Week 3 - Study Plan Chapter 12

Which of the following is true of a company operating at full capacity?

a. Any additional production increases fixed and variable manufacturing costs.

b. Any additional production does not increase fixed manufacturing costs.

c. The products manufactured are sold at prices two times higher than the prevailing market

prices.

d. Any additional production always decreases selling and administrative expenses by a

considerable amount.

Which of the following is true of the Robinson-Patman Act?

a. The act requires all reporting entities to organize their accounting and financial reports

systematically.

b. The act prohibits price discrimination within the United States unless price differences can

be justified by different costs.

c. The act regulates the accounting methods followed by firms in the United States.

d. The act regulates spending levels and tax rates in the economy.

Excellent Inc. is considering leasing or disposing of the following equipment:

Cost of equipment $300,000

Less accumulated depreciation

Book value

Lease option:

Total revenue for five-year lease $200,000

Total estimated repair, insurance, and property tax expenses during life of lease 50,000

Residual value at end of fifth year of lease Sell option: 0

Sales price $150,000

Commission on sales 7%

Calculate the differential revenue from the lease alternative.

a. $150,000

b. $200,000

c. $50,000

d. $39,500

The _____ prohibits price discrimination within the United States unless price differences can be justified by different costs.

a. Budget and Accounting Act

b. Robinson-Patman Act

c. Economic Opportunity Act

d. Capital Markets Act

Discontinuing a product or segment usually eliminates all of the segment’s _____.

a. manufacturing costs

b. fixed costs

c. opportunity costs

d. variable costs

Assume the following data for 120,000 units of a product that Spectacular Company expects to produce and sell during the current year:

Manufacturing costs:

Direct materials $1,200,000

Direct labor

Factory overhead: 3,000,000

Variable costs $360,000

Fixed costs 150,000 510,000

Total manufacturing costs

Selling and administrative expenses: $4,710,000

Variable expenses $360,000

Fixed costs 600,000

Total selling and administrative expenses

Total cost 960,000

$5,670,000

Desired rate of return 23%

Total assets $1,600,000

What will the normal selling price per unit be if calculated using the product cost concept? (Round the answer to two decimal places.)

a. $48.75

b. $11.67

c. $39.25

d. $50.32

Under the total cost concept, a markup percentage is calculated by:

a. adding desired profit to total assets.

b. dividing desired profit by total costs.

c. dividing desired rate of return by total assets.

d. multiplying desired rate of return by total assets.

Which of the following is true of the demand-based concept?

a. Under the demand-based concept, if there is a low demand for a product, then the price is

set high.

b. Under the demand-based concept, if there is a high demand for a product, then the price is

set high.

c. Under the demand-based concept, if a competitor reduces the price, then management

reduces the price to meet the competition.

d. Under the demand-based concept, if a competitor increases the price, then management

increases the price to meet the competition.

The normal selling price must be set high enough to cover:

a. all costs and expenses and provide a reasonable profit.

b. all sunk costs and opportunity costs.

c. only differential costs.

d. only selling and administrative expenses.

Week 3 - Study Plan Chapter 12

Which of the following is true of a company operating at full capacity?

a. Any additional production increases fixed and variable manufacturing costs.

b. Any additional production does not increase fixed manufacturing costs.

c. The products manufactured are sold at prices two times higher than the prevailing market

prices.

d. Any additional production always decreases selling and administrative expenses by a

considerable amount.

Which of the following is true of the Robinson-Patman Act?

a. The act requires all reporting entities to organize their accounting and financial reports

systematically.

b. The act prohibits price discrimination within the United States unless price differences can

be justified by different costs.

c. The act regulates the accounting methods followed by firms in the United States.

d. The act regulates spending levels and tax rates in the economy.

Excellent Inc. is considering leasing or disposing of the following equipment:

Cost of equipment $300,000

Less accumulated depreciation

Book value

Lease option:

Total revenue for five-year lease $200,000

Total estimated repair, insurance, and property tax expenses during life of lease 50,000

Residual value at end of fifth year of lease Sell option: 0

Sales price $150,000

Commission on sales 7%

Calculate the differential revenue from the lease alternative.

a. $150,000

b. $200,000

c. $50,000

d. $39,500

The _____ prohibits price discrimination within the United States unless price differences can be justified by different costs.

a. Budget and Accounting Act

b. Robinson-Patman Act

c. Economic Opportunity Act

d. Capital Markets Act

Discontinuing a product or segment usually eliminates all of the segment’s _____.

a. manufacturing costs

b. fixed costs

c. opportunity costs

d. variable costs

Assume the following data for 120,000 units of a product that Spectacular Company expects to produce and sell during the current year:

Manufacturing costs:

Direct materials $1,200,000

Direct labor

Factory overhead: 3,000,000

Variable costs $360,000

Fixed costs 150,000 510,000

Total manufacturing costs

Selling and administrative expenses: $4,710,000

Variable expenses $360,000

Fixed costs 600,000

Total selling and administrative expenses

Total cost 960,000

$5,670,000

Desired rate of return 23%

Total assets $1,600,000

What will the normal selling price per unit be if calculated using the product cost concept? (Round the answer to two decimal places.)

a. $48.75

b. $11.67

c. $39.25

d. $50.32

Under the total cost concept, a markup percentage is calculated by:

a. adding desired profit to total assets.

b. dividing desired profit by total costs.

c. dividing desired rate of return by total assets.

d. multiplying desired rate of return by total assets.

Which of the following is true of the demand-based concept?

a. Under the demand-based concept, if there is a low demand for a product, then the price is

set high.

b. Under the demand-based concept, if there is a high demand for a product, then the price is

set high.

c. Under the demand-based concept, if a competitor reduces the price, then management

reduces the price to meet the competition.

d. Under the demand-based concept, if a competitor increases the price, then management

increases the price to meet the competition.

The normal selling price must be set high enough to cover:

a. all costs and expenses and provide a reasonable profit.

b. all sunk costs and opportunity costs.

c. only differential costs.

d. only selling and administrative expenses.