ACCOUNTING 226

TEST 1 CH 11-13 NAME DATE ______________________________________ __________ MULTIPLE CHOICE 1.. 2. 3. 4. 5. 6. Companies should ONLY produce and sell units as long as c. the revenue from an additional unit exceeds the cost of producing it. Too high a price may a. deter a customer from purchasing a product. Companies must ALWAYS examine pricing c. through the eyes of their customers. Value-added costs c. are reduced through improved efficiencies. Three major influences on pricing decisions are a. competition, costs, and customers. Relevant costs for pricing a special order include c. additional setup costs for the special order.

THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 7 AND 8. Northwoods manufactures rustic furniture. The cost accounting system estimates manufacturing costs to be $120 per table, consisting of 60% variable costs and 40% fixed costs. The company has surplus capacity available. It is Northwoods policy to add a 50% markup to full costs. 7. Northwoods is invited to bid on a one-time-only special order to supply 200 rustic tables. What is the lowest price Northwoods should bid on this special order? d. $14,400 8. A large hotel chain is currently expanding and has decided to decorate all new hotels using the rustic style. Northwoods is invited to submit a bid to the hotel chain. What per unit price will Northwoods MOST likely bid on this long-term order? c. $180 per unit 9. Price discrimination is the practice of

d. charging different prices to different customers or clients for the same products or services.
10. 11. Feedback regarding previous actions may affect d. all of the above. In evaluating different alternatives, it is useful to concentrate on Answer is relevant cost

THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 12 THROUGH 14.

Welch Manufacturing is approached by a European customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers. Welch Manufacturing has excess capacity. The following per unit data apply for sales to regular customers: Variable costs: Direct materials $40 Direct labor 20 Manufacturing support 35 Marketing costs 15 Fixed costs: Manufacturing support 45 Marketing costs 15 Total costs 170 Markup (50%) 85 Targeted selling price $255 12. 13. What is the full cost of the product per unit? b. $170 What is the contribution margin per unit? c. $145

14. For Welch Manufacturing, what is the minimum acceptable price of this special order? a. $110 15. Companies should ONLY produce and sell units as long as c. the revenue from an additional unit exceeds the cost of producing it. 16. Three major influences on pricing decisions are a. competition, costs, and customers. 17. Value engineering may result in all of the following EXCEPT c. increases in the quantity of nonvalue-added cost drivers.

18. __________ focuses on reducing costs during the manufacturing stage. b. Kaizen costing 11. Place the following steps from the five-step decision process in order: A = Make predictions about future costs B = Evaluate performance to provide feedback C = Implement the decision D = Choose an alternative c. ADCB The formal process of choosing between alternatives is known as b. a decision model.

12.

THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 13 AND 14. LeBlanc Lighting manufactures small flashlights and is considering raising the price by 50 cents a unit for the coming year. With a 50-cent price increase, demand is expected to fall by 3,000 units. Currently Projected Demand 20,000 units 17,000 units Selling price $4.50 $5.00 Incremental cost per unit $3.00 $3.00 13 If the price increase is implemented, operating profit is projected to

a. 14. 15. 16. 17. 18. 19. 20.

increase by $4,000.

Would you recommend the 50-cent price increase? d. Yes, because operating profits increase. For decision making, a listing of the relevant costs d. all of the above Costs that CANNOT be changed by any decision made now or in the future are d. sunk costs. In evaluating different alternatives, it is useful to concentrate on d. relevant costs. When making decisions c. appropriate weight must be given to both quantitative and qualitative factors. One-time-only special orders should only be accepted if a. incremental revenues exceed incremental costs. When there is excess capacity, it makes sense to accept a one-time-only special order for less than the current selling price when a. incremental revenues exceed incremental costs.

Bugos Company makes a household appliance with model number XX300. The goal for 20x4 is to reduce direct materials usage per unit. No defective units are currently produced. Manufacturing conversion costs depend on production capacity defined in terms of XX300 units that can be produced. The industry market size for appliances increased 5% from 20x3 to 20x4. The following additional data are available for 20x3 and 20x4: Units of XX300 produced and sold Selling price Direct materials (square feet) Direct material costs per square foot Manufacturing capacity for XX300 (units) Total manufacturing conversion costs Manufacturing conversion costs per unit of capacity 21. 22. What is the revenue effect of the price-recovery component? b. $52,500 U What is the cost effect of the price-recovery component? d. $31,500 U 20x3 10,000 $100 30,000 $10 12,500 $250,000 $20 20x4 10,500 $95 29,000 $11 12,000 $240,000 $20