Final Exam Flashcards
1) Pricing for one-time-only special orders is a type of
a) Fixed cost-based pricing decision
b) Short-run pricing decision
c) Long-run pricing decision
d) Variable cost-based pricing decision
b) Short-run pricing decision
Three major influences on pricing decisions are ________.
A) competition, costs, and customers
B) competition, demand, and production efficiency
C) continuous improvement, customer satisfaction, and supply
D) variable costs, fixed costs, and mixed costs
A
For setting long-term prices, a company should ideally use full product costs. Full product costs for pricing purposes typically should
a) include all direct costs plus an appropriate allocation of the indirect costs of all business functions
b) include all costs that are traceable to the product
c) include all manufacturing and administrative costs
d) allow for the highest possible product prices
A
In summary form, the steps, in sequence, for implementing target pricing and target costing are
a) Design a product, engineer the product, set target cost and set target price
b) Set target price, set profit desired, and set target cost
c) Set target cost, set profit desired, and set target price
d) Estimate price based on customers’ willingness to pay, derive target cost by subtracting target operating income from estimated price, perform cost analysis and value engineering
D
The cost-plus pricing approach is generally of the form
a) Cost base + Markup component = Prospective selling price
b) Prospective selling price - Cost base = Markup component
c) Cost base + Gross margin = Prospective selling price
d) Variable cost + Fixed cost + Contribution margin = Prospective selling price
A
Seneca Company has invested $1,000,000 in a plant to make gas pumps for service stations. The average long-run pre-tax annual return desired from this investment is 20%. The full manufacturing cost per unit at a level of 1,000 pumps is $800 per pump. This full cost does not include $400,000 of fixed annual selling and administrative costs. The company sets prices by marking up the full manufacturing cost. By what percentage should Seneca mark up its full manufacturing cost to achieve its desired return?
a) 16.67%
b) 50%
c) 20%
d) 75%
D
Mark-up = (desired return + excluded costs) / Cost base
= (1,000,000 x 0.2 + 400,000) / (1,000 x 800) = 600,000 / 800,000 = 0.75
Mark-up % = 75%
General Insurance Company had a static budget operating income of $4.0 million; however, actual operating income was $6.4 million. What is the static budget variance of operating income? a) $2,000,000 favorable b) $2,000,000 unfavorable c) $2,400,000 favorable d) $2,400,000 unfavorable
C
The flexible-budget variance for total costs measures
a) What the costs and revenues should have been for the budgeted number of outputs
b) The difference between budgeted expenditures and actual expenditures for the budgeted number of output units
c) The difference between budgeted and actual variable costs
d) The difference between expected expenditures for the actual number of outputs and the actual expenditures for the actual number of outputs
D
The most likely cause of sales-volume variance for operating income is:
a) Actual labor costs being different from budget
b) inaccurate forecasting of units sold
c) Actual fixed costs exceeding budgeted fixed costs
d) Actual material consumption being different from budget
B
In a manufacturing area of an organization, poor product design, problems with the quality of materials, and schedule conflicts will, more than likely, result in
a) a favorable materials efficiency variance
b) an unfavorable materials efficiency variance
c) a favorable materials price variance
d) an unfavorable materials price variance
B
Actual output units = 42,000, Static Budget output units = 36,000; Actual variable manufacturing OH = $400,000; Static Budget variable manufacturing OH = $360,000. The Sales Volume Variance for VMOH is
a) $40,000 favorable
b) $40,000 unfavorable
c) $60,000 unfavorable
d) $70,000 favorable
Static budget VMOH = $360,000; Static budget output units = 36,000
Therefore, budgeted VMOH rate = $360,000/36,000 = $10/unit
Actual output units =42,000, Therefore, Flexible Budget VMOH = 42,000 x 10 = $420,000.
SVV for VMOH = Flex amount – static amount = 420,000 – 360,000 = $60,000. This is unfavorable because this is a cost item where the flex budget amount is greater than the benchmark static budget amount.
A company using standard costing allocates variable manufacturing overhead (VMOH) using direct-labor hours consumed by its products. If the efficiency variance for direct labor for a particular product is $20,000 (U) for a particular period, the efficiency variance for the product’s VMOH for that period is
a) $20,000 (U)
b) $20,000 (F)
c) Unfavorable but dollar magnitude may be different
d) Favorable but dollar magnitude may be different
C
c
DL efficiency variance is unfavorable means that actual direct labor hours were greater than flexible budget direct labor hours.
VMOH efficiency variance = (actual quantity of cost allocation base – Flex budget quantity allowed for cost allocation base) x VMOH rate. This will be unfavorable when actual > flex budget. Therefore, VMOH efficiency variance will be unfavorable given that DL hours is the allocation base. We don’t know the budgeted VMOH per hour. In general it will be different than the DL wage per hour. Therefore, the magnitude will be different than $20,000.
The difference between budgeted lump-sum fixed manufacturing overhead and the fixed manufacturing overhead allocated to actual output units is called
a) an efficiency variance
b) a flexible-budget variance
c) a manufacturing overhead flexible-budget variance
d) a production volume variance
d
Budgeted fixed manufacturing overhead = $500,000.
