Question 1

In keep-or-drop decisions, both the segment's contribution margin and its segment margin are useful in evaluating the performance of the segment.

Accepted Answer

A) True 
 B)False  True

Question 2

One Kings Lane Corporation manufactures a single product with the following unit costs for 10,000 units: $\begin{array}{lr}
\text { Direct materials } & \$ 75 \
\text { Direct labour } & 40 \
\text { Manufacturing overhead (40\% variable) } & 90 \
\text { Selling expenses ( } 60 \% \text { variable) } & 30 \
\text { Administrative expenses (20\% variable) } & 15\\text { Total per unit }&\$250
\end{array}$ Recently, a company approached One Kings Lane Corporation about buying 2,000 units for $250. Currently, the models are sold to dealers for $450. One Kings Lane's capacity is sufficient to produce the extra 3,000 units. Selling expenses would be incurred as normal on the special order.
Required:
A. Calculate the profit earned by One Kings Lane on the original 10,000 units.
B. Should One Kings Lane accept the special order if its goal is to maximize short-run profits? How much will income be affected?
C. Determine the minimum price One Kings Lane would want to receive in order to increase profits by $15,000 on the special order.
D. When making a special order decision, what qualitative aspects of the decision should One Kings Lane Corporation consider?

Accepted Answer

A. $\begin{array}{lr}
\text { Sales }(10,000 \times \$ 450) & \$ 4,500,000 \
\text { Less: costs }(10,000 \times \$ 250) & 2,500,000\
\text { Net income }&\$2,000,000
\end{array}$ B. Yes, profit will increase by: $\begin{array}{lr}
\text { Increase in sales }(2,000 \times \$ 250) & \$ 500,000 \
\text { Less: } & \
\text { Increase in direct materials }(2,000 \times \$ 75) & (150,000) \
\text { Increase in direct labour }(2,000 \times \$ 40) & (80,000) \
\text { Increase in var. overhead }(2,000 \times \$ 90 \times 0.40) & (72,000) \
\text { Increase in var. selling }(2,000 \times \$ 30 \times 0.60) & (36,000) \
\text { Increase in var. adm. }(2,000 \times \$ 15 \times 0.20) & (6,000)\\text { Increase in profits }&\$156,000
\end{array}$ C. $75 + $40 + ($90 × 0.40) + ($30 × 0.60) + ($15 × 0.20) + ($15,000/2,000)
= $179.50 per unit
D. What is the impact on regular customers?
Will regular customers demand a similar price?
Do we have the capacity to produce the extra units?
Will we lose some regular customers?
Will we be penetrating new markets?

Question 3

Only costs and benefits associated with feasible alternatives are relevant in decision making.

Accepted Answer

A) True 
 B)False  True

Question 4

Winston Custom Cabinetry makes cabinets to order and prices the completed jobs at product cost plus 40%. Recently, the company finished a job and billed the customer $560. Suppose direct materials for the job cost $130 and direct labour cost $180. What was the applied overhead for the job?

Accepted Answer

A)  $90 
B)  $179 
C)  $250 
D)  $350 
A)  $90 
B)  $179 
C)  $250 
D)  $350

Question 5

A choice between internal and external production is a make-or-buy decision.

Accepted Answer

A) True 
 B)False

Question 6

Depreciation of equipment is an example of which of the following types of costs?

Accepted Answer

A)  a sunk cost 
B)  a variable cost 
C)  a relevant cost 
D)  an opportunity cost 
A)  a sunk cost 
B)  a variable cost 
C)  a relevant cost 
D)  an opportunity cost

Question 7

Future costs that differ across alternatives are irrelevant.

