
es.
Ans wer:TRUE
Diff:2
LO:5- 5
AACSB:Re fle
c t
ivethi
nkingski
ll
s
Lear ni
ngOut come :None

18)Inmana gerialaccount
ing,vari
abl
ecos
tisar
eas
onabl
eappr
oxi
mat
ionofmar
ginalc
osti
nmany
si
tua ti
ons.
Ans we r
:TRUE
Diff:2
LO:5- 5
AACSB:Re fle
c t
ivethinki
ngskill
s
Lear ni
ngOut come :None

5.
6 Que
sti
ons

1)Int helongr un,t hesel

lingpr i
ceofaproduc
tshoul
dcove
r________.
A)al lvariablec ostsonly
B)al lvariablec ost
sands omefix edc os
ts
C)al lfix
edc ostsonl y
D)al lvariabl ecostsandal lfix
edc os
ts
Ans we r:D
Diff:1
LO:5- 6
AACSB:Re flecti
vet hi
nkings kil
ls
Lear ningOut come :None

2)Cour tsint heUni tedStat

eshaver
ule
dtha
tpr
ici
ngi
spr
eda
tor
yonl
yifc
ompani
ess
etpr
ice
sbe
low t
he
________.
A)a verageful lcost
B)a ver
agevar iablec ost
C)a veragepr oduc tionc os
t
D)a veragefixe dc ost
Ans wer:B
Diff:1
LO:5- 6
AACSB:Re flectivethinkingski
ll
s
Lear ni
ngOut come :None

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3)Manymana gerssetpri
c esbycostpluspri
cing.Wha
tisc
ostpl
uspr
ici
ng?As
sumei
tisal
ongr
un
decision.
A)a ver a
gecos tperunitpl usmarkuppe runit
B)a veragetargetcostplusmar kuppe runit
C)a veragecos tperunitmi nusmar kupperuni t
D)a ve raget
arge tcos
tmi nusmar kuppe runit
Ans we r:A
Diff:2
LO:5- 6
AACSB:Re flect
ivethinkingskil
ls
Lear ningOut come :None

4)Pr edator
ypr i
cingoc curswhe nafirms et
s________.
A)pr i
cesbelow thea veragecostforeachproduct
B)pr icesbel
ow t hepr oducti
onc ostforeachproduct
C)pr i
cesbelow theircompe ti
tors'pric
es
D)pr i
cessol ow thatcompe t
itorsaredr i
venoutofthemar
ket
Ans we r:D
Diff:2
LO:5- 6
AACSB:Re flect
ivethinkingskill
s
Lear ningOut come :None

5)Di scrimina t
orypr icingoc curswhe nafirms e
ts________.
A)pr i
cesbe low the ircompe t
itors'prices
B)di ffere
ntpr icesforapr oductindi ffe
rentregi
onsoft heUnitedSta
tesduetoacostdi
ffe
rent
iali
n
provi dingthepr oduc t
C)di fferentpr i
cesf ordi ffer
entc ustome rsf
orthesamepr oduc
torservic
e
D)di s c
ount sforal lc ustome rsiftheypa ywi t
hinacertainnumbe rofdaysaf
terpur
chase
Ans we r:C
Diff:2
LO:5- 6
AACSB:Re fle
c t
ivet hinki ngskill
s
Lear ningOut come :None

6)Int hes hor trun,whe nmana gerssetpri

cesforproduc t
s,themini
mum s el
li
ngpri
ceshoul
dbee
qualt
o
________.
A)al lvariablec ostsofproducing,se
lli
nganddi st
ributi
ngt hegoodorservi
ce
B)al lfix
edc os tsofproduc i
ng,sel
li
nganddi st
ributingthegoodors e
rvic
e
C)al lfixedandvar iabl
ec ost
sofproducing,se
lli
ng,anddi stri
but
ingthegoodorse
rvic
e
D)al lmanuf acturingcosts
Ans we r:A
Diff:2
LO:5- 6
AACSB:Re flecti
vethinkingskil
ls
Lear ningOut come :None

