Question 1

The mixing constraint for the Keego linear program would be:

Accepted Answer

A) 2.4M + 6P ≤ 36,000. 
B) 5B + 2.4C ≥ 800. 
C) 5B + 2.4C ≤ 800. 
D) 5B + 2.4C = 800. 
E) 7.4M + 9.6P ≤ 36,000. 
A) 2.4M + 6P ≤ 36,000. 
B) 5B + 2.4C ≥ 800. 
C) 5B + 2.4C ≤ 800. 
D) 5B + 2.4C = 800. 
E) 7.4M + 9.6P ≤ 36,000.

Question 2

Apex Manufacturing Corporation is considering a significant shift in the mix of products it manufactures. The costs associated with current and proposed production schedules are shown below by category:   The proposed production will require a one-time purchase of equipment costing $180,000. No change in selling or administrative cost from their present levels is expected.
Required:
1. What type of relevant cost analysis would be appropriate in this situation (special order, make-lease-buy, etc.)? Why?
2. What role does depreciation and equipment purchase cost play in this decision?
3. What is the minimum amount that revenue would have to increase per month to justify the proposed production schedule? Ignore taxes and the time value of money

Accepted Answer

.
Answer may vary
Feedback: 1. Either a

Question 3

Relevant or differential cost analysis:

Accepted Answer

A) Takes all variable and fixed costs into account to analyze decision alternatives. 
B) Considers only variable costs as they change with each decision alternative. 
C) Considers only nonfinancial and strategic factors associated with each decision alternative. 
D) Considers all variable and fixed costs as they change with each decision alternative. 
E) Allows the decision maker to group all types of costs together to facility decision making. 
A) Takes all variable and fixed costs into account to analyze decision alternatives. 
B) Considers only variable costs as they change with each decision alternative. 
C) Considers only nonfinancial and strategic factors associated with each decision alternative. 
D) Considers all variable and fixed costs as they change with each decision alternative. 
E) Allows the decision maker to group all types of costs together to facility decision making.

Question 4

Assuming that Product Line C is discontinued and the manufacturing space formerly devoted to this line is rented for $6,000 per year, operating income for the company will:

Accepted Answer

A) Be unchanged-the two effects cancel each other out. 
B) Increase by $3,300. 
C) Increase by $4,500. 
D) Increase by $7,200. 
E) Increase by some other amount. 
A) Be unchanged-the two effects cancel each other out. 
B) Increase by $3,300. 
C) Increase by $4,500. 
D) Increase by $7,200. 
E) Increase by some other amount.

Question 5

HJM Auto Parts makes a muffler/pipe assembly for a cost of $45 each ($10 fixed and $35 variable) and then sells it for $68. The opportunity exists to modify this assembly (to a more fuel efficient model) for additional direct materials and labor cost of $5 per unit. The new muffler/pipe model is expected to sell for $80.00 each. Variable selling and distribution costs would be the same at $10 per unit. Projected sales volume is 60,000 units per year for the new model, the same level of sales as for the current assembly. Labor resources are very tight at present but machine capacity is underutilized.
Required:
1. Should HJM modify the existing assembly?
2. What would be the increase/decrease in profit if HJM modifies the assembly?
3. How will the labor constraint affect the decision?

Accepted Answer

Answer may vary
Feedback: 1. Additional

Question 6

Costs relevant to a make-versus-buy decision include variable manufacturing costs as well as:

Accepted Answer

A) Avoidable fixed costs. 
B) Factory depreciation. 
C) Unavoidable costs. 
D) Property taxes on the manufacturing facility. 
E) Factory administrative costs. 
A) Avoidable fixed costs. 
B) Factory depreciation. 
C) Unavoidable costs. 
D) Property taxes on the manufacturing facility. 
E) Factory administrative costs.

Question 7

One of the behavioral problems with relevant cost analysis is the overemphasis on:

Accepted Answer

A) Short-term goals. 
B) Unit fixed costs. 
C) Opportunity costs. 
D) Long-term strategic goals. 
E) Goal congruency issues. 
A) Short-term goals. 
B) Unit fixed costs. 
C) Opportunity costs. 
D) Long-term strategic goals. 
E) Goal congruency issues.

