Question 1

Which of the following is not considered relevant when considering a make-or-buy decision?

Accepted Answer

A) The effect on variable costs. 
B) The effect on employee morale. 
C) The quality of the outsourced product. 
D) The effect on unavoidable fixed costs. 
E) None of the answer choices is correct. 
A) The effect on variable costs. 
B) The effect on employee morale. 
C) The quality of the outsourced product. 
D) The effect on unavoidable fixed costs. 
E) None of the answer choices is correct.

Question 2

All managers require one standard format for differential analysis.

Accepted Answer

A) True 
 B)False

Question 3

Exhibit 7-6
Roseville,Inc.produces two types of gaming systems: Starter and Advanced.The gaming products are produced in separate departments and sent to the quality testing department before being packaged and shipped.A labor-hour bottleneck has been identified in the quality testing department due to the high skill requirements of the job.Roseville,Inc.has compiled the following data in order to optimize its use of labor hours for producing the most profitable product.
  
-Refer to Exhibit 7-6.What is the contribution margin per quality testing labor-hour for the Advanced product?

Accepted Answer

A) $275 
B) $75 
C) $300 
D) $269 
E) None of the answer choices is correct. 
A) $275 
B) $75 
C) $300 
D) $269 
E) None of the answer choices is correct.

Question 4

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 amount of allocated fixed costs for Plain?

Accepted Answer

A) $15,000 
B) $6,000 
C) $22,500 
D) $4,500 
E) None of the answer choices is correct. 
A) $15,000 
B) $6,000 
C) $22,500 
D) $4,500 
E) None of the answer choices is correct.

Question 5

When managers are making resource utilization decisions,the general rule is to:

Accepted Answer

A) minimize the use of the constrained resource. 
B) maximize the contribution margin per unit. 
C) maximize the contribution margin per unit of the constrained resource. 
D) minimize the contribution margin per unit. 
E) None of the answer choices is correct. 
A) minimize the use of the constrained resource. 
B) maximize the contribution margin per unit. 
C) maximize the contribution margin per unit of the constrained resource. 
D) minimize the contribution margin per unit. 
E) None of the answer choices is correct.

Question 6

One of the factors to consider when evaluating special orders is the impact that special pricing will have on long-run pricing with existing customers.

Accepted Answer

A) True 
 B)False

Question 7

When deciding between alternatives,only those revenues and costs that differ from one alternative to another are relevant.

Accepted Answer

A) True 
 B)False

Question 8

Production capacity is the only consideration when evaluating special orders.

Accepted Answer

A) True 
 B)False

Question 9

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 Light product?

Accepted Answer

A) $65 
B) $100 
C) $260 
D) $17 
E) None of the answer choices is correct. 
A) $65 
B) $100 
C) $260 
D) $17 
E) None of the answer choices is correct.

Question 10

Joint products are two or more products produced from a single input.

Accepted Answer

A) True 
 B)False

Question 11

Paradise Inc.estimates that it can sell 50,000 of its calculators for $50 each.Assuming a total target profit of $1,000,000,how much is the target cost per calculator?

Accepted Answer

A) $22.00 
B) $30.00 
C) $20.00 
D) $50.00 
E) There is not enough information to answer this question. 
A) $22.00 
B) $30.00 
C) $20.00 
D) $50.00 
E) There is not enough information to answer this question.

Question 12

The best definition of allocated fixed costs is:

Accepted Answer

A) Fixed costs that can be traced directly to a customer. 
B) Fixed costs that are forgone when one alternative is selected over another. 
C) Fixed costs that cannot be traced directly to a customer. 
D) Fixed costs that differ between alternatives. 
E) None of the answer choices is correct. 
A) Fixed costs that can be traced directly to a customer. 
B) Fixed costs that are forgone when one alternative is selected over another. 
C) Fixed costs that cannot be traced directly to a customer. 
D) Fixed costs that differ between alternatives. 
E) None of the answer choices is correct.

Question 13

Exhibit 7-2
Jake Company is considering a special order for 5,000 units at a price of $60 per unit.Jake's product normally sells for $84 per unit and has variable manufacturing costs of $45 per unit and variable selling costs of $9 per unit.Fixed manufacturing costs are $150,000 and fixed selling and administrative costs are $300,000.Jake has capacity to produce 30,000 units and is currently producing 20,000 units.If the order is accepted,,Jake will incur legal fees of $7,500 in connection with the order,but there will be no variable selling costs on the special order.
-Refer to Exhibit 7-2.What are the differential revenues associated with the special order?

Accepted Answer

A) $75,000 
B) $120,000 
C) $420,000 
D) $300,000 
E) None of the answer choices is correct. 
A) $75,000 
B) $120,000 
C) $420,000 
D) $300,000 
E) None of the answer choices is correct.

Question 14

The following monthly financial data is for Tina's T-Shirt Company.The company makes 25,000 T-shirts each month.
   
Tina is approached by a local youth camp that would like to have 2,000 T-shirts produced.The camp asked Tina to produce the shirts for $9.00 each rather than the standard price of $10.00.Tina can produce up to 28,000 shirts a month,so the special order will not affect regular customer sales.Variable costs per unit will remain at $5.50,but production of the shirts will require a special machine that costs $2,500.This special order will have no other effect on monthly fixed costs.
(1)Using differential analysis,determine whether Tina would be better off accepting or rejecting the special order.
(2)Assume Tina can only produce 25,000 T-shirts per month,and that regular customer sales would decrease as a result of the special order.Using differential analysis,determine whether Tina would be better off accepting or rejecting the special order.

