Chapter 18

Question 1

Absorption costing

Answer 1

a costing method that assigns all manufacturing costs, including direct materials, direct labor, variable overhead, and a share of fixed overhead, to each unit of product.

Question 2

Contribution margin variance

Answer 2

the difference between actual and budgeted contribution margin.

Question 3

Contribution margin volume variance

Answer 3

the difference between the actual quantity sold and the budgeted quantity sold multiplied by the budgeted average unit contribution margin.

Question 4

Dumping

Answer 4

predatory pricing on the international market

Question 5

Market share

Answer 5

the proportion of industry sales accounted for by a company.

Question 6

Market share variance

Answer 6

the difference between the actual market share percentage and the budgeted market share percentage multiplied by actual industry sales in units times budgeted average unit contribution margin.

Question 7

Market size

Answer 7

the total revenue for the industry.

Question 8

Market size variance

Answer 8

v

Question 9

Markup

Answer 9

a percentage applied to base cost for the purpose of calculating price; the markup includes desired profit and any costs not included in the base.

Question 10

Monopolistic competition

Answer 10

a market that is close to the competitive market. There are many sellers and buyers, and low barriers to entry, but the products are differentiated on some basis.a market that is close to the competitive market. There are many sellers and buyers, and low barriers to entry, but the products are differentiated on some basis.

Question 11

Monopoly

Answer 11

a market in which barriers to entry are so high that there is only one firm selling a unique product.

Question 12

Oligopoly

Answer 12

a market structure characterized by a few sellers and high barriers to entry.

Question 13

Penetration pricing

Answer 13

the pricing of a new product at a low initial price, perhaps even lower than cost, to build market share quickly.

Question 14

Perfectly competitive market

Answer 14

a market (or industry) characterized by many buyers and sellers—no one of which is large enough to influence the market; a homogeneous product; and easy entry into and exit from the industry.

Question 15

Predatory pricing

Answer 15

the practice of setting prices below cost for the purpose of injuring competitors and eliminating competition

Question 16

Price discrimination

Answer 16

charging different prices to different customers for essentially the same commodity.

Question 17

Price elasticity of demand

Answer 17

measured as the percentage change in quantity divided by the percentage change in price.

Question 18

Price gouging

Answer 18

when firms with market power (i.e., little or no competition) price products “too high.”

Question 19

Price skimming

Answer 19

a pricing strategy in which a higher price is charged at the beginning of a product’s life cycle, then lowered at later phases of the life cycle.

Question 20

Product life cycle

Answer 20

the time a product exists—from conception to abandonment; the profit history of the product according to four stages: introduction, growth, maturity, and decline.

Question 21

Sales mix variance

Answer 21

the sum of the change in units for each product multiplied by the difference between the budgeted contribution margin and the budgeted average unit contribution margin.

Question 22

Sales price variance

Answer 22

the difference between actual price and expected price multiplied by the actual quantity or volume sold.

Question 23

Target costing

Answer 23

a method of determining the cost of a product or service based on the price that customers are willing to pay. Also referred to as price-driven costing.

Question 24

Total (overall) sales variance

Answer 24

the sum of the sales price and sales volume variances.

Question 25

Variable costing

Answer 25

a costing method that assigns only variable manufacturing costs to the product; these costs include direct materials, direct labor, and variable overhead. Fixed overhead is treated as a period cost and is expensed in the period incurred.