Q: Which formula correctly calculates the target full product cost in a target pricing scenario?

$$\text{Target Full Product Cost} = \text{Market Price} - \text{Desired Profit}$$

Q: If a company is a price-setter, which formula should it use to determine the sales price?

$$\text{Sales Price} = \text{Full Product Cost} + \text{Desired Profit}$$

Q: Which of the following is the correct formula for contribution margin per unit?

$$\text{Contribution Margin per Unit} = \text{Sales Price} - \text{Variable Cost per Unit}$$

Question 1

Which of the following best describes relevant information for short-term business decisions?

Accepted Answer

Expected future data that differs among alternatives.

Question 2

A company is considering dropping a product line. Which cost is irrelevant to this decision?

Accepted Answer

Allocated fixed costs that will remain even if the product is dropped.

Question 3

Which formula correctly calculates the target full product cost in a target pricing scenario?

Accepted Answer

$$	ext{Target Full Product Cost} = 	ext{Market Price} - 	ext{Desired Profit}$$

Question 4

Smart Touch Learning is a price-taker. Which pricing method should it use?

Accepted Answer

Target pricing

Question 5

A special order is offered at a reduced price. Which of the following is NOT a relevant consideration?

Accepted Answer

The sunk costs incurred in producing the product.

Question 6

If a company is a price-setter, which formula should it use to determine the sales price?

Accepted Answer

$$	ext{Sales Price} = 	ext{Full Product Cost} + 	ext{Desired Profit}$$

Question 7

A company must decide which product to emphasize when production is constrained by machine hours. What should it maximize?

Accepted Answer

Contribution margin per unit of the constraint

Question 8

Which of the following is an example of a qualitative factor relevant to short-term business decisions?

Accepted Answer

Potential impact on employee morale from closing a plant

Question 9

When considering outsourcing, which cost is relevant?

Accepted Answer

Variable costs of producing the component in-house

Question 10

A company can sell a product as is for $$50 or process it further for an additional 10 $$and sell it for $65. What is the incremental profit from processing further?

Accepted Answer

$$\5$

Question 11

Which of the following is the correct formula for contribution margin per unit?

Accepted Answer

$$	ext{Contribution Margin per Unit} = 	ext{Sales Price} - 	ext{Variable Cost per Unit}$$

Question 12

If a company drops a product and fixed costs remain unchanged, what is the effect on overall profitability?

Accepted Answer

Profitability will decrease by the contribution margin lost from the dropped product.

Question 13

What is the opportunity cost in an outsourcing decision?

Accepted Answer

The benefit given up by choosing an alternative course of action.

Question 14

A merchandising company has limited display space. What should it consider when deciding which products to display?

Accepted Answer

Contribution margin per unit of display space.

Question 15

Which of the following is NOT a step in differential analysis for short-term decisions?

Accepted Answer

Include sunk costs in the analysis.

Question 16

A company is considering processing a product further. Which formula determines the incremental profit?

Accepted Answer

$$	ext{Incremental Profit} = 	ext{Additional Revenue} - 	ext{Additional Cost}$$

Question 17

Which of the following is a sunk cost?

Accepted Answer

Depreciation expense on equipment purchased last year.

Question 18

In a product mix decision, what is the best way to allocate limited resources?

Accepted Answer

Produce the product with the highest contribution margin per unit of the constraint.

Question 19

Which of the following is a relevant cost in a make-or-buy (outsourcing) decision?

Accepted Answer

Variable costs of producing the component in-house.

Question 20

A company is considering a special order for 1,000 units at $$20 per unit. Variable cost per unit is 15$$, and fixed costs will not change. What is the incremental profit from the order?

Accepted Answer

$$\5$$,000$

(22) Short-Term Business Decisions (Chapter 10): Study Notes for Financial-Accounting Students

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