Answered: Companies should always make and sell…

Companies should always make and sell all products whose selling prices exceed variable costs.” Assuming fixed costs are irrelevant, do you agree? Explain.

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter11: Differential Analysis And Product Pricing

Section: Chapter Questions

Problem 4DQ: A company accepts incremental business at a special price that exceeds the variable cost. What other...

See similar textbooks

Related questions

Q: Which of the following is true if a company can accept a special order without affecting its regular…

A: The following is true if a company can accept a special order without affecting its regular sales…

Q: If Mazoon Company sells unit outputs below the breakeven point_ O a. total sales revenue will be…

A: The breakeven point is the production level at which the production cost equals the revenues from…

Q: Which of the following is not a consideration when a manager is deciding to discontinue a product or…

A: The management can take decision to discontinue the product or product line in case, its leading to…

Q: Suppose that the elasticity of demand at a given price level is E(p)=.8. What does that mean? Select…

A: Answer -The company should lower the prices to raise revenues. Since 0<E(p)<1, demand is…

Q: Which of the following is true about the changes in fixed cost? An increase in production will…

A: Fixed Cost: It is a cost which is constant in the short run, it is not related to any change in the…

Q: In a make versus buy decision which of the following factors is not relevant? fixed production…

A: Make or buy decision: Every company wants to maximize its net income. The best method to increase…

Q: “Companies should always make and sell all products whose selling prices exceed variable costs.”…

Q: If a company is a multiproduct firm. a. can only utilize CVP analysis if the contribution margin…

A: c) a multiproduct firm can earn a lower than expected profit though the total number of units sold…

Q: If the fixed expenses of a product increase while variable expenses and the selling price remain…

A: Break even point is the point at which the original cost equals the market price. It is where…

Q: All other things the same, which of the following would be true of the contribution margin and…

A: The contribution margin is the part of sales revenue that remained after deducting the variable cost…

Q: “Increasing the number of indirect-cost pools is guaranteed to sizably increase the accuracy of…

A: Indirect cost pool refers to the accumulated cost that jointly benefits two or more costs…

Q: In a multi-product company, as the mix of the products being sold changes, the overall contribution…

A: Overall contribution margin is the mix of individual contribution margin with the weights of their…

Q: Which of the following statements regarding price elasticity is incorrect? a. A product with a…

A: a) In a perfectly inelastic demand the consumers are willing to pay any price for the product and so…

Q: Advocates of variable costing argue that * a. fixed production costs should be added to…

A: The fixed costs are those costs which are constant on total basis and per unit of cost decreases as…

Q: If Mazoon Company sells unit outputs below the breakeven point O a. there will be a loss b. total…

A: break even point is a situation where the company will be in a stage of no profit and no loss. Every…

Q: Which of the following occurs if a company experiences a decrease in its fixed costs? Select one: O…

A: Contribution margin = Selling price - variable cost Break even point = Fixed cost / Contribution…

Q: Distinguish how SFS could use Target Costing and Kaizen Costing to improve its future performance.…

A: Target Costing and Kaizen Costing to improve its future performance by the following manner –…

Q: Which one of the following statements about fixed costs is correct? -The average fixed cost per…

A: Fixed cost is the cost that remains constant irrespective of the level of production. A company…

Q: The line that begins at the origin on a CVP graph represents total expenses. total fixed…

A: Since you have posted multiple questions , we will do the first one for you. If you want any…

Q: In all respects, Company A and Company B are identical except that Company A’s costs are mostly…

Q: When constrained by a limiting resource, managers often seek to produce those products which have:…

A: if a manager constrained by limiting resource, he can be to produce those products which have the…

Q: Two companies have identical fixed expenses, unit variable expenses, and profits. Yet one company…

Q: What other issues must the company consider in deciding whether to accept the business?

Q: What is the basic difference between variable costing and absorption costing? a. Variable costing…

A: Absorption costing: Absorption costing is also called traditional costing. This method of costing…

Q: When deciding whether to sell as is or process a product further, managers should ignore which of…

Q: Which of the following statements regarding price elasticity is incorrect? A product with a…

A: Price Elasticity:Price elasticity refers to the calculation of changes in demand and price of a…

Q: Samsung must confront sunk costs. Why are sunk costs irrelevant in deciding whether to sell a…

Q: Lowering price does not always increase revenue with increased demand. Besides reducing price, what…

A: Reducing prices will not always stimulate demand to the desired extent especially in case of…

Q: When constrained by a limiting resource, managers often seek to produce those products which have:…

A: When constrained by some budget or limited sources managers often try to make products which lie in…

Q: “A company should not allocate costs that are fixed in the short run to customers.” Do you agree?…

A: Cost Allocation:The process of assigning the cost to the cost object is cost allocation. The cost…

Q: Compared to companies that have a cost structure that is mainly comprised of fixed costs, companies…

A: Operating income shows that how revenue leads to growth in operating income. It is a tool to measure…

Q: “You should always choose the supplier who offers the lowest price per unit.” Do you agree? Explain.

