Question 1

Changes in cost of an activity can occur if the demand for the resource exceeds the supply or if the demand for the resource drops.

Accepted Answer

A) True 
 B)False

Question 2

Rosario Manufacturing Company had the following unit costs: $\begin{array}{lr}
\text { Direct materials } & \$ 24 \
\text { Direct labor } & 8 \
\text { Variable factory overhead } & 10 \
\text { Fixed factory overhead (allocated) } & 18
\end{array}$ A one-time customer has offered to buy 2,750 units at a special price of $49 per unit. Assuming that sufficient unused production capacity exists to produce the order and no regular customers will be affected by the order, how much additional profit (loss) will be generated by accepting the special order?

Accepted Answer

A) $134,750 profit 
B) $19,250 profit 
C) $84,000 loss 
D) $16,500 loss 
A) $134,750 profit 
B) $19,250 profit 
C) $84,000 loss 
D) $16,500 loss

Question 3

The future costs that differ across alternatives are called

Accepted Answer

A) Sunk costs 
B) Irrelevant costs 
C) Relevant costs 
D) Past costs 
A) Sunk costs 
B) Irrelevant costs 
C) Relevant costs 
D) Past costs

Question 4

Information about three joint products follows: $$\begin{array} { l c c c } & \underline { X } & \underline { Y } & \underline { Z } \
\text { Anticipated production } & 15,000 \mathrm { lbs } & 10,000 \mathrm { lbs } &8,750 \mathrm { lbs } \
\text { Selling price/lb. at split-off } & \$ 16 & \$ 26 & \$ 48 \
\text { Additional processing costs/lb. } \
\text { after split-off (all variable) } & \$ 8 & \$ 20 & \$ 20 \
\text { Selling price/lb. after further }\
\text { processing } & \$ 20 & \$ 40 & \$ 70
\end{array}$$
The cost of the joint process is $140,000.
Assuming all of the sell now or process further decisions were correctly made, what will be the firm's income?

Accepted Answer

A) $562,960 
B) $500,240 
C) $455,875 
D) $797,500 
A) $562,960 
B) $500,240 
C) $455,875 
D) $797,500

Question 5

The activity resource usage model focuses on sorting out the behavior of various activity costs and assess their relevancy.

Accepted Answer

A) True 
 B)False

Question 6

For flexible resources, if the demand for an activity changes across alternatives, then resource spending will remain the same and costs are relevant.

Accepted Answer

A) True 
 B)False

Question 7

The following three situations are given for Gioulis Architects:
I. Gioulis Architects employs 10 architects who can supply a capacity of 18,000 billable hours per year. The costs related to these 10 architects amounts to $900,000 or $50 per hour. Last year, the firm billed 17,800 hours. Next year, the firm estimates billing hours to take a slight downturn to 17,000 hours. However, Gioulis plans to retain all 10 architects.
II. Gioulis Architects also employs surveyors on a contract basis. Last year, Gioulis contracted with 8 surveyors to provide surveys for existing projects. Due to the expected downturn for next year, Gioulis will only contract services of 7 surveyors as needed.
III. Gioulis currently leases space in a building at the cost of $36,000 per year. They are outgrowing their space and contemplating a decision to design and build their own building at a cost of $250,000. The new building would have space for at least 18 architects.
Identify which resource category relates to each situation under the activity resource usage model and explain your choice.

Accepted Answer

Situation I is an example of a committed

Question 8

Wallyworld Company manufactures a product with the following costs per unit at the expected production level of 84,000 units: $$\begin{array} { l l } 
\text { Direct materials } & \$ 12 \
\text { Direct labor } & 36 \
\text { Variable manufacturing overhead } & 18 \
\text { Fixed manufacturing overhead } & 24
\end{array}$$ The company has the capacity to produce 90,000 units. The product regularly sells for $120. A wholesaler has offered to pay $110 a unit for 7,500 units.
If the special order is accepted, the effect on operating income would be a

Accepted Answer

A) $75,000 decrease. 
B) $429,000 increase. 
C) $249,000 increase. 
D) $495,000 increase. 
A) $75,000 decrease. 
B) $429,000 increase. 
C) $249,000 increase. 
D) $495,000 increase.

Question 9

Which of the following items would be classified as flexible resources?