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7)Di sc
rimina t
orypr ic
ingist
heactofc
har
gingdi
ffe
rentpr
ice
stodi
ffe
rentc
ust
ome
rsf
ort
hes
ame
produc torse r
vice.
Ans wer:TRUE
Diff:1
LO:5- 6
AACSB:Re fle
c t
ivethi
nkingski
ll
s
Lear ni
ngOut come :None

8)Pr ic
ingisnotdi scri
minat
oryifi
tre
fle
ctsac
ostdi
ffe
rent
iali
ncur
redi
npr
ovi
dingt
hegoodors
ervi
ce.
Ans we r:TRUE
Diff:2
LO:5- 6
AACSB:Re fle
c t
ivethi
nkingski
ll
s
Lear ni
ngOut come :None

9)Ove rcapaci
tyinsomecountri
esoft
enc
aus
esa
ggr
ess
ivepr
ici
ngpol
ici
es,par
tic
ular
lyf
orac
ompany'
s
impor t
edgoods .
Ans wer:F ALSE
Diff:2
LO:5- 6
AACSB:Dynami csoft
heglobalec
onomy
Lear ni
ngOut come:None

10)Mar kupist heamountbywhichc

oste
xce
edspr
ice
.
Ans wer:FALSE
Diff:1
LO:5- 6
AACSB:Re fle
c ti
vethi
nki
ngski
ll
s
Lear ni
ngOut come :None

11)Int heshor trun,thesal

espr
iceofagoodors
ervi
cemus
tbehi
ghe
nought
ocove
ral
lcos
ts.
Ans wer :F
ALSE
Diff:2
LO:5- 6
AACSB:Re fle
c t
ivethinki
ngski
ll
s
Lear ni
ngOut come :None

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5.
7 Que
sti
ons

1)Fr eque ntl

y ,compani e
sdonotus eac ontri
butionapproachtopr
ici
ngbecause________.
A)itpr omot espr i
cestabil
ity
B)itpr ovi desthebe stdefensef orlegalchalle
nge s
C)ofaf earofunde rprici
ngpr oductsbyus ingvariablecos
tst
opri
ceproducts
D)i tisnots e nsit
ivetocost-volume -profitr
elat
ionships
Ans we r :C
Diff:1
LO:5- 7
AACSB:Re flecti
vethinkings kill
s
Lear ningOut come :None

2)Whi c
hoft hef oll
owi ngisanadvantageoftheabsorpti
onapproac
htopri
cingpr
oducts?
A)I tdisplaysvar iableandfixedcostbehavi
orpa t
ter
ns.
B)Itoffersins ightsintothelongrunands hortruneffec
tsofcut
ti
ngpri
cesonspec
ialor
ders.
C)I tcane asilyaddr esschangesinsale
svolume .
D)I trecover sallcostsnecess
aryforafirmtos t
ayinbus i
ness
.
Ans we r
:D
Diff:2
LO:5- 7
AACSB:Re fle
c t
ivethinkingskil
ls
Lear ni
ngOut come :None

3)Thet otalofallpr oductionc os

tspl
ust
het
otalofal
l________c
ost
sequal
sthef
ullc
ostofapr
oduc
t.
A)s ell
ing
B)di st
ributi
on
C)di st
r i
buti
onandmar ke ting
D)s ell
ingandadmi nis
tra
t ive
Ans we r:D
Diff:2
LO:5- 7
AACSB:Re fle
c t
ivethinkings kil
ls
Lear ni
ngOut come :None

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4)Kul
vekows
kiCompanyhasbudge
teds
ale
sof$30,
000wi
tht
hef
oll
owi
ngbudge
tedc
ost
s:

Dir
ectma te
rial
s $6,
300
Dir
ectlabor $4,
100
Var
iabl
ef act
oryoverhe
ad $3,
700
Fi
xedfactoryoverhe
ad $5,
600
Var
iabl
es el
lingandadminist
rati
vecos
ts $2,
400
Fi
xedse l
li
ngandadmi nis
tra
tivecos
ts $3,
200