A: Choosing a supplier doesnot solely depend on price of the unit offered by supplier. There are many…

Q: Frisco Corporation is analyzing its fixed and variable costs within its current relevant range. As…

Q: As a general rule of economics, companies should only produce and sell units as long as ________.…

A: As a general rule of economics, companies should only produce and sell units as long as the…

Q: ot lower a company's break-even poin O increase selling prices O reduce variable costs O decrease…

A: The correct answer is Sell More units.

Q: The main trouble with variable costing is that it ignores the increasing importance of fixed costs…

A: Variable costing is a concept used in costing to ascertain the relation between sales, costs and…

Q: Holding all other factors constant, the break-even point will be decreased by increasing the fixed…

A: The correct answer is Option C.

Q: If a company decreases its selling price for its products. The Increase? Total cost Cost plus…

A: Breakeven quantity increases with the following changes: Increase in amount of fixed costs,…

Q: Which of the following occurs if a company experiences an increase in its fixed costs? Select one: O…

A: Formula: Break even point = Fixed cost / Contribution margin. Contribution margin means deduction of…

Q: Which of the following occurs if a company experiences a decrease in its fixed costs? Select one: a.…

A: Break-even point: In the accounting term break-even point is a condition where the income or profit…

Q: If a firm changes its activity level * all costs should change variable costs should change…

A: The answers for the multiple choice questions and relevant explanation are presented hereunder :…

Q: Which of the following occurs if a company experiences an increase in its fixed costs? Select one: O…

A: Fixed cost indicates the cost which remains constant to a certain level of activity after which the…

Q: Compared to companies that have a cost structure that is mainly comprised of variable costs,…

A: Ans. Mostly companies incur two types of cost - Variable cost or fixed cost. Variable cost changes…

Q: the product with the higher contribution ratio , which of the following is true ? O a Fixed cost…

A: Below option is true:- d. the average contribution margin ratio will increase

Concept explainers

Pricing

Pricing is used as a term in finance and economics, pricing is the process of fixing a value for a product or a service. Pricing establishes a value for a product or service that the customer has to pay. A business can choose from different strategies while deciding to set prices.

Question

Companies should always make and sell all products whose selling prices exceed variable costs.” Assuming fixed costs are irrelevant, do you agree? Explain.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

Why would a firm ever offer a price on a product that is below its full cost?
“Companies should always make and sell all products whose selling prices exceed variable costs.” Assuming xed costs areirrelevant, do you agree? Explain.
If only the selling price per unit of a product increases (variable cost per unit and total fixed costs do not change), does the breakeven point increase or decrease? Using Break Even Analysis, provide a unique mathematical example to support you
Which one of the following statement is not correct? Group of answer choices -Opportunity costs are only considered when resources are limited. -Break-even analysis is used to determine how many units of a product or a service a business has to sell to cover all its costs. -Both fixed and variable costs influence short-term decision-making. -Short-term decision-making is all about analysing those costs that will change as a result of taking a particular action.
Which of the following costs are always incremental and relevant in decision analysis? a) Opportunity costs and sunk costs b) Avoidable costs and opportunity costs c) Only avoidable costs d) Avoidable costs and sunk costs Which of the following will increase a company's breakeven point? a) reducing its total fixed costs b) increasing the selling price per unit c) increasing variable cost per unit d) increasing contribution margin per unit
A company that desires to lower its break-even point should strive to: reduce variable costs. pursue more than one of the above actions. sell more units. decrease selling prices. increase fixed costs.
“A company should not allocate costs that are fixed in the short run to customers.” Do you agree? Explain briefly.
All other things the same, which of the following would be true of the contribution margin and variable costs of a company with high fixed costs and low variable costs as compared to a company with low fixed costs and high variable costs? Contribution Margin Variable Costs A. Higher Higher B. Lower Higher C. Higher Lower D. Lower Lower Option A Option B Option C Option D
Which of the following statements accurately describes the "relevant range?" a. The operation range in which fixed costs are expected to remain the same. b. The operation range in which the firm can earn a profit. c. The operation range which can satisfy unusual product demand. d. The operation range in which variable costs rise proportionately.
When constrained by a limiting resource, managers often seek to produce those products which have: Question options: a)The highest selling prices. b)The lowest average cost per unit. c)The highest contribution margin ratios. d)The highest contribution margin per unit of limiting resource.
if we produce goods over the capacity, should we consider the fixed marketing cost and variable marketing cost when making the decision to accept or reject a special offer?