Question 1

When can using full costs for pricing decisions be justified?
A)when a firm enters into a short term contractual relationship to supply a product.
B)for development and production of customized products and contracts with the government.
C)when managers initially set prices to cover development costs and then adjust to reflect market conditions.
D)for development and production of standardized commercial products.

Accepted Answer

Using full costs for pricing decisions can be justified when a firm is engaged in the development and production of customized products and contracts with the government. In these cases, the costs incurred are likely to be specific to the project, and not easily transferable to other products or customers. Therefore, pricing decisions must take into account the full costs incurred for the particular project or contract.

Question 2

Predatory pricing
A)occurs when a business deliberately prices below its costs in an effort to drive out competitors.
B)occurs when a business unintentionally prices below its costs which results in driving out competitors.
C)is legal in all 50 States.
D)is generally accepted in the United States.

Accepted Answer

Predatory pricing is a pricing strategy where a business deliberately sets prices below its costs to drive out competitors. It is considered an illegal practice in the United States under antitrust laws. It is not legal in all 50 states and is not generally accepted.

Question 3

What is the objective of value engineering?
A)to increase quality in order to satisfy customer needs.
B)to reduce quality while satisfying customer needs.
C)to increase profits while satisfying customer needs.
D)to reduce costs while satisfying customer needs.

Accepted Answer

The objective of value engineering is to reduce costs without sacrificing quality or functionality, while still satisfying customer needs. Therefore, the best choice would be D, as it accurately represents the goal of value engineering.

Question 4

Which of the following terms describes the systematic evaluation of all aspects of research and development,design of products and processes,production,marketing,distribution,and customer service?
A)quality engineering.
B)incremental engineering.
C)systems engineering.
D)value engineering.

Accepted Answer

The answer of Which of the following terms describes the...

Question 5

Using activity-based costing to analyze customer profitability requires the analyst to determine the cost to provide goods and services,which includes such activities as
A)order processing.
B)product delivery.
C)processing returns.
D)All of the answers are correct.

Accepted Answer

Activity-based costing involves identifying and analyzing all the cost activities associated with delivering goods and services to customers. These activities can include order processing, product delivery, and processing returns among others. Therefore, all the choices (A, B, and C) are correct.

Question 6

Which statement is true with regards to the product lifecycle?
A)The product life cycle is usually 10 to 20 years.
B)Life-cycle costs should never been considered in short run pricing decisions.
C)Life-cycle costs provide important information for pricing.
D)Life-cycle costs are not relevant in differential analysis.

Accepted Answer

Life-cycle costs provide important information for pricing. This means that considering the product life cycle is crucial when making pricing decisions, as it provides an understanding of the costs and revenue associated with a product over its lifespan. Option A is incorrect because the product life cycle can vary greatly depending on the industry and the type of product. Option B is incorrect because life-cycle costs should always be considered in pricing decisions. Option D is incorrect because life-cycle costs are relevant in differential analysis as they provide information on the costs and revenue of alternative products or choices.

Question 7

Using activity-based costing to analyze customer profitability requires the analyst to determine the cost to acquire the customer,which includes such activities as
A)promoting the product.
B)conducting a campaign to win back lost customers.
C)running advertising campaigns.
D)All of the answers are correct.

Accepted Answer

All of the answers are correct, as the cost to acquire a customer involves various activities such as promoting the product, running advertising campaigns, and conducting campaigns to win back lost customers. Activity-based costing considers all direct and indirect costs associated with these activities to determine the true cost of acquiring a customer, which can then be used to analyze customer profitability.

Question 8

Which statement is true concerning target costing?
A)Target costing is setting price below costs in the short run to drive out competitors.
B)Target costing is the systematic evaluation of all costs relevant to a decision.
C)Target costing is the concept of price-based costing.
D)None of the answers is correct.

Accepted Answer

Target costing is indeed the concept of price-based costing, where a company determines the potential selling price of a product first and then subtracts a desired profit margin to arrive at a target cost. This approach is used to ensure that a product can be produced at a cost that allows the company to be competitive in the market while still achieving desired profit levels.

Question 9

The product life cycle lasts from
A)obtaining financing through paying off investors.
B)product design through product termination.
C)initial research and development through termination of customer support.
D)None of the answers is correct.

Accepted Answer

The product life cycle encompasses the entire journey of a product from the initial research and development phase through to the termination of customer support, covering all stages of the product's life.

Question 10

Using activity-based costing to analyze customer profitability requires the analyst to determine the cost to maintain customers,which includes such activities as
A)billing customers.
B)processing payments.
C)issuing refunds.
D)All of the answers are correct.

Accepted Answer

All of the answers are correct. Activity-based costing (ABC) requires the identification and analysis of all activities associated with maintaining customers, including billing customers, processing payments, issuing refunds, and any other costs related to customer service or support. By assigning these costs to individual customers or customer segments, ABC can provide a more accurate measure of customer profitability and help firms identify areas where they can improve efficiency and reduce costs.

Question 11

Using activity-based costing to analyze customer profitability requires the analyst to determine the cost to retain customers,which includes such activities as
A)follow-up calls.
B)conducting campaign to win back customers.
C)promoting the product.
D)All of the answers are correct.

Accepted Answer

The answer of Using activity-based costing to analyze customer profitability...

Question 12

What is the first step in value engineering?
A)an analysis of the value-chain activities.
B)developing a product that satisfies the needs of potential customers.
C)choosing a target price based on customers' perceived value for the product and the competitors' prices.
D)reducing costs while satisfying customer needs.