Wha tistheaver
agetarge
tmar
kuppe
rce
nta
gef
ors
ett
ingpr
ice
sasape
rce
nta
geoft
otalc
ost
s?
A)15. 7%
B)18. 6%
C)20. 1%
D)noneoft heabove
Ans we r:B
Diff:2
LO:5- 7
AACSB:Anal yt
icski
ll
s
Lear ningOutcome:None

5)Bar
berCompanyhasbudge
teds
ale
sof$30,
000wi
tht
hef
oll
owi
ngbudge
tedc
ost
s:

Dir
ectma te
rial
s $6,
300
Dir
ectlabor $4,
100
Var
iabl
ef act
oryoverhe
ad $3,
700
Fi
xedfactoryoverhe
ad $5,
600
Var
iabl
es el
lingandadminist
rati
vecos
ts $2,
400
Fi
xedse l
li
ngandadmi nis
tra
tivecos
ts $3,
200

Wha ti
stheaver
agetarge
tmar
kuppe
rce
nta
gef
ors
ett
ingpr
ice
sasape
rce
nta
geoft
otalvar
iabl
ecos
ts?
A)45%
B)57%
C)82%
D)noneoft heabove
Ans wer:C
Diff:2
LO:5- 7
AACSB:Anal yt
icski
ll
s
Lear ni
ngOutcome:None

43
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6)Br
ankovCompanyhasbudge
teds
ale
sof$30,
000wi
tht
hef
oll
owi
ngbudge
tedc
ost
s:

Dir
ectma te
rial
s $6,
300
Dir
ectlabor $4,
100
Var
iabl
ef act
oryoverhe
ad $3,
700
Fi
xedfactoryoverhe
ad $5,
600
Var
iabl
es el
lingandadminist
rati
vecos
ts $2,
400
Fi
xedse l
li
ngandadmi nis
tra
tivecos
ts $3,
200

Wha ti
stheaver
agetarge
tmar
kuppe
rce
nta
gef
ors
ett
ingpr
ice
sasape
rce
nta
geofvar
iabl
emanuf
act
uri
ng
costs?
A)53%
B)76%
C)113%
D)noneoft heabove
Ans wer:C
Diff:2
LO:5- 7
AACSB:Anal yt
icski
ll
s
Lear ni
ngOutcome:None

7)But
ter
sCompanyhasbudge
teds
ale
sof$30,
000wi
tht
hef
oll
owi
ngbudge
tedc
ost
s:

Dir
ectma te
rial
s $6,
300
Dir
ectlabor $4,
100
Var
iabl
ef act
oryoverhe
ad $3,
700
Fi
xedfactoryoverhe
ad $5,
600
Var
iabl
es el
lingandadminist
rati
vecos
ts $2,
400
Fi
xedse l
li
ngandadmi nis
tra
tivecos
ts $3,
200

Wha ti
stheaver
agetarge
tmar
kuppe
rce
nta
gef
ors
ett
ingpr
ice
sasape
rce
nta
geoft
otalmanuf
act
uri
ng
costs?
A)34%
B)52%
C)61%
D)noneoft heabove
Ans wer:B
Diff:2
LO:5- 7
AACSB:Anal yt
icski
ll
s
Lear ni
ngOutcome:None

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8)Ful lcos
tme ansthetot
alofal
lvar
iabl
emanuf
act
uri
ngc
ost
sandal
lfix
edmanuf
act
uri
ngc
ost
s.
Ans we r:FALSE
Diff:2
LO:5- 7
AACSB:Re fle
c t
ivethi
nkingski
ll
s
Lear ningOut come :None

9)Ful lcos
tme ansthetot
alofal
lmanuf
act
uri
ngc
ost
s.
Ans we r:FALSE
Diff:2
LO:5- 7
AACSB:Re fle
c t
ivethi
nkingski
ll
s
Lear ningOut come :None

10)Mana ge
r sma yus ediffe
rentmarkupr
ate
sfordi
ffe
rentc
ate
gor
iesofc
ost
s.
Ans wer:TRUE
Diff:1
LO:5- 7
AACSB:Re fle
c t
ivethinkingskil
ls
Lear ni
ngOut come :None