Question 8

Opportunity costs are:

Accepted Answer

A) Not used for decision making. 
B) The same as variable costs. 
C) Equal to historical costs. 
D) Recorded in accounting records at fair value. 
E) Relevant to decision making. 
A) Not used for decision making. 
B) The same as variable costs. 
C) Equal to historical costs. 
D) Recorded in accounting records at fair value. 
E) Relevant to decision making.

Question 9

Committed or "sunk" costs are generally:

Accepted Answer

A) Not fixed. 
B) Small in amount. 
C) The result of prior bad decisions. 
D) Those that have been incurred in the past. 
E) Recoverable in trade. 
A) Not fixed. 
B) Small in amount. 
C) The result of prior bad decisions. 
D) Those that have been incurred in the past. 
E) Recoverable in trade.

Question 10

A small company makes only two products with the following production constraints representing two machines and their maximum availability:   If the profit equation is Z = $4X + $2Y, the maximum possible profit is:

Accepted Answer

A) $20 
B) $21 
C) $18 
D) $24 
E) $14 
A) $20 
B) $21 
C) $18 
D) $24 
E) $14

Question 11

Given a selling price per unit of $750, what is the contribution margin per unit sold?

Accepted Answer

A) $336. 
B) $316. 
C) $276. 
D) $396. 
E) $630. 
A) $336. 
B) $316. 
C) $276. 
D) $396. 
E) $630.

Question 12

The objective function for the linear program Keego would use to determine the optimum monthly product mix would be:

Accepted Answer

A) Z = $150B + $200C 
B) 2B + 1.5C ≥ 36,000. 
C) 2B + 1.5C ≤ 36,000. 
D) Z = $200B + $150C 
E) Z = 8.6B + 8.4B 
A) Z = $150B + $200C 
B) 2B + 1.5C ≥ 36,000. 
C) 2B + 1.5C ≤ 36,000. 
D) Z = $200B + $150C 
E) Z = 8.6B + 8.4B

Question 13

A useful device for solving production problems involving multiple products and limited resources is:

Accepted Answer

A) Gross profit per unit of product. 
B) Contribution per unit of scarce resource. 
C) Value-stream costing. 
D) Relevant cost pricing. 
E) The contribution income statement. 
A) Gross profit per unit of product. 
B) Contribution per unit of scarce resource. 
C) Value-stream costing. 
D) Relevant cost pricing. 
E) The contribution income statement.

Question 14

For the past 12 years, the Blue Company has produced the small electric motors that fit into its main product line of dental drilling equipment. As material costs have steadily increased, the controller of the company is reviewing the decision to continue to make the small motors and has identified the following facts: (1) The equipment used to manufacture the electric motors has a net book value (NBV) of $150,000.
(2) The space now occupied by the electric motor manufacturing department could be used to eliminate the need for storage space now being rented.
(3) Comparable units can be purchased from an outside supplier for $59.75.
(4) Four of those who work in the electric motor manufacturing department would be terminated and given eight weeks' severance pay.
(5) A $10,000 unsecured note is still outstanding on the equipment used in the manufacturing process.
Which of the items above are relevant to the controller's decision analysis?

Accepted Answer

A) 1, 3, and 4. 
B) 2, 3, and 4. 
C) 2, 3, 4, and 5. 
D) 1, 2, 4, and 5. 
E) 4 and 5 
A) 1, 3, and 4. 
B) 2, 3, and 4. 
C) 2, 3, 4, and 5. 
D) 1, 2, 4, and 5. 
E) 4 and 5

Question 15

Which of the following statements regarding a joint production process is NOT true?