Accepted Answer

A) True 
 B)False

Question 8

Match each of the following terms with their correct description from the items listed below.* Each term may be used more than once, and it is possible that one or more of the classifications may not be used at all.
-Determines whether or not a segment should be kept or dropped

Accepted Answer

A) Differential cost 
B) Keep-or-drop decision 
C) Constraints 
D) Decision-making model 
E) Split-off point
F)Joint products
G)Make-or-buy decision
H)Target costing
I)Sunk costs
J)Markup
K)Special-order decision
L)Sell-or-process-further decision
M)Relevant costs
N)Opportunity cost
O)Cost-based pricing 
A) Differential cost 
B) Keep-or-drop decision 
C) Constraints 
D) Decision-making model 
E) Split-off point
F)Joint products
G)Make-or-buy decision
H)Target costing
I)Sunk costs
J)Markup
K)Special-order decision
L)Sell-or-process-further decision
M)Relevant costs
N)Opportunity cost
O)Cost-based pricing

Question 9

Match each of the following terms with their correct description from the items listed below.* Each term may be used more than once, and it is possible that one or more of the classifications may not be used at all.
-Determines whether it is more profitable to process a joint product further

Accepted Answer

A) Differential cost 
B) Keep-or-drop decision 
C) Constraints 
D) Decision-making model 
E) Split-off point
F)Joint products
G)Make-or-buy decision
H)Target costing
I)Sunk costs
J)Markup
K)Special-order decision
L)Sell-or-process-further decision
M)Relevant costs
N)Opportunity cost
O)Cost-based pricing 
A) Differential cost 
B) Keep-or-drop decision 
C) Constraints 
D) Decision-making model 
E) Split-off point
F)Joint products
G)Make-or-buy decision
H)Target costing
I)Sunk costs
J)Markup
K)Special-order decision
L)Sell-or-process-further decision
M)Relevant costs
N)Opportunity cost
O)Cost-based pricing

Question 10

Target costing can be used most effectively in the design and development stage of the product life cycle.

Accepted Answer

A) True 
 B)False

Question 11

The benefit sacrificed when one alternative is chosen over another is called opportunity cost.

Accepted Answer

A) True 
 B)False

Question 12

Refer to Victor's Detailing. Assume the company uses target costing. The company requires a 40% profit on each job. What should the company do?

Accepted Answer

A)  find a way to reduce costs 
B)  ask customers to pay more 
C)  reduce the required percentage to stay in business 
D)  sell services at the price customers are willing to pay 
A)  find a way to reduce costs 
B)  ask customers to pay more 
C)  reduce the required percentage to stay in business 
D)  sell services at the price customers are willing to pay

Question 13

Joseph Giovine owns a successful hole-in-the-wall bagel shop called Peach Tree Bagels. Joseph wants to expand the shop by leasing the space next door for $1,000 per month and adding tables and chairs so that customers can dine in. He figures that the tables and chairs will cost $5,000 and that the bagel machine, which cost $4,500 five years ago, will have to be scrapped in favour of a larger machine costing $7,400. He thinks sales will increase by $5,500 per month. Variable costs are 55% of sales.
Required:
A. What are the relevant costs and benefits of expanding into the new space?
B. What are the irrelevant costs and benefits of expanding into the new space?

Accepted Answer

A. The relevant costs and benefits inclu

Question 14

Which of the following is NOT a step in the decision-making model?

Accepted Answer

A)  Identify alternatives. 
B)  Consider qualitative factors. 
C)  Total the relevant costs and benefits for each alternative. 
D)  Determine costs and benefits for both feasible and unfeasible alternatives. 
A)  Identify alternatives. 
B)  Consider qualitative factors. 
C)  Total the relevant costs and benefits for each alternative. 
D)  Determine costs and benefits for both feasible and unfeasible alternatives.

Question 15

Match each of the following terms with their correct description from the items listed below.* Each term may be used more than once, and it is possible that one or more of the classifications may not be used at all.
-The benefit given up when one alternative is chosen over another

Accepted Answer

A) Differential cost 
B) Keep-or-drop decision 
C) Constraints 
D) Decision-making model 
E) Split-off point
F)Joint products
G)Make-or-buy decision
H)Target costing
I)Sunk costs
J)Markup
K)Special-order decision
L)Sell-or-process-further decision
M)Relevant costs
N)Opportunity cost
O)Cost-based pricing 
A) Differential cost 
B) Keep-or-drop decision 
C) Constraints 
D) Decision-making model 
E) Split-off point
F)Joint products
G)Make-or-buy decision
H)Target costing
I)Sunk costs
J)Markup
K)Special-order decision
L)Sell-or-process-further decision
M)Relevant costs
N)Opportunity cost
O)Cost-based pricing

Question 16

Typically in a special-order decision, a customer wants to pay less than the usual price.

