Question 1

A sunk cost is the benefit foregone when one alternative is selected over another.

Accepted Answer

A) True 
 B)False  False

Question 2

The differential analysis format for deciding whether to keep or drop a customer is similar to that used for making product line decisions.

Accepted Answer

A) True 
 B)False  True

Question 3

Avoidable costs are as also called differential costs.

Accepted Answer

A) True 
 B)False  True

Question 4

Davis Company has $20 per unit in variable costs and $800,000 per year in fixed costs.Demand is estimated to be 400,000 units per year.What is the desired price per unit if a markup of 30% on total cost is used to determine the price?

Accepted Answer

A) $26.00 
B) $37.40 
C) $28.60 
D) $34.00 
E) None of the answer choices is correct. 
A) $26.00 
B) $37.40 
C) $28.60 
D) $34.00 
E) None of the answer choices is correct.

Question 5

Exhibit 7-4
The following segmented annual income statement is for Paper Products,Inc.
  
-Refer to Exhibit 7-4.If allocated fixed costs are based on sales revenue for each product line as a proportion of total sales revenue,what is the profit or (loss)for Color?

Accepted Answer

A) $8,500 
B) $16,000 
C) $31,000 
D) $13,000 
E) None of the answer choices is correct. 
A) $8,500 
B) $16,000 
C) $31,000 
D) $13,000 
E) None of the answer choices is correct.

Question 6

Exhibit 7-7
Fishing Products Company produces three types of fishing poles: Light,Medium,and Heavy.The poles are produced in separate departments and sent to the quality testing department before being shipped.A labor-hour bottleneck has been identified in the quality testing department due to the high skill requirements of the job.Fishing Products would like to optimize its use of labor hours by producing the two most profitable fishing poles.Information for each pole follows:
  
-Refer to Exhibit 7-7.What is the contribution margin per unit of constrained resource for the Heavy product?

Accepted Answer

A) $1,640 
B) $82 
C) $100 
D) $164 
E) None of the answer choices is correct. 
A) $1,640 
B) $82 
C) $100 
D) $164 
E) None of the answer choices is correct.

Question 7

Exhibit 7-5
Accounting Services,Inc.has two customers.Customer X generates $600,000 in income after direct fixed costs are deducted,and Customer Z generates $580,000 in income after direct fixed costs are deducted.Allocated fixed costs total $1,000,000 and are assigned 40 percent to Customer X and 60 percent to Customer Z.Total allocated fixed costs remain the same regardless of how these costs are assigned to customers.
-Refer to Exhibit 7-5.Based on this information,which of the following best describes the course of action preferred by management regarding this customer decision?

Accepted Answer

A) Drop Customer Z because this customer generates a net loss. 
B) Drop Customer Z because this customer generates less income after direct fixed costs than Customer X. 
C) Keep Customer Z because eliminating this company would have the effect of increasing company profit by $580,000. 
D) Keep Customer Z because eliminating this company would have the effect of decreasing company profit by $580,000. 
E) None of the answer choices is correct. 
A) Drop Customer Z because this customer generates a net loss. 
B) Drop Customer Z because this customer generates less income after direct fixed costs than Customer X. 
C) Keep Customer Z because eliminating this company would have the effect of increasing company profit by $580,000. 
D) Keep Customer Z because eliminating this company would have the effect of decreasing company profit by $580,000. 
E) None of the answer choices is correct.

Question 8

Exhibit 7-4
The following segmented annual income statement is for Paper Products,Inc.
  
-Refer to Exhibit 7-4.If allocated fixed costs are based on sales revenue for each product line as a proportion of total sales revenue,what is the total profit or (loss)for all product lines?

Accepted Answer

A) $250,000 
B) $164,000 
C) $126,000 
D) $36,000 
E) None of the answer choices is correct. 
A) $250,000 
B) $164,000 
C) $126,000 
D) $36,000 
E) None of the answer choices is correct.

Question 9

Exhibit 7-1
Talmont Products has dropped the price per unit of its smart phone product from $1,060 to $500.There are some units in work-in-process inventory that have costs of $600 per unit associated with them.Talmont could sell these units in their current state for $400.It will cost Talmont $40 to complete these units so that they can be sold for $500 each.
-Refer to Exhibit 7-1.Which of the following is not a relevant revenue or cost in this problem?

Accepted Answer

A) The old price of $1,060 
B) The partially complete price of $400 
C) The current price of $500 
D) The cost to complete a unit of $40 
E) None of the answer choices is correct. 
A) The old price of $1,060 
B) The partially complete price of $400 
C) The current price of $500 
D) The cost to complete a unit of $40 
E) None of the answer choices is correct.

Question 10

Sandwiches Galore is a small shop looking to expand its product offerings.The company is evaluating two alternatives: tacos and soups.Annual projections for sales of tacos are as follows: Sales $144,000;variable costs $80,000;fixed costs $16,000.Annual projections for sales of soups are as follows: Sales $60,000;variable costs $20,000;no additional fixed costs.
Perform differential analysis to determine which alternative is more profitable,and by how much.Assume that adding tacos is alternative 1 and adding soups is alternative 2.