Accepted Answer

The answer of The following monthly financial data is for...

Question 15

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 Plain?

Accepted Answer

A) ($9,000) 
B) $6,000 
C) $1,500 
D) ($16,500) 
E) None of the answer choices is correct. 
A) ($9,000) 
B) $6,000 
C) $1,500 
D) ($16,500) 
E) None of the answer choices is correct.

Question 16

Exhibit 7-2
Jake Company is considering a special order for 5,000 units at a price of $60 per unit.Jake's product normally sells for $84 per unit and has variable manufacturing costs of $45 per unit and variable selling costs of $9 per unit.Fixed manufacturing costs are $150,000 and fixed selling and administrative costs are $300,000.Jake has capacity to produce 30,000 units and is currently producing 20,000 units.If the order is accepted,,Jake will incur legal fees of $7,500 in connection with the order,but there will be no variable selling costs on the special order.
-Refer to Exhibit 7-2.What are the differential costs associated with the special order?

Accepted Answer

A) $232,500 
B) $67,500 
C) $127,500 
D) $322,500 
E) None of the answer choices is correct. 
A) $232,500 
B) $67,500 
C) $127,500 
D) $322,500 
E) None of the answer choices is correct.

Question 17

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 amount of allocated fixed costs for Lined?

Accepted Answer

A) $18,000 
B) $44,000 
C) $22,500 
D) $15,000 
E) None of the answer choices is correct. 
A) $18,000 
B) $44,000 
C) $22,500 
D) $15,000 
E) None of the answer choices is correct.

Question 18

Computer Inc.has developed a new computer that can be sold for $800.If management requires a profit equal to 60 percent of the selling price,what is the target cost of this product?

Accepted Answer

A) $480 
B) $740 
C) $60 
D) $320 
E) None of the answer choices is correct. 
A) $480 
B) $740 
C) $60 
D) $320 
E) None of the answer choices is correct.

Question 19

The following monthly financial data is for Tennis Company,a maker of tennis balls.Tennis makes 50,000 tennis balls each month.
 
Tennis received an offer from a tennis club to purchase 15,000 tennis balls at $1.50 per ball.Variable costs per pair will remain at $0.35.Any special orders will result in reduced sales to regular customers.However,fixed costs will not change as a result of the special order.Which of the following statements describes the best course of action for Tennis Company?

Accepted Answer

A) Reject the special order since profit will be $7,500 greater without the special order. 
B) Accept the special order since fixed costs will not change. 
C) Accept the special order since it will yield $1.15 per tennis ball in profit. 
D) Reject the special order since the company will experience a total net loss as a result of the special order. 
E) None of the answer choices is correct. 
A) Reject the special order since profit will be $7,500 greater without the special order. 
B) Accept the special order since fixed costs will not change. 
C) Accept the special order since it will yield $1.15 per tennis ball in profit. 
D) Reject the special order since the company will experience a total net loss as a result of the special order. 
E) None of the answer choices is correct.

Question 20

In which of the following cases is a customer most likely to be dropped?

Accepted Answer

A) When the customer's variable costs are more than its total fixed costs. 
B) When the customer's avoidable fixed costs are more than its contribution margin. 
C) When the customer's total fixed costs are more than its contribution margin. 
D) When the customer's contribution margin is more than its avoidable fixed costs. 
E) None of the answer choices is correct. 
A) When the customer's variable costs are more than its total fixed costs. 
B) When the customer's avoidable fixed costs are more than its contribution margin. 
C) When the customer's total fixed costs are more than its contribution margin. 
D) When the customer's contribution margin is more than its avoidable fixed costs. 
E) None of the answer choices is correct.

Which of the following is not considered relevant when considering a make-or-buy decision?

All managers require one standard format for differential analysis.

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 amount of allocated fixed costs for Plain?

When managers are making resource utilization decisions,the general rule is to:

One of the factors to consider when evaluating special orders is the impact that special pricing will have on long-run pricing with existing customers.

When deciding between alternatives,only those revenues and costs that differ from one alternative to another are relevant.

Production capacity is the only consideration when evaluating special orders.

Joint products are two or more products produced from a single input.

Paradise Inc.estimates that it can sell 50,000 of its calculators for $50 each.Assuming a total target profit of $1,000,000,how much is the target cost per calculator?

The best definition of allocated fixed costs is:

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 Plain?

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 amount of allocated fixed costs for Lined?

Computer Inc.has developed a new computer that can be sold for $800.If management requires a profit equal to 60 percent of the selling price,what is the target cost of this product?

In which of the following cases is a customer most likely to be dropped?

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

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

Which of the following is not considered relevant when considering a make-or-buy decision?

All managers require one standard format for differential analysis.

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 amount of allocated fixed costs for Plain?

When managers are making resource utilization decisions,the general rule is to:

One of the factors to consider when evaluating special orders is the impact that special pricing will have on long-run pricing with existing customers.

When deciding between alternatives,only those revenues and costs that differ from one alternative to another are relevant.

Production capacity is the only consideration when evaluating special orders.

Joint products are two or more products produced from a single input.

Paradise Inc.estimates that it can sell 50,000 of its calculators for $50 each.Assuming a total target profit of $1,000,000,how much is the target cost per calculator?

The best definition of allocated fixed costs is:

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 Plain?

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 amount of allocated fixed costs for Lined?

Computer Inc.has developed a new computer that can be sold for $800.If management requires a profit equal to 60 percent of the selling price,what is the target cost of this product?

In which of the following cases is a customer most likely to be dropped?

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