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Chapter 25: Q25-18RQ (page 1406)

What is a constraint?

Short Answer

Expert verified

Answer

Constraint refers to a hurdle that resists a business entity to achieve its goals.

Step by step solution

01

Step-by-Step SolutionStep 1: Meaning of Business

The term business refers to an entity established by the law of a country to perform ethical commercial activities and generate revenues. A business entity contains its separate legal identity as per theeconomic entity principle.

02

Meaning of Constraint

In accounting terms, constraint refers to the obstacles that a business concern faces. Such problems and difficulty stop an entity from accomplishing its goals.

Constraints may arise from theshortage of resources,variations in market strategies, and legal changes made by the law of a country that impacts a business negatively.

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Most popular questions from this chapter

What are joint costs? How do they affect the sell or process further decision?

Top managers of Video Avenue are alarmed by their operating losses. They are considering dropping the DVD product line. Company accountants have prepared the following analysis to help make this decision:

VIDEO AVENUE

Income Statement

For the Year Ended December 31, 2018

Total Blu-ray Discs DVD Discs

Net Sales Revenue \(437,000 \)308,000 \(129,000

Variable Costs 250,000 154,000 96,000

Contribution Margin 187,000 154,000 33,000

Fixed Costs:

Manufacturing 132,000 76,000 56,000

Selling & Administrative 65,000 51,000 14,000

Total Fixed Expenses 197,000 127,000 70,000

Operating Income (Loss) \)(10,000) \(27,000 \)(37,000)

Total fixed costs will not change if the company stops selling DVDs.

Requirements

1. Prepare a differential analysis to show whether Video Avenue should drop the DVD product line.

2. Will dropping DVDs add $37,000 to operating income? Explain.

What is target pricing? Who uses it?

What are the two keys in short-term decision making?

Question: Explain the difference between price-takers and price-setters.
See all solutions

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