Question 1

One-time-only special orders should only be accepted if ________.

Accepted Answer

A)  incremental revenues exceed incremental costs 
B)  differential revenues exceed variable costs 
C)  incremental revenues exceed fixed costs 
D)  total revenues exceed total costs 
A)  incremental revenues exceed incremental costs 
B)  differential revenues exceed variable costs 
C)  incremental revenues exceed fixed costs 
D)  total revenues exceed total costs A

Question 2

Overhead costs allocated to the sales office and individual customers are always relevant.

Accepted Answer

A) True 
 B)False  False

Question 3

For decision making,differential costs assist in choosing between alternatives.

Accepted Answer

A) True 
 B)False  True

Question 4

Answer the following questions using the information below:
Contrafic Lighting manufactures small flashlights and is considering raising the price by 75 cents a unit for the coming year. With a 75-cent price increase, demand is expected to fall by 7,000 units.
 $$\begin{array} { l r r } 
& \text { Current } & \text { Projected } \
\text { Demand } & 75,000 \text { units } & 68,000 \text { units } \
\text { Selling price } & \$ 8.50 & \$ 9.25 \
\text { Incremental cost per unit } & \$ 4.80 & \$ 4.80
\end{array}$$
-If the price increase is implemented,operating profit is projected to ________.

Accepted Answer

A)  increase by $25,100 
B)  decrease by $5,250 
C)  increase by $5,250 
D)  decrease by $7,000 
A)  increase by $25,100 
B)  decrease by $5,250 
C)  increase by $5,250 
D)  decrease by $7,000

Question 5

Explain the five-step decision process that managers can use to make decisions.

Accepted Answer

The five step decision process is (a)Ide

Question 6

Past costs themselves are always irrelevant when making decisions.

Accepted Answer

A) True 
 B)False

Question 7

Past costs are also called sunk costs because they are unavoidable and cannot be changed no matter what action is taken.

Accepted Answer

A) True 
 B)False

Question 8

Answer the following questions using the information below:
Aurum Appliances manufactures three sizes of kitchen appliances: small, medium, and large. Product information is provided below.
 $\begin{array}{lcrrr}
&\text { Small }&\text { Medium }&\text { Large }\
\text { Unit selling price }&\$400&\$600&\$1,200\\text { Unit costs: }\
\text { Variable manufacturing } & (220) & (280) & (500) \
\text { F1×ed manufacturing } & (80) & (130) & (240) \
\text { Fixed selling and administrative } & (60) & (75) & (120) \
\text { Unit profit } & \$ 40 & \$ 115 & \$ 340\\
\text { Demand in units } & 100 & 120 & 100 \
\text { Machine-hours per unit } & 20 & 40 & 100
\end{array}$ The maximum machine-hours available are 6,000 per week.
-What is the contribution margin per machine-hour for a medium appliance?

Accepted Answer

A)  $1.15 
B)  $2.34 
C)  $6.13 
D)  $4.90 
A)  $1.15 
B)  $2.34 
C)  $6.13 
D)  $4.90

Question 9

Lewis Auto Company manufactures a part for use in its production of automobiles.When 10,000 items are produced,the costs per unit are:
 $\begin{array}{lr}
\text { Direct materials } & \$ 12 \
\text { Direct manufacturing labor } & 60 \
\text { Variable manufacturing overhead } & 24 \
\text { Fixed manufacturing overhead } & \underline{32}\
\text { Total }&\$128
\end{array}$ Monty Company has offered to sell Lewis Auto Company 10,000 units of the part for $120 per unit.The plant facilities could be used to manufacture another part at a savings of $180,000 if Lewis Auto accepts the supplier's offer.In addition,$20 per unit of fixed manufacturing overhead on the original part would be eliminated.
Required:
a.What is the relevant per unit cost for the original part?
b.Which alternative is best for Lewis Auto Company? By how much?

Accepted Answer

@#IMG-DLM& The best

Question 10

When there is an excess capacity,it makes sense to accept a one-time-only special order for less than the current selling price if ________.

Accepted Answer

A)  incremental revenues exceed incremental costs 
B)  additional fixed costs is incurred to accommodate the order 
C)  the company placing the order is in the same market segment as your current customers 
D)  incremental revenue equals incremental operating income 
A)  incremental revenues exceed incremental costs 
B)  additional fixed costs is incurred to accommodate the order 
C)  the company placing the order is in the same market segment as your current customers 
D)  incremental revenue equals incremental operating income

Question 11

Answer the following questions using the information below:
Indium Services, Inc., is considering replacing a machine. The following data are available:
 $$\begin{array}{l}\begin{array} { l r r } 
&&\text { Replacement }\

& \text { Old Machine } & \text { Machine } \
\text { Ori ginal cost } & \$ 630,000 & \$ 490,000 \
\text { Useful life in years } & 10 & 5 \
\text { Current age in years } & 5 & 0 \
\text { Book value } & \$ 350,000 & - \
\text { Disposal value now } & \$ 112,000 & - \
\text { Disposal value in } 5 \text { years } & 0 & 0 \
\text { Antual cash operating costs } & \$ 98,000 & \$ 56,000
\end{array}
\end{array}$$
-For the decision to keep the old machine,the relevant costs of keeping the old machine is ________.

