Question 1

The differential cost of producing Product P is $13 per pound.

Accepted Answer

The given statement is a direct statement of differential cost for Product P. Therefore, the answer is A.

Question 2

The differential revenue of producing Product P is $22 per pound.

Accepted Answer

Differential revenue is the additional revenue earned from producing one more unit of a product. In this case, the differential revenue of producing Product P is given as $22 per pound. Therefore, the statement is true.

Question 3

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

Accepted Answer

This is correct! Opportunity cost refers to the potential benefit that is given up when choosing between different options, and in the case of cash, it would be the income that could be earned from an alternate investment, use or saving.

Question 4

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

Accepted Answer

Differential revenue refers to the difference in revenue between two alternatives, not necessarily the income from the best alternative use of cash.

Question 5

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.

Accepted Answer

The remaining useful life of the old equipment and the estimated life of the new equipment are important factors to consider in an equipment-replacement decision, in addition to differential costs.

Question 6

The differential revenue of producing Product P is $82 per pound.

Accepted Answer

Differential revenue refers to the difference in revenue from one alternative to another, not a specific amount per unit like $82 per pound.

Question 7

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.

Accepted Answer

Differential analysis involves comparing the costs and benefits of different alternatives to aid in decision-making. Therefore, it can certainly help management in deciding whether to discontinue an unprofitable segment or replace plant assets.

Question 8

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.

Accepted Answer

The differential cost is the difference between the total unit cost before and after the modification. Therefore, the differential cost in this situation is $48 - $36 = $12, not $48.

Question 9

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.

Accepted Answer

The statement is true. These costs, known as sunk costs, are not relevant to the decision to further process a product. Only the incremental costs and incremental revenues from further processing should be considered.

Question 10

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.

Accepted Answer

Differential cost is the difference between the total unit cost of two different situations. Here, the total unit cost of manufacturing Product Y without modifying the style is $36 and the estimated total unit cost after modifying the style is $48. Therefore, the differential cost is $48 - $36 = $12.

Question 11

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

Accepted Answer

This statement is true. When a manufacturer has unused productive capacity, they may consider whether to produce a needed component or product in-house (make) or to outsource it from another vendor (buy).

Question 12

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

Accepted Answer

An opportunity cost represents the benefits an individual, investor, or business misses out on when choosing one alternative over another, whereas a cost that will not be affected by later decisions is termed a sunk cost.

Question 13

Differential analysis only considers the short-term (one-year)effects of discontinuing a product.

Accepted Answer

Differential analysis focuses on comparing the costs and benefits of one decision option over another, taking into consideration only the short-term effects. Therefore, it only considers the immediate impact of discontinuing a product, which is generally over a period of one year.

Question 14

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.

Accepted Answer

The costs of initially producing an intermediate product are considered sunk costs and should not influence the decision on whether to further process a product, as these costs remain the same regardless of the decision.

Question 15

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

Accepted Answer

Differential revenue is defined as the difference in revenue between two courses of action. It helps in evaluating the financial impact of a decision.

Question 16

The differential cost of producing Product P is $55 per pound.

Accepted Answer

The differential cost of producing Product P is the additional cost required to produce Product P from Product O, which is $13 per pound, not $55.

Question 17

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.

Accepted Answer

The Robinson-Patman Act prohibits price discrimination unless there are different costs associated with serving different customers.

Question 18

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

Accepted Answer

Sunk costs are costs that have already been incurred and cannot be recovered or changed by future decisions. Therefore, they are not affected by later decisions.

Question 19

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.

Accepted Answer

Opportunity cost refers to the benefit that is missed or given up when an investor, individual, or business chooses one alternative over another. It's not about the increase or decrease in cost but the value of the best forgone alternative.

Question 20

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.

Accepted Answer

Setting the short-run price high enough to cover all variable costs and expenses ensures that the business will make a profit on the transaction, even if it is at a reduced rate.

Quiz 24: Differential Analysis and Product Pricing