Accepted Answer

A) salaried employees 
B) depreciation on building 
C) fuel to generate electricity internally 
D) lease on machinery 
A) salaried employees 
B) depreciation on building 
C) fuel to generate electricity internally 
D) lease on machinery

Question 10

The choosing among alternatives with an immediate or limited end in view consists of:

Accepted Answer

A) Tactical decision making 
B) Long-run decision making 
C) Universal decision making 
D) all of the above 
A) Tactical decision making 
B) Long-run decision making 
C) Universal decision making 
D) all of the above

Question 11

Davidian Company uses a joint process to produce products W, X, Y, and Z. Each product may be sold at its split-off point or processed further. Additional processing costs of specific products are entirely variable. Joint processing costs for a single batch of joint products are $120,000. Other relevant data are as follows: $$\begin{array} { r r r } 
\text { Product }&\begin{array} { c } 
\text { Sales Value } \
\text { at Split-Off }
\end{array} & \begin{array} { r } 
\text { Additional } \
\text { Processing Costs }
\end{array} & \begin{array} { r } 
\text { Sales Value of } \
\text { Final Froduct }
\end{array} \
\hline W&\$ 40,000 & \$ 60,000 & \$ 80,000 \
X&\$ 12,000 & \$ 4,000 & \$ 20,000 \
Y&\$ 20,000 & \$ 32,000 & \$ 120,000 \
Z&\$ 28,000 & \$ 20,000 & \$ 32,000 \
&\$ 100,000 & \$ 116,000 & \$ 252,000
\end{array}$$ Which products should Davidian process further?

Accepted Answer

A) all 
B) none 
C) all except Z 
D) X and Y 
A) all 
B) none 
C) all except Z 
D) X and Y

Question 12

Which of the following costs is relevant to a make-or-buy decision?

Accepted Answer

A) original cost of the production equipment 
B) annual depreciation of the equipment 
C) the amount that would be received if the production equipment were sold 
D) the cost of direct materials purchased last month and used to manufacture the component 
A) original cost of the production equipment 
B) annual depreciation of the equipment 
C) the amount that would be received if the production equipment were sold 
D) the cost of direct materials purchased last month and used to manufacture the component

Question 13

Noreaster Company produces a product that has a regular selling price of $360 per unit. At a typical monthly production volume of 2,000 units, the product's average unit cost of goods sold amounts to $270. Included in this average is $120,000 of fixed manufacturing costs. All selling and administrative costs are fixed and amount to $30,000 per month.
Noreaster Company has just received a special order for 1,000 units at $240 per unit. The buyer will pay transportation, and the regular selling price will not be affected if Noreaster accepts the order.
Assuming Noreaster Company is operating at capacity and accepting the order would require an offsetting reduction in regular sales, the effect on profits of accepting the order would be a

Accepted Answer

A) $240,000 decrease. 
B) $120,000 decrease. 
C) $150,000 decrease. 
D) $30,000 increase. 
A) $240,000 decrease. 
B) $120,000 decrease. 
C) $150,000 decrease. 
D) $30,000 increase.

Question 14

Buying multiperiod activity capacity is often done by paying cash up front and is always:

Accepted Answer

A) relevant because it is a variable cost. 
B) relevant because it could reduce future costs. 
C) irrelevant because it is a sunk cost. 
D) relevant because it generates future revenues or benefits. 
A) relevant because it is a variable cost. 
B) relevant because it could reduce future costs. 
C) irrelevant because it is a sunk cost. 
D) relevant because it generates future revenues or benefits.

Question 15

For flexible resources, which of the following statements is true?

Accepted Answer

A) A change in resource spending will only occur if the demand for a resource drops permanently and exceeds demand enough so the activity capacity will be reduced. 
B) Often, resources are acquired in advance for multiple periods and are therefore irrelevant. 
C) Decisions often affect multi-period capabilities. 
D) If the demand for an activity changes across alternatives, then resource spending will change and the cost of the activity will be relevant to the decision. 
A) A change in resource spending will only occur if the demand for a resource drops permanently and exceeds demand enough so the activity capacity will be reduced. 
B) Often, resources are acquired in advance for multiple periods and are therefore irrelevant. 
C) Decisions often affect multi-period capabilities. 
D) If the demand for an activity changes across alternatives, then resource spending will change and the cost of the activity will be relevant to the decision.

Question 16

Decisions consisting of selecting among alternatives with immediate ends in views are called __________ decisions.

Accepted Answer

The answer of Decisions consisting of selecting among alternatives with...

Question 17

Tactical cost analysis uses cost data to identify the choice that will bring the organization the most benefit.