Accepted Answer

Formats may vary.As shown in the differe

Question 11

Exhibit 7-4
The following segmented annual income statement is for Paper Products,Inc.
  
-Refer to Exhibit 7-4.If allocated fixed costs are based on sales revenue for each product line as a proportion of total sales revenue,what is the profit or (loss)for Lined?

Accepted Answer

A) $29,000 
B) $26,000 
C) $44,000 
D) $21,500 
E) None of the answer choices is correct. 
A) $29,000 
B) $26,000 
C) $44,000 
D) $21,500 
E) None of the answer choices is correct.

Question 12

Exhibit 7-8
Petro Inc.produces two joint products,product A and B.Prior to the split-off point,the company incurred $600,000 in joint costs.Production totaled 72,000 pounds for product A and 48,000 pounds for product B.
-Refer to Exhibit 7-8.What amount of joint costs is allocated to product A using the physical quantities method (pounds)?

Accepted Answer

A) $360,000 
B) $240,000 
C) $80,000 
D) $60,000 
E) None of the answer choices is correct. 
A) $360,000 
B) $240,000 
C) $80,000 
D) $60,000 
E) None of the answer choices is correct.

Question 13

Differential revenues and costs are also called incremental revenues and costs.

Accepted Answer

A) True 
 B)False

Question 14

Allocated fixed costs are easily traceable to individual products.

Accepted Answer

A) True 
 B)False

Question 15

Exhibit 7-7
Fishing Products Company produces three types of fishing poles: Light,Medium,and Heavy.The poles are produced in separate departments and sent to the quality testing department before being shipped.A labor-hour bottleneck has been identified in the quality testing department due to the high skill requirements of the job.Fishing Products would like to optimize its use of labor hours by producing the two most profitable fishing poles.Information for each pole follows:
  
-Refer to Exhibit 7-7.Which two products would Fishing Products prefer to sell to optimize the use of labor hours in the quality testing department?

Accepted Answer

A) The Light and the Heavy. 
B) The Medium and the Heavy. 
C) The Light and the Medium. 
D) None of the answer choices is correct. 
A) The Light and the Heavy. 
B) The Medium and the Heavy. 
C) The Light and the Medium. 
D) None of the answer choices is correct.

Question 16

Exhibit 7-1
Talmont Products has dropped the price per unit of its smart phone product from $1,060 to $500.There are some units in work-in-process inventory that have costs of $600 per unit associated with them.Talmont could sell these units in their current state for $400.It will cost Talmont $40 to complete these units so that they can be sold for $500 each.
-Refer to Exhibit 7-1.When the incremental revenues and costs are analyzed,the company is better off by:

Accepted Answer

A) $500 per unit if they complete the units. 
B) $40 per unit if they sell the units in their current state. 
C) $200 per unit if they sell the units in their current state. 
D) $60 per unit if they complete the units. 
E) None of the answer choices is correct. 
A) $500 per unit if they complete the units. 
B) $40 per unit if they sell the units in their current state. 
C) $200 per unit if they sell the units in their current state. 
D) $60 per unit if they complete the units. 
E) None of the answer choices is correct.

Question 17

Exhibit 7-9
Doughnuts Company uses flour to produce two joint products,Premium and Deluxe.When processed,each pound of flour yields 8 units of Premium and 12 units of Deluxe.Premium doughnuts sell for $1.00 per unit and Deluxe sell for $2.00 per unit.The total cost to process a 10-pound batch of flour is $12.00.
-Refer to Exhibit 7-9.If the sales value method is used to allocate the $12 in joint costs,how much will be allocated to Premium doughnuts?

Accepted Answer

A) $12 
B) $3 
C) $10 
D) $9 
E) None of the answer choices is correct. 
A) $12 
B) $3 
C) $10 
D) $9 
E) None of the answer choices is correct.

Question 18

Exhibit 7-9
Doughnuts Company uses flour to produce two joint products,Premium and Deluxe.When processed,each pound of flour yields 8 units of Premium and 12 units of Deluxe.Premium doughnuts sell for $1.00 per unit and Deluxe sell for $2.00 per unit.The total cost to process a 10-pound batch of flour is $12.00.
-Refer to Exhibit 7-9.If the physical quantities method is used to allocate the $12 in joint costs,how much will be allocated to Premium doughnuts?

Accepted Answer

A) $10.00 
B) $7.20 
C) $6.00 
D) $4.80 
E) None of the answer choices is correct. 
A) $10.00 
B) $7.20 
C) $6.00 
D) $4.80 
E) None of the answer choices is correct.

Question 19

Exhibit 7-3
Cap Incorporated currently manufactures hats.Management is interested in outsourcing production to a reputable manufacturing company that can supply the hats for $5 per unit.Cap produces 20,000 hats each year.Variable production costs are $2 and annual fixed costs are $75,000.If production is outsourced,all variable costs and 60 percent of annual fixed costs will be eliminated.
-Refer to Exhibit 7-3.Which is the best alternative,producing internally or outsourcing?

