Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

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 3

Individual product profitability will vary depending on which allocation method is chosen to allocate joint costs.

Accepted Answer

A) True 
 B)False

Question 4

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 5

Cost-plus pricing starts with considering the price of products at competing firms.

Accepted Answer

A) True 
 B)False

Question 6

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 7

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 8

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 9

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 10

All managers require one standard format for differential analysis.

Accepted Answer

A) True 
 B)False

Question 11

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.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 12

Allocated fixed costs are eliminated when a product line is eliminated.

Accepted Answer

A) True 
 B)False

Question 13

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 14

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 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 15

Exhibit 7-4
The following segmented annual income statement is for Paper Products,Inc.
  $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $$\text { Product Lines }$
$\begin{array}{lrrrr}
& \text { Plain } & \text { Lined } & \text { Color } & \text { Total }\
\text { Sales revenue } & \$ 25,000 & \$ 100,000 & \$ 125,000 & \$ 250,000 \
\text { Variable costs } & 15,000 & 50,000 & 85,000 & 150,000\
\text { Contribution margin } & \$ 10,000 & \$ 50,000 & \$ 40,000 & \$ 100,000 \
\text { Direct fixed costs } & 4,000 & 6,000 & 9,000 & 19,000\
\text {Allocated fixed costs }&\underline{\quad?\quad}&\underline{\quad?\quad}&\underline{\quad?\quad}&\underline{45,000}\
\text {Profit (loss)}&\underline{\$\quad?\quad}&\underline{\$\quad?\quad}&\underline{\$\quad?\quad}&\underline{\$\quad?\quad}

\end{array}$

-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

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.

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

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

Individual product profitability will vary depending on which allocation method is chosen to allocate joint costs.

Cost-plus pricing starts with considering the price of products at competing firms.

The best definition of differential analysis is:

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?

All managers require one standard format for differential analysis.

Allocated fixed costs are eliminated when a product line is eliminated.

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

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

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

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

Individual product profitability will vary depending on which allocation method is chosen to allocate joint costs.

Cost-plus pricing starts with considering the price of products at competing firms.

The best definition of differential analysis is:

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?

All managers require one standard format for differential analysis.

Allocated fixed costs are eliminated when a product line is eliminated.

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

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