Answered: The differential analysis approach to…

The differential analysis approach to pricing for special orders could lead to under-pricing in the long-run because fixed costs are not included in the analysis Select one: True False

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter12: Differential Analysis And Product Pricing

Section: Chapter Questions

Problem 9CDQ

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Question

The differential analysis approach to pricing
for special orders could lead to under-pricing
in the long-run because fixed costs are not
included in the analysis
Select one: True False

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Similar questions

Define price elasticity of demand. Give an example of a product with relatively elastic demand and an example of a product with relatively inelastic demand. (Give examples not given in the text.)
What is false about cost plus mark-up pricing? a. attempts to apply or allocate fix costs to pricing strategy b. not intuitive c. good example of value-based pricing d. vulnerable to bad sales estimates e. All are correct f. All are incorrect
A weakness associated with cost-based pricing methods is that they do not allow for primary pricing. infer a cost-price ratio. do not allow for predatory pricing are structurally inflexible and ignore vertical price fixing alternatives. none of the above.
Management is considering a one-time-only special order. There is sufficient idle capacity to fill the order without affecting any normal sales. Which one of the following is NOT relevant in making the decision? Sunk costs Variable costs Fixed costs Differential costs
T, F. In a make or buy short-run decision situation, the critical element to consider is whether the variable cost to produce the item is higher or lower the competitor’s selling price. T, F. One of the disadvantages of Variable Costing method is that it ignores the principle of matching revenues with related costs.
Which of the following is not a feature of full costplus sales pricing related to a range of a company’sproducts? it may not maximise profitit distinguishes between variable, fixed and opportunity costsit requires the apportionment of shared costsit ignores the relationship between demand and prices
T, F. In a make or buy short-run decision situation, the critical element to consider is whether the variable cost to produce the item is higher or lower the competitor’s selling price. T, F. In absorption costing method, gross margin is the term used to describe the difference between sales and variable costs. T, F. In Variable costing method, contribution margin is used to describe the difference between sales and variable costs. T, F. Although variable costing may provide useful information for internal controls and pricing, it is not generally accepted inventory valuation system by IRS and AICPA. T, F. One of the disadvantages of Variable Costing method is that it ignores the principle of matching revenues with related costs.
Which of the following statements regarding assumptions and limitations of CVP analysis is not correct? Multiple Choice If unit prices change (for example, if the unit prices are lower for higher volumes), CVP analysis cannot be used. CVP analysis relies on certain assumptions and these assumptions might limit the applicability of the results for decision making. CVP analysis is a tool that the manager can use to help with decisions. The assumptions of constant unit variable cost and constant unit prices for all levels of volume as important limitations of CVP analysis. The limitations are due to the assumptions that the cost analyst makes; that is, they are not inherent limitations to the method of CVP analysis itself.
Which of the followings is not correct about cost-based pricing? Select one: a. Total fixed costs change as the production amount changes. b. Total costs are the sum of total fixed and variable costs. c. Total variable costs increase due to a rise in production level. d. Variable costs per unit tend to be constant with respect to number of units produced.
A basic belief of variable costing is that period costs should be currently expensed. What is thebasic rationale behind this procedure?a. Period costs are uncontrollable and should not be charged to a specific product.b. Period costs are generally immaterial in amount and the cost of assigning the amountsto specific products would outweigh the benefits.c. Allocation of period costs is arbitrary at best and could lead in erroneous decisions bymanagement.d. Period costs will occur whether or not production occurs and so it is improper toallocate these costs to production and defer a current cost of doing business.
Explain the behavioral problem that can result when cost-plus prices are based on variable cost.
Managers often assume a strictly linear relationship between cost and volume. How can thispractice be defended in light of the fact that many costs are curvilinear?