Accepted Answer

A)  $840,000 
B)  $490,000 
C)  $958,000 
D)  $98,000 
A)  $840,000 
B)  $490,000 
C)  $958,000 
D)  $98,000

Question 12

Pat,a Pizzeria manager,replaced the convection oven just six months ago.Today,Turbo Ovens Manufacturing announced the availability of a new convection oven that cooks more quickly with lower operating expenses.Pat is considering the purchase of this faster,lower-operating cost convection oven to replace the existing one they recently purchased.Selected information about the two ovens is given below:
 $\begin{array}{lrr}&\text { Existing }&\text { New Turbo Oven }\
\text { Ori ginal cost } & \$ 60,000 & \$ 50,000 \
\text { Accumulated depreciation } & \$ 5,000 & - \
\text { Current salvage value } & \$ 40,000 & -\\text { Remaining life } & 5 \text { years } & 5 \text { years } \
\text { Annual operating expenses } & \$ 10,000 & \$ 7,500 \
\text { Disposal value in } 5 \text { years } & \$ 0 & \$ 0
\end{array}$ Required:
a.What costs are sunk?
b.What costs are relevant?
c.What are the net cash flows over the next 5 years assuming the Pizzeria purchases the new convection oven?
d.What other items should Pat,as manager of the Pizzeria,consider when making this decision?

Accepted Answer

a.Sunk costs include the original cost o

Question 13

Answer the following questions using the information below:
Genent's Engine Company manufactures part TE456 used in several of its engine models. Monthly production costs for 1,000 units are as follows:
 $\begin{array}{lr}
\text { Direct materials } & \$ 46,000 \
\text { Direct labor } & 11,500 \
\text { Variable overhead costs } & 34,500 \
\text { Fixed overhead costs } & 23,000 \
\quad \text { Total costs } & \$ 115,000
\end{array}$ It is estimated that 8% of the fixed overhead costs assigned to TE456 will no longer be incurred if the company purchases TE456 from the outside supplier. Genent's Engine Company has the option of purchasing the part from an outside supplier at $97.75 per unit.
-If Genent's Engine Company accepts the offer from the outside supplier,the monthly avoidable costs (costs that will no longer be incurred)total ________.

Accepted Answer

A)  $93,840 
B)  $92,000 
C)  $115,000 
D)  $116,840 
A)  $93,840 
B)  $92,000 
C)  $115,000 
D)  $116,840

Question 14

Which of the following would be a consideration in a make-or-buy decision?

Accepted Answer

A)  excess capacity 
B)  wages to CEO 
C)  marketing costs 
D)  audit expenses 
A)  excess capacity 
B)  wages to CEO 
C)  marketing costs 
D)  audit expenses

Question 15

Full costs of a product include variable and fixed costs in a particular business function in the value
chain.

Accepted Answer

A) True 
 B)False

Question 16

Answer the following questions using the information below:
Indium Services, Inc., is considering replacing a machine. The following data are available:
 $$\begin{array}{l}\begin{array} { l r r } 
&&\text { Replacement }\

& \text { Old Machine } & \text { Machine } \
\text { Ori ginal cost } & \$ 630,000 & \$ 490,000 \
\text { Useful life in years } & 10 & 5 \
\text { Current age in years } & 5 & 0 \
\text { Book value } & \$ 350,000 & - \
\text { Disposal value now } & \$ 112,000 & - \
\text { Disposal value in } 5 \text { years } & 0 & 0 \
\text { Antual cash operating costs } & \$ 98,000 & \$ 56,000
\end{array}
\end{array}$$
-The difference between keeping the old machine and replacing the old machine is ________.

Accepted Answer

A)  $518,000 in favor of keeping the old machine 
B)  $168,000 in favor of keeping the old machine 
C)  $518,000 in favor of replacing the old machine 
D)  $168,000 in favor of replacing the old machine 
A)  $518,000 in favor of keeping the old machine 
B)  $168,000 in favor of keeping the old machine 
C)  $518,000 in favor of replacing the old machine 
D)  $168,000 in favor of replacing the old machine

Question 17

A cost may be relevant for one decision,but NOT relevant for a different decision.

Accepted Answer

A) True 
 B)False

Question 18

When deciding whether to discontinue a segment of a business,relevant costs include ________.