Accepted Answer

A) The essential decision facing management is whether to sell products at the split-off point or to sell these products after further processing. 
B) The allocation of joint (common) production costs to individual products helps management determine which products should be processed beyond the split-off point. 
C) Costs incurred up to the split-off point are referred to as joint production costs. 
D) The decision as to whether individual products should be sold "as is" or processed further is made on the basis of comparing incremental revenues and incremental costs. 
E) For financial reporting purposes output (inventory) is valued at the sum of separable processing cost plus an allocated share of joint production costs. 
A) The essential decision facing management is whether to sell products at the split-off point or to sell these products after further processing. 
B) The allocation of joint (common) production costs to individual products helps management determine which products should be processed beyond the split-off point. 
C) Costs incurred up to the split-off point are referred to as joint production costs. 
D) The decision as to whether individual products should be sold "as is" or processed further is made on the basis of comparing incremental revenues and incremental costs. 
E) For financial reporting purposes output (inventory) is valued at the sum of separable processing cost plus an allocated share of joint production costs.

Question 16

A recent article in The McKinsey Quarterly, present a useful list of some of the ways that strategic decisions can go wrong because of human shortcomings: 1. Overconfidence; 2. Loss aversion; 3. Champion Bias; 4. Misaligned risk aversion; and 5. Misaligned time horizon
Required: Provide a one sentence explanation for each of the five human shortcomings in decision making.

Accepted Answer

Answer may vary
Feedback:
1. Overconfide

Question 17

In a joint production process, joint product costs are:

Accepted Answer

A) Those costs incurred after the split-off point. 
B) Allocated to outputs (products) to facilitate short-term decision making. 
C) Not relevant to the decision whether to produce at all. 
D) Those that are incurred before the point in the process when individual products arise. 
E) Relatively small compared to costs incurred after the split-off point. 
A) Those costs incurred after the split-off point. 
B) Allocated to outputs (products) to facilitate short-term decision making. 
C) Not relevant to the decision whether to produce at all. 
D) Those that are incurred before the point in the process when individual products arise. 
E) Relatively small compared to costs incurred after the split-off point.

Question 18

One of the key management functions is to perform a regular review of product profitability. Which question(s) below would not be asked when performing the analysis?

Accepted Answer

A) Are the products priced properly? 
B) Which products are the most profitable? 
C) Which products should be advertised more aggressively? 
D) Should any product manager be rewarded? 
E) What was the product manager paid last year? 
A) Are the products priced properly? 
B) Which products are the most profitable? 
C) Which products should be advertised more aggressively? 
D) Should any product manager be rewarded? 
E) What was the product manager paid last year?

Question 19

The practice of setting prices below average variable cost and plans to raise prices later to recover the losses from the lower prices, is referred to as:

Accepted Answer

A) Marginal cost pricing. 
B) Activity-based pricing. 
C) Menu-based pricing. 
D) Cost-plus pricing. 
E) Predatory pricing. 
A) Marginal cost pricing. 
B) Activity-based pricing. 
C) Menu-based pricing. 
D) Cost-plus pricing. 
E) Predatory pricing.

Question 20

The Sand Cruiser is a takeout food store at a popular beachside resort. Teresa Texton, owner of the Sand Cruiser, was deciding how much refrigerator space to devote to four different beverages. Appropriate data on the four beverages follow:   Teresa had a maximum front shelf space of fourteen feet to devote to the four beverages. She wanted a minimum of two feet and a maximum of seven feet of front shelf for each beverage. The contribution margin per case for Limeade is:

Accepted Answer

A) $5.50. 
B) $6.40. 
C) $17.60. 
D) $16.20. 
E) $9.40. 
A) $5.50. 
B) $6.40. 
C) $17.60. 
D) $16.20. 
E) $9.40.

The mixing constraint for the Keego linear program would be:

Relevant or differential cost analysis:

Assuming that Product Line C is discontinued and the manufacturing space formerly devoted to this line is rented for $6,000 per year, operating income for the company will:

Costs relevant to a make-versus-buy decision include variable manufacturing costs as well as:

One of the behavioral problems with relevant cost analysis is the overemphasis on:

Opportunity costs are:

Committed or "sunk" costs are generally:

A small company makes only two products with the following production constraints representing two machines and their maximum availability: If the profit equation is Z = $4X + $2Y, the maximum possible profit is:

Given a selling price per unit of $750, what is the contribution margin per unit sold?

