Accounting 2 - Chapter 25 - Test 3

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Chapter 25

Differential revenue is the amount of increase or decrease in revenue expected from a particular course of action as compared with an alternative.

True

Differential revenue is the amount of income that would result from the best available alternative proposed use of cash.

False

Hill Co. can further process Product O to produce Product P. Product O is currently selling for $60 per pound and costs $42 per pound to produce. Product P would sell for $82 per pound and would require an additional cost of $13 per pound to produce. The differential revenue of producing Product P is $82 per pound.

False

If the total unit cost of manufacturing Product Y is currently $36 and the total unit cost after modifying the style is estimated to be $48, the differential cost for this situation is $48.

False

Hill Co. can further process Product O to produce Product P. Product O is currently selling for $60 per pound and costs $42 per pound to produce. Product P would sell for $82 per pound and would require an additional cost of $13 per pound to produce. The differential revenue of producing Product P is $22 per pound.

True

Hill Co. can further process Product O to produce Product P. Product O is currently selling for $60 per pound and costs $42 per pound to produce. Product P would sell for $82 per pound and would require an additional cost of $13 per pound to produce.
The differential cost of producing Product P is $13 per pound.

True

If the total unit cost of manufacturing Product Y is currently $36 and the total unit cost after modifying the style is estimated to be $48, the differential cost for this situation is $12.

True

Hill Co. can further process Product O to produce Product P. Product O is currently selling for $60 per pound and costs $42 per pound to produce. Product P would sell for $82 per pound and would require an additional cost of $13 per pound to produce. The differential cost of producing Product P is $55 per pound.

False

A cost that will not be affected by later decisions is termed an opportunity cost.

False

The amount of income that would result from an alternative use of cash is called opportunity cost.

True

Differential analysis can aid management in making decisions on a variety of alternatives, including whether to discontinue an unprofitable segment and whether to replace usable plant assets.

True

Opportunity cost is the amount of increase or decrease in cost that would result from the best available alternative to the proposed use of cash or its equivalent.

False

A cost that will not be affected by later decisions is termed a sunk cost.

True

In deciding whether to accept business at a special price, the short-run price should be set high enough to cover all variable costs and expenses.

True

In deciding whether to accept business at a special price, the short-run price should be set high enough to cover all costs and expenses, plus provide a reasonable amount for profit.

False

Since the costs of producing an intermediate product do not change regardless of whether the intermediate product is sold or processed further, these costs are not considered in deciding whether to further process a product.

True

The costs of initially producing an intermediate product should be considered in deciding whether to further process a product, even though the costs will not change, regardless of the decision.

False

When a company is showing a net loss, it is always best to discontinue the segment in order not to continue with losses.

False

In addition to the differential costs in an equipment replacement decision, the remaining useful life of the old equipment and the estimated life of the new equipment are important considerations.

True

Eliminating a product or segment may have the long-term effect of reducing fixed costs.

True

Manufacturers must conform to the Robinson-Patman Act which prohibits price discrimination within the United States unless differences in prices can be justified by different costs of serving different customers.

True

Discontinuing a segment or product may not be the best choice when the segment is contributing to fixed expenses.

True

Make or buy options often arise when a manufacturer has excess productive capacity in the form of unused equipment, space, and labor.

True

Make or buy decisions should be made only with related parties.

False

Depending on the capacity of the plant, a company may best be served by further processing some of the product and leaving the rest as is, with no further processing.

True

The product cost concept includes all manufacturing costs plus selling and administrative expenses in the cost amount to which the markup is added to determine product price.

False

In using the variable cost concept of applying the cost-plus approach to product pricing, fixed manufacturing costs and fixed selling and administrative expenses must be covered by the markup.

True

In using the total cost concept of applying the cost-plus approach to product pricing, selling expenses, administrative expenses, and profit are covered in the markup.

False

A practical approach which is frequently used by managers when setting normal long-run prices is the cost-plus approach.

True

The total cost concept includes all manufacturing costs plus selling and administrative expenses in the cost amount to which the markup is added to determine product price.

True

In using the variable cost concept of applying the cost-plus approach to product pricing, fixed manufacturing costs and both fixed and variable selling and administrative expenses must be covered by the markup.

False

In using the product cost concept of applying the cost-plus approach to product pricing, selling expenses, administrative expenses, and profit are covered in the markup.

True

The product cost concept includes all manufacturing costs in the cost amount to which the markup is added to determine product price.

True

When standard costs are used in applying the cost-plus approach to product pricing, the standards should be based upon ideal levels of performance.

False

When standard costs are used in applying the cost-plus approach to product pricing, the standards should be based upon normal levels of performance.

True

The lowest contribution margin per scarce resource is the most profitable.

False

A bottleneck happens when an employee is too slow to keep with current production.

False

When a bottleneck occurs between two products, the company must determine the contribution margin for each product and manufacture the product that has the highest contribution margin per bottleneck hour.

True

A bottleneck begins when demand for the company's product exceeds the ability to produce the product.

True

Activity-based costing is determined by charging products for only the services (activities) they used during production.

True

Activity-based costing is determined by charging products for only the services (activities) they used during production.

True

Activity-based costing is a more expensive approach to product costing.

False

Activity-based costing provides more accurate and useful cost data.

True

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