11)Pr i
cesbasedonvar i
ablec
ostsre
pre
sentac
ont
ribut
ionappr
oac
htopr
ici
ng.
Ans wer:TRUE
Diff:1
LO:5- 7
AACSB:Re fle
c t
ivethi
nkingski
ll
s
Lear ni
ngOut come :None

12)Thet ot
almanuf act
uri
ngc
ostandf
ullc
ostappr
oac
hest
opr
ici
ngof
tenf
ailt
ohi
ghl
ightdi
ffe
rentc
ost
beha vi
orpatterns.
Ans wer:TRUE
Diff:2
LO:5- 7
AACSB:Re fle
c ti
vethi
nki
ngs
kil
ls
Lear ni
ngOut come :None

13)Ac ompanywi llbi

dneart
hemi ni
mum s
ale
spr
icet
oes
tabl
is
hapr
ese
ncei
nne
w mar
ket
sorwi
tha
newc ustome r
.
Ans we r:TRUE
Diff:2
LO:5- 7
AACSB:Re fle
c t
ivethi
nki
ngskil
ls
Lear ni
ngOut come :None

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5.
8 Que
sti
ons

1)Int argetcosting,mana ger

sdesignaproducts
othatt
hepr
oduc
t'
scos
tdoe
snote
xce
ed________.
A)t hepr oduct'sproduc ti
oncost
s
B)thepr oduct'
snonpr oduct
ioncost
s
C)t hepr oduct'sproduc ti
onandnonproducti
oncost
s
D)t hepr oduct'stargetcost
Ans we r:D
Diff:2
LO:5- 8
AACSB:Re fle
c ti
vet hi
nkingskil
ls
Lear ningOut come :None

2)How domana gersobtaint het argetcostf

oranew pr
oduc
tundercons
ide
rat
ion?As
sumet
hemar
ket
pri
c epe runitisknownandi tc annotbei nflue
nce
dbymanagement.
A)t hes um ofallproduc ti
onandnonpr oducti
oncos
ts
B)thes um ofallproduc t
ionc os t
s
C)pr i
ceperuni tmi nusgr osspr ofitperunit
D)t hes um ofallvar i
ablec os
t s
Ans we r:C
Diff:2
LO:5- 8
AACSB:Re fle
c t
ivethinkings kills
Lear ningOut come :None

3)Ift hepr oj
e ctedcostforane w pr
oduc
ttobemanuf
act
ure
dex
cee
dst
het
arge
tcos
t,wha
tme
asur
esc
an
thec ompanyunde r
taketor e
duc et
heproj
ect
edc
ost
?
A)kai zencos ti
ng
B)val uee ngi neeri
ng
C)s uppl ierne goti
ati
ons
D)al loft heabove
Ans we r
:D
Diff:2
LO:5- 8
AACSB:Re flect
ivethinkingskil
ls
Lear ningOut come :None

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4)Mana ge
me ntcannotinflue
ncethepri
ceofanew product.Themarketpr
iceis$100peruni
t.The
est
ima tedproduc t
ioncostis$30peruni
t.Theest
imat
e dnonproduct
ioncosti
s$40pe runi
t.I
fthegros
s
profiti
s40pe rce
ntoft hemar ke
tpric
e,whatist
hetar
ge tc
ostofthenew pr
oduc t
?
A)$30
B)$40
C)$60
D)$70
Ans wer:C
Diff:2
LO:5- 8
AACSB:Anal yticskil
ls
Lear ni
ngOut come :None

5)Mi
chi
ganCompanyhasbudge
tedt
hef
oll
owi
ngc
ost
sfort
hepr
oduc
tionofi
tsonl
ypr
oduc
t:

DirectMa t
erial
s $35,
000
DirectLabor 25,
000
Variabl
eindirectproduct
ioncost
s 30,
000
Fix
e dindirec
tpr oduct
ioncost
s 15,
000
Variabl
ese l
li
ngandadmi ni
str
ati
vecos
ts 7,
500
Fix
e dsell
ingandadmi ni
str
ati
vecos
ts 12,
500
TotalCosts $125,
000