The objective function for the linear program Keego would use to determine the optimum monthly product mix would be:

A useful device for solving production problems involving multiple products and limited resources is:

Which of the following statements regarding a joint production process is NOT true?

In a joint production process, joint product costs are:

One of the key management functions is to perform a regular review of product profitability. Which question(s) below would not be asked when performing the analysis?

The practice of setting prices below average variable cost and plans to raise prices later to recover the losses from the lower prices, is referred to as:

Cost Management and Strategy

Implementing Strategy: the Value Chain, the Balanced Scorecard, and the Strategy Map

Basic Cost Management Concepts

Job Costing

Activity-Based Costing and Customer Profitability Analysis

Process Costing

Cost Allocation: Departments, Joint Products, and By-Products

Cost Estimation

Short-Term Profit Planning: Cost-Volume-Profit Cvp Analysis

Strategy and the Master Budget

Strategy and the Analysis of Capital Investments

Cost Planning for the Product Life Cycle: Target Costing, Theory of Constraints, and Strategic Pricing

Operational Performance Measurement: Sales, Direct-Cost Variances, and the Role of Nonfinancial Performance Measures

Operational Performance Measurement: Indirect-Cost Variances and Resource-Capacity Management

Operational Performance Measurement: Further Analysis of Productivity and Sales

The Management and Control of Quality

Strategic Performance Measurement: Cost Centers, Profit Centers, and the Balanced Scorecard

Strategic Performance Measurement: Investment Centers and Transfer Pricing

Management Compensation, Business Analysis, and Business Valuation

Filters

Exam 11: Decision Making With a Strategic Emphasis

The mixing constraint for the Keego linear program would be:

Relevant or differential cost analysis:

Assuming that Product Line C is discontinued and the manufacturing space formerly devoted to this line is rented for $6,000 per year, operating income for the company will:

Costs relevant to a make-versus-buy decision include variable manufacturing costs as well as:

One of the behavioral problems with relevant cost analysis is the overemphasis on:

Opportunity costs are:

Committed or "sunk" costs are generally:

A small company makes only two products with the following production constraints representing two machines and their maximum availability: If the profit equation is Z = $4X + $2Y, the maximum possible profit is:

Given a selling price per unit of $750, what is the contribution margin per unit sold?

The objective function for the linear program Keego would use to determine the optimum monthly product mix would be:

A useful device for solving production problems involving multiple products and limited resources is:

Which of the following statements regarding a joint production process is NOT true?

In a joint production process, joint product costs are:

One of the key management functions is to perform a regular review of product profitability. Which question(s) below would not be asked when performing the analysis?

The practice of setting prices below average variable cost and plans to raise prices later to recover the losses from the lower prices, is referred to as:

Cost Management and Strategy

Implementing Strategy: the Value Chain, the Balanced Scorecard, and the Strategy Map

Basic Cost Management Concepts

Job Costing

Activity-Based Costing and Customer Profitability Analysis

Process Costing

Cost Allocation: Departments, Joint Products, and By-Products

Cost Estimation

Short-Term Profit Planning: Cost-Volume-Profit Cvp Analysis

Strategy and the Master Budget

Strategy and the Analysis of Capital Investments

Cost Planning for the Product Life Cycle: Target Costing, Theory of Constraints, and Strategic Pricing

Operational Performance Measurement: Sales, Direct-Cost Variances, and the Role of Nonfinancial Performance Measures

Operational Performance Measurement: Indirect-Cost Variances and Resource-Capacity Management

Operational Performance Measurement: Further Analysis of Productivity and Sales

The Management and Control of Quality

Strategic Performance Measurement: Cost Centers, Profit Centers, and the Balanced Scorecard

Strategic Performance Measurement: Investment Centers and Transfer Pricing

Management Compensation, Business Analysis, and Business Valuation

Filters