Question 1

Sunk costs are costs incurred in the past that cannot be changed by future decisions.

Accepted Answer

A) True 
 B)False

Question 2

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.If the hats are made internally,what are the total production costs?

Accepted Answer

A) $25,000 
B) $100,000 
C) $115,000 
D) $175,000 
E) None of the answer choices is correct. 
A) $25,000 
B) $100,000 
C) $115,000 
D) $175,000 
E) None of the answer choices is correct.

Question 3

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.What are the total production costs if the hats are outsourced?

Accepted Answer

A) $130,000 
B) $145,000 
C) $100,000 
D) $60,000 
E) None of the answer choices is correct. 
A) $130,000 
B) $145,000 
C) $100,000 
D) $60,000 
E) None of the answer choices is correct.

Question 4

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.What is the amount of profit or (loss)for Customer Z?

Accepted Answer

A) $88,000 
B) $200,000 
C) ($20,000) 
D) $80,000 
E) None of the answer choices is correct. 
A) $88,000 
B) $200,000 
C) ($20,000) 
D) $80,000 
E) None of the answer choices is correct.

Question 5

The best definition of differential analysis is:

Accepted Answer

A) an analysis of the benefits foregone when one alternative is selected over another. 
B) an analysis of allocated fixed costs related to each product line. 
C) an analysis of variable costs that are the same from one alternative course of action to another. 
D) an analysis that looks at the difference in revenues and costs from one alternative course of action to another. 
E) None of the answer choices is correct. 
A) an analysis of the benefits foregone when one alternative is selected over another. 
B) an analysis of allocated fixed costs related to each product line. 
C) an analysis of variable costs that are the same from one alternative course of action to another. 
D) an analysis that looks at the difference in revenues and costs from one alternative course of action to another. 
E) None of the answer choices is correct.

Question 6

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,what is the total amount that will be allocated to both products?

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 7

The following annual income statement is for Outboard Motors Inc. ,a maker of outboard motors for boats.
   
Outboard Motors is concerned about the losses associated with the 2HP product line and is considering dropping this product line.Allocated fixed costs are assigned to product lines based on sales.If the company eliminates a product line,total allocated fixed costs are assigned to the remaining product lines.All variable costs and direct fixed costs are differential costs.
(1)Using differential analysis,determine whether the company would be better off dropping the 2HP product line or keeping the product line.Clearly state your conclusion.
(2)Assume the company can lease the warehouse space currently being used by the 2HP product line for $11,000 per year.Using a differential analysis,explain how this would affect the company's decision to keep or drop the 2HP product line.

Accepted Answer

The answer of The following annual income statement is for...

Question 8

Damon,Inc.currently produces 30,000 sweatshirts each year for its regular customers and charges $30 per sweatshirt.Damon has capacity to produce an additional 5,000 sweatshirts if sales grow in the future.Variable costs total $16 per sweatshirt and annual fixed costs total $60,000.The city of Loveland recently approached the company and proposed a one-time purchase of 1,000 sweatshirts for $24 each.Should Damon accept the special order proposal?

Accepted Answer

A) No,because total fixed costs will increase by $2,000 and total sales will decline by $6,000 from this special order. 
B) Yes,because they will make $6 per shirt from this special order. 
C) Yes,because they will make $8 per shirt from this special order. 
D) No,because they will lose $6 per shirt from this special order. 
E) None of the answer choices is correct. 
A) No,because total fixed costs will increase by $2,000 and total sales will decline by $6,000 from this special order. 
B) Yes,because they will make $6 per shirt from this special order. 
C) Yes,because they will make $8 per shirt from this special order. 
D) No,because they will lose $6 per shirt from this special order. 
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.Talmont is considering the option of throwing away the remaining smart phone units that are in work-in-process inventory.What effect would this decision have on net income?

Accepted Answer

A) Net income would decrease by $1,060 for each unit discarded. 
B) Net income would decrease by $600 for each unit discarded. 
C) Net income will increase by $200 for each unit discarded. 
D) This decision would have no effect on net income. 
E) None of the answer choices is correct. 
A) Net income would decrease by $1,060 for each unit discarded. 
B) Net income would decrease by $600 for each unit discarded. 
C) Net income will increase by $200 for each unit discarded. 
D) This decision would have no effect on net income. 
E) None of the answer choices is correct.

Question 10

Which of the following is not relevant in a special order decision?

Accepted Answer

A) Variable costs. 
B) Opportunity costs. 
C) Sunk costs. 
D) Avoidable fixed costs. 
E) None of the answer choices is correct. 
A) Variable costs. 
B) Opportunity costs. 
C) Sunk costs. 
D) Avoidable fixed costs. 
E) None of the answer choices is correct.

Question 11

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 amounts is a sunk cost in this problem?

Accepted Answer

A) $1,060 per unit 
B) $40 per unit 
C) $600 per unit 
D) $400 per unit 
E) None of the answer choices is correct. 
A) $1,060 per unit 
B) $40 per unit 
C) $600 per unit 
D) $400 per unit 
E) None of the answer choices is correct.

Question 12

Cost-plus pricing is often used by companies that produce custom products where market prices are not easily available.

Accepted Answer

A) True 
 B)False

Question 13

A "make-or-buy" decision means a company is deciding whether to build the product or outsource the product.

Accepted Answer

A) True 
 B)False

Question 14

The best definition of an opportunity cost is a:

Accepted Answer

A) Cost reflecting benefits foregone when one alternative is selected over another. 
B) Cost incurred in the past that cannot be changed by future decisions. 
C) Fixed cost that cannot be traced directly to a product line. 
D) Cost that can be avoided by selecting a particular course of action. 
E) None of the answer choices is correct. 
A) Cost reflecting benefits foregone when one alternative is selected over another. 
B) Cost incurred in the past that cannot be changed by future decisions. 
C) Fixed cost that cannot be traced directly to a product line. 
D) Cost that can be avoided by selecting a particular course of action. 
E) None of the answer choices is correct.

Question 15

Snowboard Inc.currently produces snowboards.Management is interested in outsourcing production of snowboards to a reputable manufacturing company that can supply the snowboards for $250 per unit.Snowboard Inc.incurs the following annual production costs to produce 6,000 snowboards internally:
   
Outsourcing production eliminates all variable production costs,the production supervisor's salary,and factory insurance costs.Factory building and equipment lease costs will remain the same regardless of the decision to outsource or to produce internally.
(1)Perform a differential analysis,assuming that making the snowboard internally is alternative 1,and buying the snowboard from an outside manufacturer is alternative 2.
(2)Explain which alternative is best and why.

Accepted Answer

The answer of Snowboard Inc.currently produces snowboards.Management is interested in...

Question 16

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.What is the amount of allocated fixed costs to be assigned to Customer Z?

Accepted Answer

A) $580,000 
B) $420,000 
C) $400,000 
D) $600,000 
E) None of the answer choices is correct. 
A) $580,000 
B) $420,000 
C) $400,000 
D) $600,000 
E) None of the answer choices is correct.

Sunk costs are costs incurred in the past that cannot be changed by future decisions.

The best definition of differential analysis is:

Which of the following is not relevant in a special order decision?

Cost-plus pricing is often used by companies that produce custom products where market prices are not easily available.

A "make-or-buy" decision means a company is deciding whether to build the product or outsource the product.

The best definition of an opportunity cost is a:

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

Sunk costs are costs incurred in the past that cannot be changed by future decisions.

The best definition of differential analysis is:

Which of the following is not relevant in a special order decision?

Cost-plus pricing is often used by companies that produce custom products where market prices are not easily available.

A "make-or-buy" decision means a company is deciding whether to build the product or outsource the product.

The best definition of an opportunity cost is a:

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