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Horngren Cost Accounting 14e Solution Test Bank Essay

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Cost Accounting, 14e (Horngren/Datar/Rajan)
Chapter 12 Pricing Decisions and Cost Management

Objective 12.1

1) Companies should only produce and sell units as long as:
A) there is customer demand for the product
B) the competition allows it
C) the revenue from an additional unit exceeds the cost of producing it
D) there is a generous supply of low-cost direct materials
Answer: C
Diff: 2
Terms: target price
Objective: 1
AACSB: Ethical reasoning

2) Too high a price may:
A) deter a customer from purchasing a product
B) increase demand for the product
C) indicate supply is too plentiful
D)
…show more content…
labor (hours) 1,000 500 300 200
Disbursement of Payments
Direct materials
Wood
(1,000; 500; 300 × $30) $30,000 $15,000 $9,000
Fiberglass
(1,200; 600; 360 × $5) 6,000 3,000 1,800
Direct manuf. labor
(500; 300; 200 × $25) 12,500 7,500 5,000
Interest payment
(6% × $30,000 ÷12) 150 150 150
Variable Overhead Calculation
Variable overhead rate $ 7 $ 7 $ 7
Overhead driver
(direct manuf. labor-hours) 500 300 200
Variable overhead expense $ 3,500 $ 2,100 $1,400
6-32
Cash Budget for the months of July, August, September 2012
July August September
Beginning cash balance $10,000 $ 5,650 $40,100
Add receipts: Collection of receivables 55,800 70,200 54,900
Total cash available $65,800 $75,850 $95,000
Deduct disbursements:
Material purchases $36,000 $18,000 $10,800
Direct manufacturing labor 12,500 7,500 5,000
Variable costs 3,500 2,100 1,400
Fixed costs 8,000 8,000 8,000
Interest payments 150 150 150
Total disbursements 60,150 35,750 25,350
Ending cash balance $ 5,650 $40,100 $69,650
2. Yes. Slopes has a budgeted cash balance of $69,650 on 10/1/2012 and so it will be in a position to pay off the $30,000 1-year note on October 1, 2012.
3. No. Slopes does not maintain a $10,000 minimum cash balance in July. To maintain a
$10,000 cash balance in each of the
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