Mic higanCompanywant saprofitof$50,000,andexpe

ctst
opr
oduc
e1,
000uni
ts.Themar
ketpr
icei
s$150
peruni t
.Wha tisthetarge
tcos
tpe runitoftheproduct
?
A)$100pe runi t
B)$125pe runit
C)$150pe runi t
D)$175pe runi t
Ans we r:A
Diff:2
LO:5- 8
AACSB:Anal yticski
lls
Lear ningOutc ome :None

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6)I
ll
inoi
sCompanyhasbudge
tedt
hef
oll
owi
ngc
ost
sfort
hepr
oduc
tionofi
tsonl
ypr
oduc
t:

DirectMa t
erial
s $35,
000
DirectLabor 25,
000
Variabl
eindirectproduct
ioncost
s 30,
000
Fix
e dindirec
tpr oduct
ioncost
s 15,
000
Variabl
ese l
li
ngandadmi ni
str
ati
vecos
ts 7,
500
Fix
e dsell
ingandadmi ni
str
ati
vecos
ts 12,
500
TotalCosts $125,
000

Il
li
noi sCompanyhasat ar
getprofitof$40,
000.Thec
ompanywi
llpr
oduc
e1,
000uni
ts.Themar
ketpr
icei
s
$160pe runi
t.Whatisthetar
getcos tperuni
t?
A)$40
B)$120
C)$125
D)$165
Ans we r
:B
Diff:2
LO:5- 8
AACSB:Anal yt
ics
kill
s
Lear ni
ngOutcome:None

7)Chocol
ateCompanyiscons
ide
ringt
hepr
oduc
tionofane
w pr
oduc
t.Choc
ola
teCompanyhast
he
fol
lowi
ngda t
aavai
labl
e:

Expect
eds al
e s
(uni t
s)overproductl
if
e 15,000
Vari
ableproduc ti
onc osts $42pe runit
Vari
ablesell
ingc osts $16pe runit
Annualfix
e dpr oduc t
ioncos
ts $15,000
Annualfix
e dsellingcosts $5,000
Rese
archandde ve l
opme ntc
osts $184,000

Wha ti
st het
otalvari
ablec
ostoft
hepr
oduc
tove
rthepr
oduc
tli
fec
ycl
e?
A)$204,000
B)$716,000
C)$870,000
D)$880, 000
Ans wer:C
Diff:2
LO:5- 8
AACSB:Anal yticski
lls
Lear ni
ngOut come :None

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8)Rainbow Companyiscons
ide
ringt
hepr
oduc
tionofane
w pr
oduc
t.Rai
nbow Companyhast
he
fol
lowingdataavai
labl
e:

Expect
edpr oduc tli
fe 5years
Expect
eds al
e s(units
)ove rpr
oduc
tli
fe 2,000
Vari
ableproduc ti
onc osts $42perunit
Vari
ablesell
ingc ost
s $16perunit
Annualfix
e dpr oductioncost
s $15,000
Annualfix
e ds e
llingcosts $5,000

Wha ti
st het
otalfix
edcostoft
hepr
oduc
tove
rthepr
oduc
tli
fec
ycl
e?
A)$20,000
B)$100,000
C)$116,000
D)$464, 000
Ans wer:B
Diff:2
LO:5- 8
AACSB:Anal yticskil
ls
Lear ni
ngOut come :None

9)BunchCompanyi
scons
ide
ringt
hepr
oduc
tionofane
w pr
oduc
t.Bunc
hCompanyhast
hef
oll
owi
ng
dataavai
labl
e:

Expect
edpr oduc tli
fe 4ye ars
Expect
eds al
e s(units)overproductl
if
e 2,000
Vari
ableproduc ti
onc osts $42pe runit
Vari
ablesell
ingc osts $16pe runit
Annualfix
e dpr oduc ti
oncosts $15,000
Annualfix
e ds e
llingc os
ts $5,000
Rese
archandde ve l
opme ntcosts $184,000