Accepted Answer

A)  auditing expenses for the whole company 
B)  fees paid to a management consultant to study the feasibility of the business segment 
C)  annual insurance costs of the company 
D)  future administrative costs that can be eliminated 
A)  auditing expenses for the whole company 
B)  fees paid to a management consultant to study the feasibility of the business segment 
C)  annual insurance costs of the company 
D)  future administrative costs that can be eliminated

Question 19

When capacity is constrained,the relevant revenues and costs of any alternative equal the incremental future revenues and costs plus the opportunity cost.

Accepted Answer

A) True 
 B)False

Question 20

A company decided to replace an old machine with a new machine.Which of the following is considered a relevant cost?

Accepted Answer

A)  the book value of the old equipment 
B)  the depreciation expense on the old equipment 
C)  the loss on the disposal of the old equipment 
D)  the setup cost of the new equipment 
A)  the book value of the old equipment 
B)  the depreciation expense on the old equipment 
C)  the loss on the disposal of the old equipment 
D)  the setup cost of the new equipment

One-time-only special orders should only be accepted if ________.

Overhead costs allocated to the sales office and individual customers are always relevant.

For decision making,differential costs assist in choosing between alternatives.

Explain the five-step decision process that managers can use to make decisions.

Past costs themselves are always irrelevant when making decisions.

Past costs are also called sunk costs because they are unavoidable and cannot be changed no matter what action is taken.

When there is an excess capacity,it makes sense to accept a one-time-only special order for less than the current selling price if ________.

Which of the following would be a consideration in a make-or-buy decision?

Full costs of a product include variable and fixed costs in a particular business function in the value chain.

A cost may be relevant for one decision,but NOT relevant for a different decision.

When deciding whether to discontinue a segment of a business,relevant costs include ________.

When capacity is constrained,the relevant revenues and costs of any alternative equal the incremental future revenues and costs plus the opportunity cost.

A company decided to replace an old machine with a new machine.Which of the following is considered a relevant cost?

The Manager and Management Accounting

An Introduction to Cost Terms and Purposes

Cost-Volume-Profit Analysis

Job Costing

Activity-Based Costing and Activity-Based Management

Master Budget and Responsibility Accounting

Flexible Budgets, direct-Cost Variances, and Management Control

Flexible Budgets, overhead Cost Variances, and Management Control

Inventory Costing and Capacity Analysis

Determining How Costs Behave

Strategy, balanced Scorecard, and Strategic Profitability Analysis

Pricing Decisions and Cost Management

Cost Allocation, customer-Profitability Analysis, and Sales-Variance Analysis

Allocation of Support-Department Costs, common Costs, and Revenues

Cost Allocation: Joint Products and Byproducts

Process Costing

Spoilage, rework, and Scrap

Balanced Scorecard: Quality and Time

Inventory Management, just-In-Time, and Simplified Costing Methods

Capital Budgeting and Cost Analysis

Management Control Systems, transfer Pricing, and Multinational Considerations

Performance Measurement, compensation, and Multinational Considerations

Filters

Exam 11: Decision Making and Relevant Information

One-time-only special orders should only be accepted if ________.

Overhead costs allocated to the sales office and individual customers are always relevant.

For decision making,differential costs assist in choosing between alternatives.

Explain the five-step decision process that managers can use to make decisions.

Past costs themselves are always irrelevant when making decisions.

Past costs are also called sunk costs because they are unavoidable and cannot be changed no matter what action is taken.

When there is an excess capacity,it makes sense to accept a one-time-only special order for less than the current selling price if ________.

Which of the following would be a consideration in a make-or-buy decision?

Full costs of a product include variable and fixed costs in a particular business function in the value chain.

A cost may be relevant for one decision,but NOT relevant for a different decision.

When deciding whether to discontinue a segment of a business,relevant costs include ________.

When capacity is constrained,the relevant revenues and costs of any alternative equal the incremental future revenues and costs plus the opportunity cost.

A company decided to replace an old machine with a new machine.Which of the following is considered a relevant cost?

The Manager and Management Accounting

An Introduction to Cost Terms and Purposes

Cost-Volume-Profit Analysis

Job Costing

Activity-Based Costing and Activity-Based Management

Master Budget and Responsibility Accounting

Flexible Budgets, direct-Cost Variances, and Management Control

Flexible Budgets, overhead Cost Variances, and Management Control

Inventory Costing and Capacity Analysis

Determining How Costs Behave

Strategy, balanced Scorecard, and Strategic Profitability Analysis

Pricing Decisions and Cost Management

Cost Allocation, customer-Profitability Analysis, and Sales-Variance Analysis

Allocation of Support-Department Costs, common Costs, and Revenues

Cost Allocation: Joint Products and Byproducts

Process Costing

Spoilage, rework, and Scrap

Balanced Scorecard: Quality and Time

Inventory Management, just-In-Time, and Simplified Costing Methods

Capital Budgeting and Cost Analysis

Management Control Systems, transfer Pricing, and Multinational Considerations

Performance Measurement, compensation, and Multinational Considerations

Filters