Accepted Answer

A) Outsourcing the production of hats results in $15,000 in savings compared to internal production. 
B) Outsourcing the production of hats results in $30,000 in savings compared to internal production. 
C) Producing the hats internally results in $30,000 in savings compared to outsourcing production. 
D) Producing the hats internally results in $15,000 in savings compared to outsourcing production. 
E) None of the answer choices is correct. 
A) Outsourcing the production of hats results in $15,000 in savings compared to internal production. 
B) Outsourcing the production of hats results in $30,000 in savings compared to internal production. 
C) Producing the hats internally results in $30,000 in savings compared to outsourcing production. 
D) Producing the hats internally results in $15,000 in savings compared to outsourcing production. 
E) None of the answer choices is correct.

Question 20

All of the following are steps of target costing except:

Accepted Answer

A) maximizing the contribution margin per unit of constrained resource. 
B) engineering the product to achieve the target cost. 
C) designing a product that provides the features and price demanded by customers. 
D) deriving the target cost by subtracting the desired profit. 
E) None of the answer choices is correct. 
A) maximizing the contribution margin per unit of constrained resource. 
B) engineering the product to achieve the target cost. 
C) designing a product that provides the features and price demanded by customers. 
D) deriving the target cost by subtracting the desired profit. 
E) None of the answer choices is correct.

A sunk cost is the benefit foregone when one alternative is selected over another.

The differential analysis format for deciding whether to keep or drop a customer is similar to that used for making product line decisions.

Avoidable costs are as also called differential costs.

Davis Company has $20 per unit in variable costs and $800,000 per year in fixed costs.Demand is estimated to be 400,000 units per year.What is the desired price per unit if a markup of 30% on total cost is used to determine the price?

Exhibit 7-4 The following segmented annual income statement is for Paper Products,Inc. -Refer to Exhibit 7-4.If allocated fixed costs are based on sales revenue for each product line as a proportion of total sales revenue,what is the profit or (loss)for Color?

Exhibit 7-4 The following segmented annual income statement is for Paper Products,Inc. -Refer to Exhibit 7-4.If allocated fixed costs are based on sales revenue for each product line as a proportion of total sales revenue,what is the total profit or (loss)for all product lines?

Exhibit 7-4 The following segmented annual income statement is for Paper Products,Inc. -Refer to Exhibit 7-4.If allocated fixed costs are based on sales revenue for each product line as a proportion of total sales revenue,what is the profit or (loss)for Lined?

Differential revenues and costs are also called incremental revenues and costs.

Allocated fixed costs are easily traceable to individual products.

All of the following are steps of target costing except:

What Is Managerial Accounting

How Is Job Costing Used to Track Production Costs

How Does an Organization Use Activity-Based Costing to Allocate Overhead Costs

How Is Process Costing Used to Track Production Costs

How Do Organizations Identify Cost Behavior Patterns

How Is Cost-Volume-Profit Analysis Used for Decision Making

How Is Capital Budgeting Used to Make Decisions

How Are Operating Budgets Created

How Do Managers Evaluate Performance Using Cost Variance Analysis

How Do Managers Evaluate Performance in Decentralized Organizations

How Is the Statement of Cash Flows Prepared and Used

How Do Managers Use Financial and Nonfinancial Performance Measures

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Exam 7: How Are Relevant Revenues and Costs Used to Make Decisions

A sunk cost is the benefit foregone when one alternative is selected over another.

The differential analysis format for deciding whether to keep or drop a customer is similar to that used for making product line decisions.

Avoidable costs are as also called differential costs.

Davis Company has $20 per unit in variable costs and $800,000 per year in fixed costs.Demand is estimated to be 400,000 units per year.What is the desired price per unit if a markup of 30% on total cost is used to determine the price?

Exhibit 7-4 The following segmented annual income statement is for Paper Products,Inc. -Refer to Exhibit 7-4.If allocated fixed costs are based on sales revenue for each product line as a proportion of total sales revenue,what is the profit or (loss)for Color?

Exhibit 7-4 The following segmented annual income statement is for Paper Products,Inc. -Refer to Exhibit 7-4.If allocated fixed costs are based on sales revenue for each product line as a proportion of total sales revenue,what is the total profit or (loss)for all product lines?

Exhibit 7-4 The following segmented annual income statement is for Paper Products,Inc. -Refer to Exhibit 7-4.If allocated fixed costs are based on sales revenue for each product line as a proportion of total sales revenue,what is the profit or (loss)for Lined?

Differential revenues and costs are also called incremental revenues and costs.

Allocated fixed costs are easily traceable to individual products.

All of the following are steps of target costing except:

What Is Managerial Accounting

How Is Job Costing Used to Track Production Costs

How Does an Organization Use Activity-Based Costing to Allocate Overhead Costs

How Is Process Costing Used to Track Production Costs

How Do Organizations Identify Cost Behavior Patterns

How Is Cost-Volume-Profit Analysis Used for Decision Making

How Is Capital Budgeting Used to Make Decisions

How Are Operating Budgets Created

How Do Managers Evaluate Performance Using Cost Variance Analysis

How Do Managers Evaluate Performance in Decentralized Organizations

How Is the Statement of Cash Flows Prepared and Used

How Do Managers Use Financial and Nonfinancial Performance Measures

Filters