Managerial Accounting Chapters 7-9

Determining and evaluating possible courses of action is a step in management’sdecision-making process.

In incremental analysis fixed costs may not change under alternative courses of action,while variable costs may change.

The relevant data to consider in accepting an order at a special price are the additionalmanufacturing costs incurred and expected revenues.

The basic decision rule to sell or process further is: process further as long as theincremental revenue from such processing exceeds the incremental processing costs.

Book value is a sunk cost and is therefore relevant in incremental analysis of retain orreplace equipment.

Fixed manufacturing costs will never be relevant in a make or buy decision.

Opportunity costs are costs that have already been incurred and will not be avoided byany future decision.

In deciding on the future status of an unprofitable segment, management should considerthe effect of elimination on the remaining product lines.

Joint product costs are relevant for any sell-or-process further decisions.

Any trade-in allowance or cash disposal value of the old asset is relevant in a retain orreplace equipment decision.

Which of the following is not a step in management’s decision-making process?

If revenues are $315,000 under alternative A and $324,000 under alternative B, and costs are $285,000 for A and $306,000 for B, then using the basic approach in incremental analysis, incremental revenues, costs, and net income, in comparing B to A are respectively

The cost to manufacture an unfinished unit is $120 ($90 variable, $30 fixed). The selling price per unit is $150. The company has unused productive capacity and has determined that units could be finished and sold for $195 with an increase in variable costs of 40%. What is the additional net income per unit to be gained by finishing the unit?

The potential benefit that may be obtained from following an alternative course of action is called

In a make or buy decision, the relevant costs include each of the following except the

Once a company has determined the target price, it can determine its target cost by setting a desired profit.

In a competitive, common-product environment the company must set a target selling price using cost-plus pricing.

Under cost-plus pricing, the markup percentage is computed by dividing desired ROI per unit by variablecost per unit.

The labor charge includes the direct labor cost of employees, selling, administrative, and similar overheadcosts; and an allowance for a desired profit per hour.

The charges for any particular job are the sum of the labor charge, the materials charge, and the materialloading charge.

An appropriate transfer price should assist the company in making proper purchasing decisions.

An advantage of the cost-based transfer price approach is that it can increase a division manager’s controlover the division’s performance.

The market-based transfer price approach provides a fairer allocation of the company’s contribution marginto each division than the cost-based approach.

In order to maximize income, and minimize income tax, companies can adjust the transfer prices they useon transfers between divisions located in different countries.

Absorption cost pricing is more consistent with cost-volume-profit analysis used to measure the profitimplications of changes in price and volume.

The target cost of a product

In the cost-plus pricing approach, the markup percentage is computed by dividing the

All of the following are steps in the time-and-material pricing approach except calculating the

The total contribution margin to a company in the market-based transfer price approach is

Absorption-cost pricing

Budgeting is the process of establishing company-wide objectives that serve as a deter-rent to waste and inefficiency.

The effectiveness of the budget program is directly related to its acceptance by all levelsof management.

Budgeting always has the effect on human behavior of inspiring managers to higherlevels of performance.

One disadvantage of budgeting is that it does not facilitate the coordination of activitieswithin a business.

The sales budget is the first budget prepared and each of the other budgets depends on it.

The quantities of direct materials in the direct materials budget are derived from theformula: Desired Ending Direct Materials Units + Direct Materials Units Required forProduction – Beginning Direct Materials Units = Required Direct Materials Units to bePurchased.

The manufacturing overhead budget shows only the expected indirect labor costs forthe year.

The budgeted income statement indicates the expected profitability of operations for thenext year and provides the basis for evaluating company performance.

Long-range planning differs from budgeting in the time period involved, emphasis, andthe amount of detail presented.

Budgeting is not used in not-for-profit organizations because it is not necessary forthese organizations to engage in profit planning.