Question 1

The opportunity cost of holding significant inventory includes:

Accepted Answer

A) the interest forgone on an alternative investment 
B) additional insurance costs 
C) additional storage costs 
D) All of these answers are correct. 
A) the interest forgone on an alternative investment 
B) additional insurance costs 
C) additional storage costs 
D) All of these answers are correct.

Question 2

Managers tend to favor the alternative that makes their performance look best. Therefore, they tend to focus on:

Accepted Answer

A) how to implement the chosen alternative 
B) the measures used in the decision model 
C) the measures used in the performance evaluation model 
D) gathering the required information 
A) how to implement the chosen alternative 
B) the measures used in the decision model 
C) the measures used in the performance evaluation model 
D) gathering the required information

Question 3

Qualitative factors are outcomes that are measured in numerical terms, such as the costs of direct labor.

Accepted Answer

A) True 
 B)False

Question 4

Sometimes qualitative factors are the most important factors in make-or-buy decisions.

Accepted Answer

A) True 
 B)False

Question 5

Answer the following questions using the information below:
Black Forrest manufactures rustic furniture. The cost accounting system estimates manufacturing costs to be $180 per table, consisting of 80% variable costs and 20% fixed costs. The company has surplus capacity available. It is Back Forrest's policy to add a 50% markup to full costs.
-A large hotel chain is currently expanding and has decided to decorate all new hotels using the rustic style. Black Forrest Incorporated is invited to submit a bid to the hotel chain. What is the lowest price per unit Black Forrest should bid on this long-term order?

Accepted Answer

A) $126 
B) $144 
C) $180 
D) $270 
A) $126 
B) $144 
C) $180 
D) $270

Question 6

For one-time-only special orders, fixed costs may be relevant but NOT variable costs.

Accepted Answer

A) True 
 B)False

Question 7

Answer the following questions using the information below:
Kolar Manufacturing is approached by a European customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers. Kolar Manufacturing has excess capacity. The following per unit data apply for sales to regular customers:
  
-What is the contribution margin per unit?

Accepted Answer

A) $170 
B) $220 
C) $290 
D) $510 
A) $170 
B) $220 
C) $290 
D) $510

Question 8

Sunk costs are past costs that are unavoidable.

Accepted Answer

A) True 
 B)False

Question 9

Full costs of a product include variable costs, but not fixed costs.

Accepted Answer

A) True 
 B)False

Question 10

Insourcing is:

Accepted Answer

A) purchasing goods and services internally 
B) purchasing goods and services from outside vendors 
C) more expensive than outsourcing 
D) less expensive than outsourcing 
A) purchasing goods and services internally 
B) purchasing goods and services from outside vendors 
C) more expensive than outsourcing 
D) less expensive than outsourcing

Question 11

When a firm maximizes profits it will simultaneously minimize opportunity costs.

Accepted Answer

A) True 
 B)False

Question 12

Answer the following questions using the information below:
The management accountant for Giada's Book Store has prepared the following income statement for the most current year:
  
-If the cookbook product line had been discontinued prior to this year, the company would have reported:

Accepted Answer

A) greater corporate profits 
B) the same amount of corporate profits 
C) less corporate profits 
D) resulting profits cannot be determined 
A) greater corporate profits 
B) the same amount of corporate profits 
C) less corporate profits 
D) resulting profits cannot be determined

Question 13

Relevant information has all of these characteristics EXCEPT:

Accepted Answer

A) past costs are irrelevant 
B) all future revenues and expenses are relevant 
C) different alternatives can be compared by examining differences in total revenue and expenses 
D) qualitative factors should be considered 
A) past costs are irrelevant 
B) all future revenues and expenses are relevant 
C) different alternatives can be compared by examining differences in total revenue and expenses 
D) qualitative factors should be considered

Question 14

In relevant cost analysis, managers should avoid incorrect general assumptions and beware of misleading unit cost information.

Accepted Answer

A) True 
 B)False

Question 15

Answer the following questions using the information below:
Victoria, Inc., is considering replacing a machine. The following data are available:
  
-For the decision to keep the old machine, the relevant costs of keeping the old machine total:

Accepted Answer

A) $120,000 
B) $70,000 
C) $94,000 
D) $144,000 
A) $120,000 
B) $70,000 
C) $94,000 
D) $144,000

Question 16

If the $20,000 spent to purchase inventory could be invested and earn interest of $500, then the opportunity cost of holding inventory is $20,000.

