Exam 5: Relevant Information and Decision-Making: Marketing Decisions

Prices are most directly related to costs in industries where revenue is based on cost reimbursement.

Prices have little or no effect on volume

Variable expenses are divided into avoidable and unavoidable costs.

Information is relevant if it is:

The amount by which price exceeds cost

Continuous improvement during manufacturing

San Bernardino Industries has three product lines, A, B, and C. The following information is available: Sales \ 100,000 \ 90,000 \ 88,000 Variable costs 48,000 Contribution margin \ 24,000 \ 42,000 \ 9,000 Fixed costs: Avoidable 18,000 3,000 Unavoidable Operating income Assuming product line C is discontinued and the space formerly used to produce product C is rented for $15,000 per year, operating income will:

Each month Newton Company produces 11,000 units of a product that sells for $17 per unit, and has variable costs of $14 per unit. Total fixed costs for the month are $77,000. A special order is received for 5,000 units at a price of $15 per unit. Newton Company has adequate capacity for the special order. Relevant to the decision of whether to accept or reject this special order is the:

Wilson Corporation produces two products, Pots and Pans. The following information is available for these two products: Pots Pans Selling price per unit \ 21.00 \ 15.00 V ariable cost per unit 18.00 9.00 Total fixed costs $\quad \$ 15,000$ Total production capacity $\quad 10,000$ units If at least 10,000 units of either Pots and/or Pans can be sold, it is best to:

Total fixed manufacturing costs / selected volume level

Relevant information might have an element of difference among alternatives.

Any method used for making a decision

The contribution approach to pricing involves all of the following except that:

Gatton, Inc., provided the following information regarding its one and only product-scissors: Fixed manufacturing costs \ 420,000 Fixed s elling and administrative costs 80,000 Fixed manuf acturing costs 42,000 Fixed s elling and administrative costs 80,000 Variable manufacturing costs 1,030,000 Variable selling and administrative costs 120,000 Selling unit price 100 Units produced and sold 20,000 Assuming there is excess capacity, the effect of accepting a special order for 1,000 units at a price of $80.00 per scissors will be:

Target costing is most effective at reducing costs during the product design phase.

All of the following represent a popular markup formula for pricing except:

are relevant in deciding whether to add or delete a product or service.

A cost reduction technique that uses information about all value chain functions to satisfy customer needs while reducing costs

Total manufacturing costs or full costs are far more widely used in practice than the contribution margin approach. Why?

Unavoidable costs are never relevant in deciding whether to eliminate a product or department.