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21 the downward demand spiral for a company is the continuing reduction in the deman 4300204

 

21) The downward demand spiral for a company is the continuing reduction in the demand for its products that occurs when competitor prices are NOT met.

 

22) For benchmarking purposes it is best to use master-budget capacity because all competitors use about the same about of capacity for production.

23) Using normal capacity for pricing decisions can lead to setting noncompetitive selling prices.

 

24) Using master-budget capacity for pricing purposes can lead to a downward demand spiral.

 

25) Using practical capacity is best for evaluating the marketing manager's performance for a particular year.

 

26) The production-volume variance is affected by the choice of capacity concept used to determine the denominator level.

 

27) The higher the denominator level the higher the budgeted fixed manufacturing cost rate per unit.

28) Master-budget capacity utilization can be more reliably estimated than normal capacity utilization.

 

29) Unused capacity is not considered wasted resources because capacity has to be purchased in “large chunks” to accommodate future needs, NOT just the needs of the current period.

 

30) Ernsting Bottling Works manufactures glass bottles. January and February operations were identical in every way except for the planned production.

 

January had a production denominator of 35,000 units.

February had a production denominator of 36,000 units.

Fixed manufacturing costs totaled $126,000.

 

Sales for both months totaled 45,000 units with variable manufacturing costs of $4 per unit. Selling and administrative costs were $0.40 per unit variable and $60,000 fixed. The selling price was $10 per unit.

 

Required:

Compute the operating income for both months using absorption costing.

 

 

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