Wha ti
st het
otalcostoft
hepr
oduc
tove
rthepr
oduc
tli
fec
ycl
e?
A)$116,000
B)$196,000
C)$264,000
D)$380, 000
Ans wer:D
Diff:2
LO:5- 8
AACSB:Anal yticskil
ls
Lear ni
ngOut come :None

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10)SueCompanyi
scons
ide
ringt
hepr
oduc
tionofane
w pr
oduc
t.SueCompanyhast
hef
oll
owi
ngda
ta
avai
labl
e:

Expect
edpr oduc tli
fe 4ye ars
Expect
eds al
e s(units)overproductl
if
e 2,000
Vari
ableproduc ti
onc osts $42pe runit
Vari
ablesell
ingc osts $16pe runit
Annualfix
e dpr oduc ti
oncosts $15,000
Annualfix
e ds e
llingc os
ts $5,000
Resear
chandde ve l
opme ntcosts $184,000
Sel
li
ngpr i
ce $200pe runit

Wha tistheexpect
edprofitor(
los
s)oft
hepr
oduc
tove
rthepr
oduc
tli
fec
ycl
e?
A)$( 40,000)
B)$20, 000
C)$204, 000
D)$880, 000
Ans we r:B
Diff:2
LO:5- 8
AACSB:Anal yti
cski
ll
s
Lear ni
ngOut c
ome :None

11)Targetc
os ti
ngs etspri
cesbycomput
ingana
ver
agec
ostandt
henaddi
ngade
sir
edmar
kup.
Ans wer:FALSE
Diff:2
LO:5- 8
AACSB:Re fle
c t
ivethinki
ngskil
ls
Lear ni
ngOut come :None

12)Compani esus ecos

t-pl
uspri
cingf
orpr
oduc
tswhe
remana
geme
ntac
tionsc
ani
nflue
ncet
hemar
ket
pri
c e.
Ans wer:TRUE
Diff:2
LO:5- 8
AACSB:Re fle
c t
ivethi
nkings
kil
ls
Lear ni
ngOut come :None

13)Targetc
os ti
ngi smosteffe
c t
iveatr
educ
ingc
ost
sifus
eddur
ingt
hepr
oduc
tde
signphas
e.
Ans wer:TRUE
Diff:2
LO:5- 8
AACSB:Re fle
c t
ivethi
nkings ki
lls
Lear ni
ngOut come :None

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14)Pr oductde si
gnaffect
sasmallamountofc
ost
sint
heval
uec
hai
n.
Ans we r:FALSE
Diff:2
LO:5- 8
AACSB:Re fle
c t
ivethi
nkings
kil
ls
Lear ningOut come :None

15)Mar ke
tfoc usgroupst
udi
esands
urve
ysma
ybeus
edbyafir
mtode
ter
minet
hepr
iceofapr
oduc
tor
service
.
Ans wer:TRUE
Diff:1
LO:5- 8
AACSB:Re fle
c t
ivethi
nki
ngski
ll
s
Lear ni
ngOut come :None

16)Thedifferencebetwee
nthegros
smar
ginandt
hemar
ketpr
icei
sthet
arge
tcos
tforane
w pr
oduc
t.
Ans wer:TRUE
Diff:2
LO:5- 8
AACSB:Re fle
c t
ivethi
nki
ngski
ll
s
Lear ni
ngOut come :None

17)Valueengine er
ingisusedpri
mar
il
ydur
ingt
hedi
str
ibut
ions
tageoft
heval
uec
hai
n.
Ans wer:FALSE
Diff:2
LO:5- 8
AACSB:Re fle
c t
ivethi
nkingski
ll
s
Lear ni
ngOut come :None

18)Wi thinc
rease
dglobalcompe t
it
ioninmanyi
ndus
tri
es,c
ompani
esar
einc
reas
ingl
yli
mit
edi
n
influencingproductpr
ices
.
Ans wer:TRUE
Diff:2
LO:5- 8
AACSB:Dynami c
softheglobaleconomy
Lear ningOut c
ome :None

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