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Accounting 2 - Chapter 25 - Test 3

Chapter 25
STUDY
PLAY
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