Question 1

All of the following are qualitative factors that a company should consider in a make-or-buy decision except:

Accepted Answer

A) Will the supplier consistently make a quality product? 
B) Will the supplier have enough capacity if demand increases? 
C) Will profit increase by outsourcing the product? 
D) Will the morale of current employees be affected by outsourcing? 
E) None of the answer choices is correct. 
A) Will the supplier consistently make a quality product? 
B) Will the supplier have enough capacity if demand increases? 
C) Will profit increase by outsourcing the product? 
D) Will the morale of current employees be affected by outsourcing? 
E) None of the answer choices is correct.

Question 2

The following monthly financial data is for Tina's T-Shirt Company.The company makes 25,000 T-shirts each month.
$\begin{array}{lrr}
&& \text { Total monthly data at } \
&\text { Per unit } & 25,000 \text { units } \
\text { Sales revenue } & \$ 10.00 & \$ 250,000 \
\text { Variable costs } & \underline{5.50} & \underline{137,500} \
\text { Contribution margin } & \underline{\$ 4.50} & \$ 112,500 \
\text { Fixed costs } & & 98,000\
\text { Profit } & & \$ 14,500 \

\end{array}$  
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

(1) Either differential analysis format

Question 3

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.

Question 4

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 5

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 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 physical quantities method is used to allocate the $12 in joint costs,how much will be allocated to Deluxe 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 7

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 8

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 9

What are some of the qualitative factors management might consider if they are trying to decide whether to outsource production rather than keep the production within their company?

Accepted Answer

Answers will vary.Several examples of qu

Question 10

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 11

The following monthly financial data is for Tennis Company,a maker of tennis balls.Tennis makes 50,000 tennis balls each month.
$$\begin{array} { l c c } 
& \text { Per unit } & \begin{array} { c } 
\text { Total mamthly data at } \
50,000 \text { tennis balls }
\end{array} \
\text { Sales reverue } & \$ 2.00 & \$ 100,000 \
\text { Variable costs } & \underline { 0.35 } & 17,500 \
\text { Contribution margin } & \underline { \$ 1.65 } & \$ 82,500 \
\text { Fixed costs } & & 72,000 \
\text { Profit } & & \$ 10,500
\end{array}$$ 
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 12

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 13

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:
 $$\begin{array} { l c c } 
& \text { Per Unit } & \begin{array} { c } 
\text { Tatal annual } \
\text { Cost at 6,000 units }
\end{array} \
 \text { Variable praductim costs: } & & \
\text { Direct materials } & \$ 180 & \$ 1,080,000 \
\text { Direct labor } & 50 & 300,000 \
\text { Manufacturing overhead } & 20 & 120,000 \
\text { Fixcd production costs: } & & \
\text { Factory building and equiprnent lease } & & 220,000 \
\text { Factory insurarce } & & 90,000 \
\text { Production supervisor salary } & &65,000 \
\text { Total production costs } & & \$ 1,875,000
\end{array}$$ 
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

(1) Either format presented here is acce

Question 14

There are often qualitative advantages for keeping unprofitable customers.

Accepted Answer

A) True 
 B)False

Question 15

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 16

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:
 $$\begin{array} { l c c c } 
& \begin{array} { c } 
\text { Quality Testing } \
\text { Labor-hours }
\end{array} & \text { Price } & \text { Variable Cost } \
 \text { Light } & 2 & \$ 300 & \$ 170 \
\text { Mediurn } & 3 & 500 & 200 \
\text { Heavy } & 5 & 1,200 & 380
\end{array}$$
-Refer to Exhibit 7-7.What is the contribution margin per unit of constrained resource for the Medium product?

Accepted Answer

A) $65 
B) $100 
C) $30 
D) $900 
E) None of the answer choices is correct. 
A) $65 
B) $100 
C) $30 
D) $900 
E) None of the answer choices is correct.

Question 17

Using activity-based costing information with differential analysis can lead to better decisions.

Accepted Answer

A) True 
 B)False

Question 18

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 19

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 20

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

All of the following are qualitative factors that a company should consider in a make-or-buy decision except:

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?

The best definition of allocated fixed costs is:

What are some of the qualitative factors management might consider if they are trying to decide whether to outsource production rather than keep the production within their company?

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

The best definition of an opportunity cost is a:

There are often qualitative advantages for keeping unprofitable customers.

Using activity-based costing information with differential analysis can lead to better decisions.

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

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

All of the following are qualitative factors that a company should consider in a make-or-buy decision except:

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?

The best definition of allocated fixed costs is:

What are some of the qualitative factors management might consider if they are trying to decide whether to outsource production rather than keep the production within their company?

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

The best definition of an opportunity cost is a:

There are often qualitative advantages for keeping unprofitable customers.

Using activity-based costing information with differential analysis can lead to better decisions.

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

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