Actual production = 40,000 unit. Each unit budgeted to take 0.5 machine-hour to produce. Budgeted fixed manufacturing overhead rate per machine hour =$22. What is the production volume variance for fixed manufacturing overhead?
a) $60,000 unfavorable
b) $60,000 favorable
c) 0
d) $1,500,000 favorable
A
Explanation: Allocated FMOH = (40,000 units * 0.5) * $22 = $440,000. This is $60,000 less than lump sum budgeted FMOH. When allocated FMOH is less than budgeted FMOH, by definition it is an unfavorable variance.
Tesla Electric budgeted for the sale of 10,000 electric cars at a budgeted contribution margin of $800 per car. The forecast of 10,000 was based on an expected market size of 50,000 cars and a 20% market share. Tesla was able to gain an actual market share of 25% and the overall market for electric cars increased by 12.5%. The market size variance for operating income for Tesla was
a) $ 2.0 M (favorable)
b) $ 1.0 M (unfavorable)
c) $ 1.0 M (favorable)
d) $ 2.0 M (unfavorable)
e) None of the above
C
Explanation :
Original market size = 50,000
Actual market size = 50,000 x 1.125 = 56,250
Budgeted market share = 20%
Market size variance = (56,250 – 50,000) x 0.2 x 800 = 6,250 x 0.2 x 800 = $1,000,000
This is favorable because actual market size was greater than budgeted market size.
Tesla Electric budgeted for the sale of 10,000 electric cars at a budgeted contribution margin of $500 per car. The forecast of 10,000 was based on an expected market size of 50,000 cars and a 20% market share. Tesla was able to gain an actual market share of 24% and the overall market for electric cars increased by 20%. The market share variance for operating income for Tesla was
a) $ 0.6 M (favorable)
b) $ 1.2 M (unfavorable)
c) $ 1.2 M (favorable)
d) $ 1.0 M (unfavorable)
e) None of the above
C
Explanation:
Actual market size = 50,000 x 1.2 = 60,000
Actual market share = 24%
Budgeted market share = 20%
Market share variance = 60,000 x (0.24 -0.2) x 500 = $1,200,000 (F)
Favorable because actual market share was greater than budgeted market share
The sales-quantity variance in a multi-output setup arises because
a) the mix of individual products actually sold differs from the budgeted mix.
b) the total quantity of units expected to be sold differs from the master budget quantity.
c) the total quantity of units actually sold across all products differs from the total budgeted quantity for these products
d) the master budget fixed costs differ from the actual fixed costs.
C
Jindal and Co. budgets to sell three related products A, B and C under a output sales mix of 5:3:2. The actual mix of the three products sold was 5:2:1. The sales-mix variance for products A, B and C calculated at the product-level will be
Unfavorable, Unfavorable, Unfavorable Unfavorable, Favorable, Favorable Favorable, Unfavorable, Favorable Favorable, Unfavorable, Unfavorable Zero, Unfavorable, Unfavorable
D
Budgeted mix = 50% : 30% : 20%
Actual mix = 62.5%: 25% : 12.5% = (5/8, 2/8, 1/8)
Therefore, favorable for A (62.5 > 50) and unfavorable for other two (25 < 30 and 12.5 < 20)
One possible way of determining the difference between absorption and variable costing based operating income is
a) to add fixed manufacturing cost to the variable costing based operating income
b) by subtracting the variable overhead rate from the fixed overhead rate and then multiplying the difference by the number of units in ending inventory
c) by subtracting the $ amount of fixed manufacturing overhead in beginning inventory from the $ amount of fixed manufacturing overhead in ending inventory
d) by multiplying the number of units produced by the budgeted fixed manufacturing overhead rate
C
Practical capacity is the denominator-level concept that
a) is based on the level of capacity utilization that satisfies average customer demand over periods generally longer than one year
b) is the maximum level of operations at maximum efficiency
c) reduces theoretical capacity for unavoidable operating interruptions
d) is based on anticipated levels of capacity utilization for the coming budget period
C
Normal capacity is the denominator-level concept that
a) is based on the level of capacity utilization that satisfies average customer demand over periods generally longer than one year
b) is the maximum level of operations at maximum efficiency
c) reduces theoretical capacity for unavoidable operating interruptions
d) is based on anticipated levels of capacity utilization for the coming budget period
A
Theoretical capacity is the denominator-level concept that
a) is based on the level of capacity utilization that satisfies average customer demand over periods generally longer than one year
b) is the maximum level of operations at maximum efficiency
c) reduces theoretical capacity for unavoidable operating interruptions
d) is based on an
B
When all direct manufacturing costs and all indirect manufacturing costs are included in inventoriable costs, the method being used is
a) absorption costing
b) variable costing
c) fixed overhead costing
d) manufacturing overhead costing
A
To discourage producing for inventory, management can ________.
a) discourage using nonfinancial measures such as units in ending inventory compared to units in sales
b) evaluate performance over a quarterly period rather than a single year
c) incorporate a carrying charge for inventory in the internal accounting system
d) implement absorption costing across all departments
C
Three major influences on pricing decisions are ________.
a) competition, costs, and customers
b) competition, demand, and production efficiency
c) continuous improvement, customer satisfaction, and supply
d) variable costs, fixed costs, and mixed costs
A
For setting long-term prices, a company should ideally use full product costs. Full product
costs for pricing purposes typically should
a) include all direct costs plus an appropriate allocation of the indirect costs of all business functions
b) include all costs that are traceable to the product
c) include all manufacturing and administrative costs
d) allow for the highest possible product prices
A
