Question 1

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.

Accepted Answer

The answer of In using the variable cost concept of...

Question 2

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.

Accepted Answer

The product cost concept of applying the cost-plus approach to product pricing includes all direct and indirect costs associated with the production of the product, as well as a markup to cover selling expenses, administrative expenses, and profit. Therefore, the statement is true.

Question 3

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

Accepted Answer

The cost-plus approach is a practical method used by managers to set normal long-run prices. It involves adding a markup to the cost of producing or acquiring a good or service to determine the selling price.

Question 4

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

Accepted Answer

The highest contribution margin per scarce resource is the most profitable, as it indicates that a company is making the most profit from the resource that is most limited or difficult to obtain.

Question 5

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

Accepted Answer

Activity-based costing is a more refined and detailed method of allocating costs to products or services. It takes into account the specific activities that drive costs and assigns those costs based on the resources used. This leads to a more accurate understanding of the costs associated with a particular product or service and can help managers make more informed decisions about pricing, production, and resource allocation. Traditional costing systems rely on simple cost drivers like direct labor hours or units produced, which may not accurately reflect the true cost of a product or service.

Question 6

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

Accepted Answer

Make or buy decisions should be made with both related and unrelated parties. It is important to consider all options and evaluate which choice will be the best for the organization.

Question 7

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

Accepted Answer

Discontinuing a segment may not always be the best option, as there could be underlying factors causing the net loss, such as a temporary downturn in the market or investments in new products or services. Instead, the company may choose to implement cost-cutting measures or restructure the segment to improve profitability. Additionally, discontinuing a segment could result in a loss of potential future profits and market share.

Question 8

A bottleneck happens when a key piece of manufacturing machinery can produce 1000 units per hour and demand for the product supports a production rate of 1200 units per hour.

Accepted Answer

The capacity of the machinery is less than the demand, creating a bottleneck.

Question 9

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.

Accepted Answer

This statement is true. Different products may have different requirements for further processing based on their capacity and the end-use of the product.

Question 10

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

Accepted Answer

The product cost concept does include all manufacturing costs in the cost amount.

Question 11

The theory of constraints is a manufacturing strategy that focuses on reducing the influence of bottlenecks on a process.

Accepted Answer

The theory of constraints does indeed focus on identifying and reducing the impact of bottlenecks on manufacturing processes.

Question 12

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

Accepted Answer

Estimates should reflect normal levels of performance to ensure that pricing is realistic and sustainable over time, avoiding overpricing or underpricing.

Question 13

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.

Accepted Answer

The answer of In using the total cost concept of...

Question 14

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.

Accepted Answer

In the variable cost concept of cost-plus pricing, only variable costs are considered in setting the price, and the markup is added to cover fixed costs and desired profit, not including fixed manufacturing costs and fixed selling and administrative expenses in the cost base.

Question 15

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

Accepted Answer

Estimated costs used in applying the cost-plus approach to product pricing should be based on realistic levels of performance and not ideal levels. Ideal levels of performance may not be achievable in reality, leading to inaccurate cost estimates and potentially resulting in incorrect pricing decisions.

Question 16

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.

Accepted Answer

This statement is true. When a bottleneck occurs, the company must prioritize production of the product with the highest contribution margin per bottleneck hour to optimize profitability.

Question 17

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.

Accepted Answer

The total cost concept does include all manufacturing costs and selling and administrative expenses in the cost amount. The markup is then added to determine the final product price.

Question 18

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

Accepted Answer

Discontinuing a segment or product that contributes to fixed expenses may actually increase overall costs and reduce profitability. It is important to analyze the impact on the entire business before making such a decision.

Question 19

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

Accepted Answer

This is an accurate definition of a bottleneck. When demand for a product exceeds a company's production capacity, a bottleneck occurs and can create delays, reduce efficiency, and impact the company's bottom line.

Question 20

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.

Accepted Answer

The product cost concept includes all manufacturing costs (direct materials, direct labor, and manufacturing overhead) but does not include selling and administrative expenses; these are considered period costs and are not included in the calculation of the product cost.

Quiz 25: Differential Analysis and Product Pricing