Accepted Answer

A) True 
 B)False

Question 17

Match each of the following terms with their correct description from the items listed below.* Each term may be used more than once, and it is possible that one or more of the classifications may not be used at all.
-Past costs that cannot be affected by future decisions

Accepted Answer

A) Differential cost 
B) Keep-or-drop decision 
C) Constraints 
D) Decision-making model 
E) Split-off point
F)Joint products
G)Make-or-buy decision
H)Target costing
I)Sunk costs
J)Markup
K)Special-order decision
L)Sell-or-process-further decision
M)Relevant costs
N)Opportunity cost
O)Cost-based pricing 
A) Differential cost 
B) Keep-or-drop decision 
C) Constraints 
D) Decision-making model 
E) Split-off point
F)Joint products
G)Make-or-buy decision
H)Target costing
I)Sunk costs
J)Markup
K)Special-order decision
L)Sell-or-process-further decision
M)Relevant costs
N)Opportunity cost
O)Cost-based pricing

Question 18

When determining the target price of a good, the company must first determine the target cost and the desired profit.

Accepted Answer

A) True 
 B)False

Question 19

Match each of the following terms with their correct description from the items listed below.* Each term may be used more than once, and it is possible that one or more of the classifications may not be used at all.
-Determines whether or not a segment should be kept or dropped

Accepted Answer

A) Differential cost 
B) Keep-or-drop decision 
C) Constraints 
D) Decision-making model 
E) Split-off point
F)Joint products
G)Make-or-buy decision
H)Target costing
I)Sunk costs
J)Markup
K)Special-order decision
L)Sell-or-process-further decision
M)Relevant costs
N)Opportunity cost
O)Cost-based pricing 
A) Differential cost 
B) Keep-or-drop decision 
C) Constraints 
D) Decision-making model 
E) Split-off point
F)Joint products
G)Make-or-buy decision
H)Target costing
I)Sunk costs
J)Markup
K)Special-order decision
L)Sell-or-process-further decision
M)Relevant costs
N)Opportunity cost
O)Cost-based pricing

Question 20

Elco Oil Products manufactures three joint products: Phase 1, Phase 2, and Phase 3. The cost of the joint process is $30,000. Information about the three products follows: $$\begin{array} { l r r r } 
& \text { Phase } 1 & \text { Phase } 2 & \text { Phase } 3 \
\text { Anticipated production } & 5,600 \mathrm{~kg} & 10,000 \mathrm{~kg} & 2,500 \mathrm{~kg} \
\text { Selling price/kg at split-off } & \$ 2.00 & \$ 1.00 & \$ 3.00 \
\text { Additional processing costs/kg after split-off } & & & \
\quad \text { (all variable) } & \$ 1.50 & \$ 1.25 & \$ .75 \
\text { Selling price/kg after further processing } & \$ 2.50 & \$ 3.75 & \$ 6.25 \
\text { Allocated joint costs } & \$ 12,000 & \$ 10,500 & \$ 7,500
\end{array}$$ Required:
A. Determine whether each product should be sold at split-off or processed further.
B. Determine the firm's income if the firm processes all three products beyond split-off.

Accepted Answer

@#IMG-DLM& The joint costs are not relev

In keep-or-drop decisions, both the segment's contribution margin and its segment margin are useful in evaluating the performance of the segment.

Only costs and benefits associated with feasible alternatives are relevant in decision making.

Winston Custom Cabinetry makes cabinets to order and prices the completed jobs at product cost plus 40%. Recently, the company finished a job and billed the customer $560. Suppose direct materials for the job cost $130 and direct labour cost $180. What was the applied overhead for the job?

