Exam 2: Identification and Estimating Costs and Benefits

Traceability is: a. The degree to which we can directly relate a cost or benefit to a specific option. B) How activities influence costs and benefits. C) The result of performing activities. D) The difference across decision options. E) None of the above.

A cost that is proportional to the volume of activity is a: a. Mixed cost. B) Fixed cost. C) Variable cost. D) Volume cost. E) Break-even cost.

The HomeAmour Company operates their production and administrative activities from a single facility. Which of the following would be an example of a facility-level cost? a. Salary of the Chief Operating Officer. B) Raw materials used to produce units. C) Depreciation on the equipment used in the factory. D) Freight paid on finished units shipped to customers.

Which one of the following is the best example of a step cost for Ace Manufacturing? a. Paying a higher factory utility bill for the month of June. B) Cutting back health care coverage for employees. C) Terminating the manufacturing quality control employees. D) Opening a new assembly line for one of the company's most popular products as a result of its original assembly line continually operating at capacity.

In June, Ace Manufacturing Plant produced 100 units of propane canisters for sale. The total variable costs were $5,000 and the fixed costs for the plant amounted to $3,000. How much is the unit variable cost for canisters if 120 canisters are produced? a. $50.00 B) $66.67 C) $80.00 D) $41.67

The core idea underlying estimation is that costs and benefits are the result of performing activities.

During the month of March the Richards Company, which operates one factory location and one administrative location, reported the following costs: Indirect costs total:

The Rich Company leases its copier on an annual basis. The lease fee is $1,600 per year plus $.01 per copy for any copies made over 750,000. If the company made 800,000 copies in 2008, its total cost was: a. $1,600 B) $2,100 C) $2,400 D) $1,650

It is important to keep the time horizon in mind when making decisions because: a. Short term decisions are generally more costly than long term decisions. B) We always want to identify choices quickly. C) When making future decisions, costs incurred in the past must be considered. D) The horizon affects whether a cost or benefit is controllable for the decision. E) All of the above are important.

Because they seek to maximize profit, commercial organizations measure the value of a decision option as the change in profit relative to change in revenue.

The principles of timeliness and traceability underlie the estimation of costs and benefits.

Suppose fixed costs are $500, variable cost is $5 per unit, and step costs are $50 for every 20 unit produced. What is the total cost of producing 25 units? a. $675 B) $688 C) $725 D) $800 E) $625

Given a choice of using relevance or controllability to make effective decisions, when one wants to identify the best choice quickly and efficiently, relevance is the operative principle.

The cost hierarchy divides costs into unit-, batch-, product-, and facility-level costs.

Relevant benefits are:

Many decisions are difficult to classify as they contain elements of both the short- and long-term.

The Criders Company has 12,000 units of obsolete inventory. The units originally cost $6,000. The company can either sell them for scrap at $.20 per unit or they can invest $2,000 to be able to sell them at a price of $.60 per unit. With regard to this decision, relevant costs or benefits include: a. $6,000 only. B) $2,000 and $.20 per unit only. C) $.20 per unit, $.60 per unit, and $2,000. D) $2,000 and $6,000 only.

A decision maker's control over costs and benefits decreases as the time horizon increases.

A direct cost can be: a. Only fixed. B) Only variable (unit-level). C) Either fixed or variable (unit-level). D) Neither fixed nor variable (unit-level).

A decision maker's control over costs and benefits: