Q: Which formula represents the cost-plus pricing approach?

$$\text{Cost-plus price} = \text{Total cost} + \text{Desired profit}$$

Q: Which equation is used in target costing?

$$\text{Target total cost} = \text{Revenue at market price} - \text{Desired profit}$$

Question 1

Which of the following is considered relevant information for short-term business decisions?

Accepted Answer

Expected future costs and revenues that differ among alternatives

Question 2

A company is deciding whether to accept a special order for 20,000 units at $$1.60 per unit. The variable manufacturing cost is 1.05 $$per unit, and there is an additional fixed cost of $2,000 for legal fees. What is the increase in operating income if the order is accepted?

Accepted Answer

$9,000

Question 3

Which formula represents the cost-plus pricing approach?

Accepted Answer

$$	ext{Cost-plus price} = 	ext{Total cost} + 	ext{Desired profit}$$

Question 4

Winter Sports Inc. has a favorable reputation and some control over lift ticket prices. Which pricing approach should it emphasize?

Accepted Answer

Cost-plus pricing

Question 5

Which of the following is a pitfall to avoid when making discontinuation decisions?

Accepted Answer

Basing the decision on a product line income statement that allocates common fixed expenses

Question 6

A company produces shirts and jeans. Shirts have a contribution margin of $$18 per unit and require 0.1 machine hours per shirt. Jeans have a contribution margin of 12 $$per unit and require 0.05 machine hours per pair. If machine hours are the constraint, which product should the company emphasize?

Accepted Answer

Shirts, because they have a higher contribution margin per machine hour

Question 7

Which equation is used in target costing?

Accepted Answer

$$	ext{Target total cost} = 	ext{Revenue at market price} - 	ext{Desired profit}$$

Question 8

Sony is considering outsourcing production of earbuds to Shenzhen Electronics at $$7 per unit. Sony's variable cost per unit is 6$$, and outsourcing would save $500,000 in fixed costs. If Sony produces 2 million units, what is the incremental cost of outsourcing?

Accepted Answer

$14,000,000

Question 9

Which of the following is NOT a benefit of outsourcing?

Accepted Answer

Greater control over production processes

Question 10

Bertolli can sell basic olive oil for $$5 per quart or process it further into gourmet oils for 7 $$per quart. Processing further costs $0.75 per quart. If Bertolli processes 50,000 quarts, what is the incremental profit from processing further?

Accepted Answer

$62,500

Question 11

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

Accepted Answer

Variable cost per unit

Question 12

A company is considering discontinuing a product line. The product has a positive contribution margin, but all fixed costs are unavoidable. What is the likely impact of discontinuing the product?

Accepted Answer

Operating income will decrease

Question 13

Which of the following is a characteristic of a price-taker?

Accepted Answer

Product lacks uniqueness and faces heavy competition

Question 14

In a special order decision, which cost should NOT be included in the analysis?

Accepted Answer

Absorption cost per unit

Question 15

If a company has limited machine hours and must choose between two products, what should it maximize?

Accepted Answer

Contribution margin per unit of constraint

Question 16

Which of the following is an example of an avoidable fixed cost?

Accepted Answer

Fixed costs that can be eliminated if a product line is discontinued

Question 17

A company is considering whether to sell a product 'as is' or process it further. What is the correct decision rule?

Accepted Answer

Process further if the incremental revenue exceeds the incremental cost

Question 18

Which of the following is a common pitfall in short-term decision making?

Accepted Answer

Including sunk costs in the analysis

Question 19

If a company is a price-setter, which pricing approach should it emphasize?

Accepted Answer

Cost-plus pricing

Question 20

Which formula is used to calculate contribution margin per unit?

Accepted Answer

$$	ext{Contribution margin per unit} = 	ext{Sales price per unit} - 	ext{Variable cost per unit}$$

Chapter 8: Relevant Costs for Short-Term Decisions – Managerial Accounting Study Notes

Study Guide - Practice Questions

Study Guide - Flashcards