Accepted Answer

The first step in value engineering is an analysis of the value-chain activities to identify areas where costs can be reduced and value can be added. This helps in identifying the key activities that drive costs and identifying areas where changes can be made to reduce costs while maintaining or enhancing the value of the product or service. Once the analysis is complete, potential changes can be evaluated to determine their impact on costs and value.

Question 13

When can using full costs for pricing decisions be justified?
A)when a firm enters into a long-term contractual relationship to supply a product.
B)when a firm enters into a short-term contractual relationship to supply a product.
C)for development and production of standardized commercial products.
D)when setting short-term market prices.

Accepted Answer

When a firm enters into a long-term contractual relationship to supply a product, using full costs for pricing decisions can be justified. This is because the long-term nature of the contract allows the firm to consider all costs associated with production, including fixed and variable costs, and include a reasonable profit margin.

Question 14

When can a firm justify the use of full costs for pricing decisions?
A)when a firm enters into a short term contractual relationship to supply a product.
B)for development and production of standardized products.
C)when managers initially set prices to cover full costs plus a profit then adjust to reflect market conditions.
D)because they are required by generally accepted accounting principles.

Accepted Answer

C) Managers often initially set prices to cover full costs plus a desired profit margin and then adjust these prices to reflect market conditions, competition, and customer demand. This approach ensures that all costs are covered and a profit is made, while also allowing flexibility to adapt to the market.

Question 15

Under United States laws,dumping occurs when
A)when a business deliberately prices below its costs in an effort to drive out competitors.
B)when a business unintentionally prices below its costs which results in driving out competitors.
C)when a foreign company sells a product in the United States at a price below the market value in the country of its creation,and this action materially injuries (or threatens to materially injure)an industry in the United States.
D)when a U.S.company sells a product in a foreign country at a price below the market value in the U.S. ,and this action materially injuries (or threatens to materially injure)an industry in the foreign country.

Accepted Answer

Dumping occurs when a foreign company sells a product in the United States at a price below the market value in the country of its creation, and this action materially injuries (or threatens to materially injure) an industry in the United States. This is considered an unfair trade practice, and can lead to trade remedy actions by the affected industry or by the government. Options A and B refer to predatory pricing, which is another type of unfair competition, but it is not the same as dumping. Option D refers to export subsidies, which can also distort trade, but again, it is not the same as dumping.

Question 16

What is term used to describe the pricing practice in effect when a business deliberately prices below its costs in an effort to drive out competitors?
A)competitive pricing.
B)cost-based pricing.
C)target pricing.
D)predatory pricing.

Accepted Answer

Predatory pricing is the practice in which a company deliberately sets very low prices for its products or services, often below its own costs, with the intent of driving competitors out of business or preventing new ones from entering the market. It is considered illegal in some countries and can be a violation of antitrust laws.

Question 17

Target costs equal which of the following?
A)target prices minus target profits.
B)fixed costs plus variable costs.
C)prime costs plus conversion costs.
D)opportunity cost plus cost of capital.

Accepted Answer

Target costs are the costs that a company aims to achieve while selling its product at a target price and earning a desired target profit. Therefore, target costs can be calculated as target price minus target profit.

Question 18

Which statement is true concerning target pricing?
A)Target pricing is based on customers' perceived value for the product.
B)Target pricing is illegal under Federal law.
C)Target pricing is anti-competitive.
D)Target pricing is the same as predatory pricing.

Accepted Answer

Target pricing is a pricing strategy where the price is set based on the customers' perceived value for the product. It is not illegal under Federal law, nor is it anti-competitive. Predatory pricing, on the other hand, is a pricing strategy where a company sets its prices so low that it drives out competitors and creates a monopoly. This is different from target pricing.

Question 19

What costs can be justified when a firm enters into a long-term contractual relationship to supply a product?
A)Variable costs
B)Fixed costs
C)Full costs
D)Absorption costs

Accepted Answer

Full costs, which include both fixed and variable costs, can be justified when entering into a long-term contractual relationship to ensure all expenses are covered in the pricing strategy.

Question 20

Using activity-based costing to analyze customer profitability requires the analyst to determine the cost to maintain customers,which includes such activities as
A)billing customers
B)follow up calls
C)process returns
D)run advertising campaigns

Accepted Answer

The answer of Using activity-based costing to analyze customer profitability...

Quiz 7: Differential Cost Analysis for Operating Decisions

When can using full costs for pricing decisions be justified?

Predatory pricing

What is the objective of value engineering?

Which of the following terms describes the systematic evaluation of all aspects of research and development,design of products and processes,production,marketing,distribution,and customer service?

Using activity-based costing to analyze customer profitability requires the analyst to determine the cost to provide goods and services,which includes such activities as

Which statement is true with regards to the product lifecycle?

Using activity-based costing to analyze customer profitability requires the analyst to determine the cost to acquire the customer,which includes such activities as

Which statement is true concerning target costing?

The product life cycle lasts from

Using activity-based costing to analyze customer profitability requires the analyst to determine the cost to maintain customers,which includes such activities as

Using activity-based costing to analyze customer profitability requires the analyst to determine the cost to retain customers,which includes such activities as

What is the first step in value engineering?

When can using full costs for pricing decisions be justified?

When can a firm justify the use of full costs for pricing decisions?

Under United States laws,dumping occurs when

What is term used to describe the pricing practice in effect when a business deliberately prices below its costs in an effort to drive out competitors?

Target costs equal which of the following?

Which statement is true concerning target pricing?

What costs can be justified when a firm enters into a long-term contractual relationship to supply a product?

Using activity-based costing to analyze customer profitability requires the analyst to determine the cost to maintain customers,which includes such activities as