ACCT 2302 Exam 4 Questions With
Correct Answers
What are the five steps to managerial decision making? - ANSWER Define the decision
Identify alternatives
Collect relevant information and evaluate alternatives
Select the course of action
Analyze and assess decisions made
Future oriented and focus on incremental effects from alternative managerial decisions -
ANSWER Relevant costs and benefits
Additional revenues from selecting a certain course of action over another - ANSWER
Incremental revenues
The additional costs from selecting a certain course of action (also called differential
costs) - ANSWER Incremental costs
Incremental revenue minus incremental costs - ANSWER Incremental income
Arise from past decisions and cannot be avoided or changed; is irrelevant to current and
future decisions. - ANSWER Sunk costs
Examples of sunk costs include: - ANSWER Most of a company's allocated costs
including fixed overhead
Requires a future outlay of cash and is relevant for decisions - ANSWER Out-of-pocket
costs
The potential benefit lost by taking an action instead of an alternative action - ANSWER
Opportunity costs
A cost that can be eliminated by choosing one action versus another; these are always
relevant - ANSWER Avoidable costs
Buying goods from an external supplier - ANSWER Outsourcing
, What is used to find the best sales mix? - ANSWER Contribution margin per unit of
constrained resource
What segments are candidates for elimination? - ANSWER Segments with contribution
margins less than avoidable fixed costs
Expense or cost that is relevant for decision making; expense that is not incurred if a
department, product, or service is eliminated - ANSWER Avoidable costs
Expense of cost that is not relevant for business decisions; would continue even if a
department, product, or service were eliminated; are allocated to remaining segments
when a segment is eliminated - ANSWER Unavoidable costs
Entity with no control to set prices; characteristics include:
Strong competition
Product not unique
Product not branded
Low barrier to entry
Use target pricing - ANSWER Price takers
Entity with more control to set prices due to it's unique prices and brands.
Characteristics include:
Weak competition
Product is unique
Product is branded
High barriers to entry
Uses cost plus pricing - ANSWER Price Setters
What are the three normal pricing methods? - ANSWER Total cost method
Target cost method
Variable costs method
With total cost method, management adds... - ANSWER A markup to cost to get selling
price
Cost per unit + Markup per unit = - ANSWER Selling price per unit in total cost method
All of the costs of goods/services are included in determining the selling price; a three-
step process; also called cost plus pricing - ANSWER Total cost method
What are the three steps for total cost method? - ANSWER Determine total cost per unit
Determine dollar markup per unit
Determine price per unit
Correct Answers
What are the five steps to managerial decision making? - ANSWER Define the decision
Identify alternatives
Collect relevant information and evaluate alternatives
Select the course of action
Analyze and assess decisions made
Future oriented and focus on incremental effects from alternative managerial decisions -
ANSWER Relevant costs and benefits
Additional revenues from selecting a certain course of action over another - ANSWER
Incremental revenues
The additional costs from selecting a certain course of action (also called differential
costs) - ANSWER Incremental costs
Incremental revenue minus incremental costs - ANSWER Incremental income
Arise from past decisions and cannot be avoided or changed; is irrelevant to current and
future decisions. - ANSWER Sunk costs
Examples of sunk costs include: - ANSWER Most of a company's allocated costs
including fixed overhead
Requires a future outlay of cash and is relevant for decisions - ANSWER Out-of-pocket
costs
The potential benefit lost by taking an action instead of an alternative action - ANSWER
Opportunity costs
A cost that can be eliminated by choosing one action versus another; these are always
relevant - ANSWER Avoidable costs
Buying goods from an external supplier - ANSWER Outsourcing
, What is used to find the best sales mix? - ANSWER Contribution margin per unit of
constrained resource
What segments are candidates for elimination? - ANSWER Segments with contribution
margins less than avoidable fixed costs
Expense or cost that is relevant for decision making; expense that is not incurred if a
department, product, or service is eliminated - ANSWER Avoidable costs
Expense of cost that is not relevant for business decisions; would continue even if a
department, product, or service were eliminated; are allocated to remaining segments
when a segment is eliminated - ANSWER Unavoidable costs
Entity with no control to set prices; characteristics include:
Strong competition
Product not unique
Product not branded
Low barrier to entry
Use target pricing - ANSWER Price takers
Entity with more control to set prices due to it's unique prices and brands.
Characteristics include:
Weak competition
Product is unique
Product is branded
High barriers to entry
Uses cost plus pricing - ANSWER Price Setters
What are the three normal pricing methods? - ANSWER Total cost method
Target cost method
Variable costs method
With total cost method, management adds... - ANSWER A markup to cost to get selling
price
Cost per unit + Markup per unit = - ANSWER Selling price per unit in total cost method
All of the costs of goods/services are included in determining the selling price; a three-
step process; also called cost plus pricing - ANSWER Total cost method
What are the three steps for total cost method? - ANSWER Determine total cost per unit
Determine dollar markup per unit
Determine price per unit
