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Cost Drivers and Product Life Cycle
40 Questions
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Cost Drivers and Product Life Cycle

Created by
@UnfetteredPedalSteelGuitar

Questions and Answers

What type of cost changes in direct proportion to changes in the cost driver level?

  • Variable cost (correct)
  • Total cost
  • Fixed cost
  • Overhead cost

    • Fixed costs are affected by changes in the cost drivers.

    False

    How do variable costs behave when the cost driver level changes?

    They change in direct proportion to changes in the cost driver level.

    A cost that remains unchanged regardless of the level of cost drivers is known as a ______ cost.

    <p>fixed</p> Signup and view all the answers

    Match the following types of costs with their characteristics:

    <p>Variable Cost = Changes with the level of the cost driver Fixed Cost = Remains unchanged regardless of activity level</p> Signup and view all the answers

    Which of the following statements is true regarding fixed costs?

    <p>They remain constant in total despite changes in cost drivers.</p> Signup and view all the answers

    What happens to the per-unit amount of a fixed cost when production increases?

    <p>The per-unit amount decreases.</p> Signup and view all the answers

    Which of the following is considered a variable cost?

    <p>$12,000 used to install 100 seats</p> Signup and view all the answers

    Per-unit variable costs remain unchanged regardless of changes in the cost driver.

    <p>True</p> Signup and view all the answers

    The product life cycle includes the stages of conception, market introduction, and withdrawal.

    <p>True</p> Signup and view all the answers

    What do managers need to consider at each stage of the product life cycle?

    <p>Differing costs and potential returns.</p> Signup and view all the answers

    The process through which a product passes from creation to _____ is called the product life cycle.

    <p>withdrawal</p> Signup and view all the answers

    Which of the following activities is necessary for a company to create goods or services?

    <p>Marketing</p> Signup and view all the answers

    The costs incurred during product conception are the same as those in the market maturation stage.

    <p>False</p> Signup and view all the answers

    Name one cost driver that can affect the installation cost of seats.

    <p>Number of seats needed.</p> Signup and view all the answers

    Match the following stages of the product life cycle with their descriptions:

    <p>Conception = Initial idea and development phase Introduction = Launch of the product into the market Maturation = Peak market presence and competition Withdrawal = Removal of the product from the market</p> Signup and view all the answers

    What is the expected total revenue for the Ramos company?

    <p>$2,775,000</p> Signup and view all the answers

    The variable cost per unit for wallets is $3.

    <p>False</p> Signup and view all the answers

    How many total units does the Ramos company expect to sell?

    <p>375,000</p> Signup and view all the answers

    The total variable cost for the Ramos company amounts to ______.

    <p>$2,325,000</p> Signup and view all the answers

    Which product has a higher expected unit price?

    <p>Wallets</p> Signup and view all the answers

    The contribution margin is expected to be positive.

    <p>True</p> Signup and view all the answers

    What are the total expected variable costs for key cases?

    <p>$225,000</p> Signup and view all the answers

    Match the products with their respective expected revenue:

    <p>Wallets = $2,400,000 Key cases = $375,000</p> Signup and view all the answers

    What is relevant information primarily concerned with?

    <p>Future costs and revenues</p> Signup and view all the answers

    Past information is considered relevant in the decision-making process.

    <p>False</p> Signup and view all the answers

    What are the two criteria that make information relevant?

    <p>Expected future revenues or costs and differences among alternatives.</p> Signup and view all the answers

    The decision-making activity can be seen as a process that requires ________ steps.

    <p>four</p> Signup and view all the answers

    Which of the following should not be considered when selecting information for decision-making?

    <p>Irrelevant items</p> Signup and view all the answers

    Managers should analyze all accounting information in their decision-making process.

    <p>True</p> Signup and view all the answers

    What is the first step in the decision-making process?

    <p>Gather information.</p> Signup and view all the answers

    Match the following terms with their descriptions:

    <p>Relevant Information = Future costs and revenues Past Information = Used to predict future outcomes Decision-making = Choosing among alternatives Costs = Expenses incurred in a business process</p> Signup and view all the answers

    What is the total amount of selling expenses?

    <p>$6,000,000</p> Signup and view all the answers

    The total administrative expenses amount to $1,800,000.

    <p>False</p> Signup and view all the answers

    What is the gross margin reported in the Absorption Income Statement?

    <p>$10,000</p> Signup and view all the answers

    The total fixed costs for selling expenses amount to ______.

    <p>$4,000,000</p> Signup and view all the answers

    Match the following costs to their categories:

    <p>Direct materials = Manufacturing costs Selling expenses = Non-manufacturing costs Administrative expenses = Non-manufacturing costs Direct labor = Manufacturing costs</p> Signup and view all the answers

    Which of the following represents the total manufacturing costs?

    <p>$30,000</p> Signup and view all the answers

    What is the net income reported in the Absorption Income Statement?

    <p>$2,000</p> Signup and view all the answers

    A positive net income indicates that total fixed costs are higher than the total contribution margin.

    <p>False</p> Signup and view all the answers

    Study Notes

    Cost Drivers and Product Life Cycle

    • Total cost is influenced by cost drivers, e.g., the installation of seats costing $12,000 is a variable cost linked to operational requirements.
    • Product life cycle encompasses stages: conception, market introduction, market maturation, and market withdrawal, with varying costs and returns at each stage.
    • Understanding the value chain is crucial, involving business functions that enhance product or service value.

    Classification of Costs

    • Costs are categorized as variable or fixed based on how they respond to changes in cost drivers.
    • Variable costs fluctuate directly with changes in cost driver levels, while fixed costs remain constant regardless of driver changes.
    • Cost analysis involves distinguishing between fixed costs on a total basis and variable costs on a per-unit basis.

    Contribution Margin and Income Statement

    • The Ramos company plans to sell 300,000 wallets at $8 each and 75,000 key cases at $5, totaling expected revenue of $2,775,000.
    • Variable costs are estimated at $7 per wallet and $3 per key case, summing total variable costs to $2,325,000.
    • Positive contribution margin anticipated as variable costs are lower than expected revenues.

    Decision-Making and Relevant Information

    • Relevant information in decision-making includes future costs and revenues that vary among alternatives, while past information serves primarily for prediction.
    • Criteria for relevant information: must be expected (future) and exhibit differences among alternatives.
    • The decision-making process involves gathering information, analyzing alternatives, and selecting information that minimizes costs or maximizes profits.

    Income Statements

    • Absorption Income Statement includes total revenues and all manufacturing costs, highlighting gross margin.

      • Sales/Revenues: $40,000
      • Total Manufacturing Costs: $30,000 (Direct materials, labor, and indirect costs)
      • Gross Profit: $10,000
      • Non-Manufacturing Costs total $8,000 leading to Net Income of $2,000.

    • Contribution Approach Income Statement separates variable and fixed costs, indicating a positive net income when total fixed costs remain below total contribution margin.

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    Description

    This quiz explores the relationship between variable costs and cost drivers in the context of product life cycles. Understand how changes in requirements, such as the number of seats or hours necessary for installation, can affect overall expenses. Dive into the fundamentals of cost management and the implications for project planning.

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