Review Questions and Exercises chapter 10 and 13_Ashley_Evans.docx

F 7 life cycle costing highlights manufacturing costs

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F 7. Life-cycle costing highlights manufacturing costs more than the costs of other business functions in the value chain. Increase invariable cost 50,000 -10,000 40,000 VC per unit VC per unit 40,000/ 60,000- 40000 40,000/20,000=2
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T 8. When there is price discrimination, pricing is not linked closely to the cost of the product. T 9. Under the U.S. Robinson-Patman Act, a manufacturing company cannot price discriminate between two customers if its intent is to lessen or prevent competition. T 10. Setting prices above average variable costs is regarded as pricing that is non-predatory. F 11. Collusive pricing occurs when a non-U.S. company sells a product in the U.S. at a price below the market value in the country where it is produced, and this lower price materially injures or threatens to materially injure an industry in the U.S. Multiple Choice Select the best answer to each question. Space is provided for computations after the quantitative questions. B 1. In regard to supply and demand, demand is affected by: A. customers, competitors, and costs. B . customers and competitors. C. customers and costs. D. competitors and costs. A 2. (CPA) Relay Corporation manufactures batons. Relay can manufacture 300,000 batons a year at variable costs of $750,000 and fixed costs of $450,000. Fixed costs will remain the same between 200,000 and 300,000 batons. Based on Relay’s predictions, 240,000 batons will be sold at the regular price of $5.00 each. In addition, a one-time-only special order was received for 60,000 batons to be sold at a 40% discount off the regular price. By what amount does operating income increase or decrease as a result of accepting the special order? a. $30,000 increase The selling price is 5*(1-0.40) =3/baton Incremental cost is 750,000/300,000=2.50/baton Increase in OI= 0.50*60,000=30,000 B. $60,000 decrease C. $36,000 increase D. $180,000 increase D 3. (CPA) Nile Co.’s cost allocation and product-costing procedures follow activity-based costing principles. Activities related to each product have been identified and classified as being either value-adding or nonvalue-adding. Which of the following activities, used in Nile’s production process, is nonvalue-adding? a. Design engineering activity b. Heat treatment activity c. Drill press activity d. Materials storage activity B 4. For a company manufacturing personal computers, a graph of locked-in costs and incurred costs shows: A. locked-in costs rising much faster initially than incurred costs, but dropping to zero after the product is manufactured. B. locked-in costs rising much faster initially than incurred costs, but joining the incurred cost line at the completion of the value-chain functions. C. the two cost lines running parallel until the end of the production process, where they join. D. no differences unless the product is manufactured inefficiently.
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D 5. (CPA) Purvis Company manufactures a product that has a variable cost of $50 per unit.
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