The "Total Profit" Approach to Evaluating Possible Product-Market Strategic Plans

question 230

Multiple Choice

The "total profit" approach to evaluating possible product-market strategic plans:

• A) is the best approach to use.
• B) cannot be used to compare possible plans unless they are very similar.
• C) may support a plan that is not the most profitable in the short run.
• D) requires only sales forecasts for the life of possible plans.
• E) All of the above are true.

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Definitions:

Predetermined Overhead Rate

A rate calculated before the period begins, used to allocate manufacturing overhead to products based on a specific activity base.

Volume Variance

The difference between planned production volumes and actual production volumes, and its effect on budgeted costs.

Variable Overhead

Costs that fluctuate with changes in production level or activity, such as utilities or materials, within the manufacturing overhead category.

Rate Variance

It is the difference between the actual rate paid for an item or service and the expected (standard or budgeted) rate, often used in budgeting and cost management.