Accepted Answer

A) True 
 B)False

Question 17

When there is excess capacity, it makes sense to accept a one-time-only special order for less than the current selling price when:

Accepted Answer

A) incremental revenues exceed incremental costs 
B) additional fixed costs must be incurred to accommodate the order 
C) the company placing the order is in the same market segment as your current customers 
D) it never makes sense 
A) incremental revenues exceed incremental costs 
B) additional fixed costs must be incurred to accommodate the order 
C) the company placing the order is in the same market segment as your current customers 
D) it never makes sense

Question 18

The cost to produce Part A was $20 per unit in 2013 and in 2014 it has increased to $22 per unit. In 2014, Supplier ABC has offered to supply Part A for $18 per unit. For the make-or-buy decision:

Accepted Answer

A) incremental revenues are $4 per unit 
B) incremental costs are $2 per unit 
C) net relevant costs are $2 per unit 
D) differential costs are $4 per unit 
A) incremental revenues are $4 per unit 
B) incremental costs are $2 per unit 
C) net relevant costs are $2 per unit 
D) differential costs are $4 per unit

Question 19

The choice is NOT really whether to make or buy, but rather how to best use available production capacity.

Accepted Answer

A) True 
 B)False

Question 20

Relevant costs are expected future costs that differ among alternatives.

Accepted Answer

A) True 
 B)False

Exam 11: Decision Making and Relevant Information

The opportunity cost of holding significant inventory includes:

Managers tend to favor the alternative that makes their performance look best. Therefore, they tend to focus on:

Qualitative factors are outcomes that are measured in numerical terms, such as the costs of direct labor.

Sometimes qualitative factors are the most important factors in make-or-buy decisions.

For one-time-only special orders, fixed costs may be relevant but NOT variable costs.

Sunk costs are past costs that are unavoidable.

Full costs of a product include variable costs, but not fixed costs.

Insourcing is:

When a firm maximizes profits it will simultaneously minimize opportunity costs.

Answer the following questions using the information below: The management accountant for Giada's Book Store has prepared the following income statement for the most current year: -If the cookbook product line had been discontinued prior to this year, the company would have reported:

Relevant information has all of these characteristics EXCEPT:

In relevant cost analysis, managers should avoid incorrect general assumptions and beware of misleading unit cost information.

Answer the following questions using the information below: Victoria, Inc., is considering replacing a machine. The following data are available: -For the decision to keep the old machine, the relevant costs of keeping the old machine total:

If the $20,000 spent to purchase inventory could be invested and earn interest of $500, then the opportunity cost of holding inventory is $20,000.

When there is excess capacity, it makes sense to accept a one-time-only special order for less than the current selling price when:

The cost to produce Part A was $20 per unit in 2013 and in 2014 it has increased to $22 per unit. In 2014, Supplier ABC has offered to supply Part A for $18 per unit. For the make-or-buy decision:

The choice is NOT really whether to make or buy, but rather how to best use available production capacity.

Relevant costs are expected future costs that differ among alternatives.

The Accountants Role in the Organization

An Introduction to Cost Terms and Purposes

Cost-Volume-Profit Analysis

Job Costing

Activity-Based Costing and Activity-Based Management

Master Budget and Responsibility Accounting

Flexible Budgets, Direct-Cost Variances, and Management Control

Flexible Budgets, Overhead Cost Variances, and Management Control

Inventory Costing and Capacity Analysis

Determining How Costs Behave

Pricing Decisions and Cost Management

Strategy, Balanced Scorecard, and Strategic Profitability Analysis

Cost Allocation, Customer-Profitability Analysis, and Sales-Variance Analysis

Allocation of Support-Department Costs, Common Costs, and Revenues

Cost Allocation: Joint Products and Byproducts

Process Costing

Spoilage, Rework, and Scrap

Balanced Scorecard: Quality, Time, and the Theory of Constraints

Inventory Management, Just-In-Time, and Simplified Costing Methods

Capital Budgeting and Cost Analysis

Management Control Systems, Transfer Pricing, and Multinational Considerations

Performance Measurement, Compensation, and Multinational Considerations

Filters