Accepted Answer

A) True 
 B)False

Question 18

Qualitative factors that should be considered when evaluating a make-or-buy decision are

Accepted Answer

A) the quality of the outside supplier's product. 
B) whether the outside supplier can provide the needed quantities. 
C) whether the outside supplier can provide the product when it is needed. 
D) all of the above. 
A) the quality of the outside supplier's product. 
B) whether the outside supplier can provide the needed quantities. 
C) whether the outside supplier can provide the product when it is needed. 
D) all of the above.

Question 19

Which of the following is true of relevant costs?

Accepted Answer

A) Relevant costs are future costs that differ across alternatives. 
B) Relevant costs are sunk costs that alter future decisions. 
C) Relevant costs have no effect on decision making. 
D) Relevant costs are past costs that do not differ from one alternative to another. 
A) Relevant costs are future costs that differ across alternatives. 
B) Relevant costs are sunk costs that alter future decisions. 
C) Relevant costs have no effect on decision making. 
D) Relevant costs are past costs that do not differ from one alternative to another.

Question 20

Choosing to make or buy may reduce the cost of producing the main product and increase the quality.

Accepted Answer

A) True 
 B)False

Changes in cost of an activity can occur if the demand for the resource exceeds the supply or if the demand for the resource drops.

The future costs that differ across alternatives are called

The activity resource usage model focuses on sorting out the behavior of various activity costs and assess their relevancy.

For flexible resources, if the demand for an activity changes across alternatives, then resource spending will remain the same and costs are relevant.

Which of the following items would be classified as flexible resources?

The choosing among alternatives with an immediate or limited end in view consists of:

Which of the following costs is relevant to a make-or-buy decision?

Buying multiperiod activity capacity is often done by paying cash up front and is always:

For flexible resources, which of the following statements is true?

Decisions consisting of selecting among alternatives with immediate ends in views are called __________ decisions.

Tactical cost analysis uses cost data to identify the choice that will bring the organization the most benefit.

Qualitative factors that should be considered when evaluating a make-or-buy decision are

Which of the following is true of relevant costs?

Choosing to make or buy may reduce the cost of producing the main product and increase the quality.

Introduction to Cost Management

Basic Cost Management Concepts

Cost Behavior

Activity-Based Costing

Product and Service Costing: Job-Order System

Process Costing

Allocating Costs of Support Departments and Joint Products

Budgeting for Planning and Control

Standard Costing: a Functional-Based Control Approach

Decentralization: Responsibility Accounting, Performance

Strategic Cost Management

Activity-Based Management

The Balanced Scorecard: Strategic-Based Control

Quality and Environmental Cost Management

Lean Accounting and Productivity Measurement

Cost-Volume-Profit Analysis

Pricing and Profitability Analysis

Capital Investment

Inventory Management: Economic Order Quantity, Jit, and the Theory of Constraints

Filters

Exam 17: Activity Resource Usage Model and Tactical Decision Making

Changes in cost of an activity can occur if the demand for the resource exceeds the supply or if the demand for the resource drops.

The future costs that differ across alternatives are called

The activity resource usage model focuses on sorting out the behavior of various activity costs and assess their relevancy.

For flexible resources, if the demand for an activity changes across alternatives, then resource spending will remain the same and costs are relevant.

Which of the following items would be classified as flexible resources?

The choosing among alternatives with an immediate or limited end in view consists of:

Which of the following costs is relevant to a make-or-buy decision?

Buying multiperiod activity capacity is often done by paying cash up front and is always:

For flexible resources, which of the following statements is true?

Decisions consisting of selecting among alternatives with immediate ends in views are called __________ decisions.

Tactical cost analysis uses cost data to identify the choice that will bring the organization the most benefit.

Qualitative factors that should be considered when evaluating a make-or-buy decision are

Which of the following is true of relevant costs?

Choosing to make or buy may reduce the cost of producing the main product and increase the quality.

Introduction to Cost Management

Basic Cost Management Concepts

Cost Behavior

Activity-Based Costing

Product and Service Costing: Job-Order System

Process Costing

Allocating Costs of Support Departments and Joint Products

Budgeting for Planning and Control

Standard Costing: a Functional-Based Control Approach

Decentralization: Responsibility Accounting, Performance

Strategic Cost Management

Activity-Based Management

The Balanced Scorecard: Strategic-Based Control

Quality and Environmental Cost Management

Lean Accounting and Productivity Measurement

Cost-Volume-Profit Analysis

Pricing and Profitability Analysis

Capital Investment

Inventory Management: Economic Order Quantity, Jit, and the Theory of Constraints

Filters