A choice between internal and external production is a make-or-buy decision.

Depreciation of equipment is an example of which of the following types of costs?

Future costs that differ across alternatives are irrelevant.

Match each of the following terms with their correct description from the items listed below.* Each term may be used more than once, and it is possible that one or more of the classifications may not be used at all. -Determines whether or not a segment should be kept or dropped

Match each of the following terms with their correct description from the items listed below.* Each term may be used more than once, and it is possible that one or more of the classifications may not be used at all. -Determines whether it is more profitable to process a joint product further

Target costing can be used most effectively in the design and development stage of the product life cycle.

The benefit sacrificed when one alternative is chosen over another is called opportunity cost.

Refer to Victor's Detailing. Assume the company uses target costing. The company requires a 40% profit on each job. What should the company do?

Which of the following is NOT a step in the decision-making model?

Match each of the following terms with their correct description from the items listed below.* Each term may be used more than once, and it is possible that one or more of the classifications may not be used at all. -The benefit given up when one alternative is chosen over another

Typically in a special-order decision, a customer wants to pay less than the usual price.

Match each of the following terms with their correct description from the items listed below.* Each term may be used more than once, and it is possible that one or more of the classifications may not be used at all. -Past costs that cannot be affected by future decisions

When determining the target price of a good, the company must first determine the target cost and the desired profit.

Match each of the following terms with their correct description from the items listed below.* Each term may be used more than once, and it is possible that one or more of the classifications may not be used at all. -Determines whether or not a segment should be kept or dropped

Introduction to Managerial Accounting

Basic Managerial Accounting Concepts

Cost Behaviour

Cost-Volume-Profit Analysis: a Managerial Planning Tool

Job-Order Costing

Process Costing

Activity-Based Costing and Management

Absorption and Variable Costing, and Inventory Management

Budgeting, Production, Cash, and Master Budget

Standard Costing: a Managerial Control Tool

Flexible Budgets and Overhead Analysis

Performance Evaluation and Decentralization

Capital Investment Decisions

Filters

Exam 13: Short-Run Decision Making: Relevant Costing

In keep-or-drop decisions, both the segment's contribution margin and its segment margin are useful in evaluating the performance of the segment.

Only costs and benefits associated with feasible alternatives are relevant in decision making.

Winston Custom Cabinetry makes cabinets to order and prices the completed jobs at product cost plus 40%. Recently, the company finished a job and billed the customer $560. Suppose direct materials for the job cost $130 and direct labour cost $180. What was the applied overhead for the job?

A choice between internal and external production is a make-or-buy decision.

Depreciation of equipment is an example of which of the following types of costs?

Future costs that differ across alternatives are irrelevant.

Match each of the following terms with their correct description from the items listed below.* Each term may be used more than once, and it is possible that one or more of the classifications may not be used at all. -Determines whether or not a segment should be kept or dropped

Match each of the following terms with their correct description from the items listed below.* Each term may be used more than once, and it is possible that one or more of the classifications may not be used at all. -Determines whether it is more profitable to process a joint product further

Target costing can be used most effectively in the design and development stage of the product life cycle.

The benefit sacrificed when one alternative is chosen over another is called opportunity cost.

Refer to Victor's Detailing. Assume the company uses target costing. The company requires a 40% profit on each job. What should the company do?

Which of the following is NOT a step in the decision-making model?

Match each of the following terms with their correct description from the items listed below.* Each term may be used more than once, and it is possible that one or more of the classifications may not be used at all. -The benefit given up when one alternative is chosen over another

Typically in a special-order decision, a customer wants to pay less than the usual price.

Match each of the following terms with their correct description from the items listed below.* Each term may be used more than once, and it is possible that one or more of the classifications may not be used at all. -Past costs that cannot be affected by future decisions

When determining the target price of a good, the company must first determine the target cost and the desired profit.

Match each of the following terms with their correct description from the items listed below.* Each term may be used more than once, and it is possible that one or more of the classifications may not be used at all. -Determines whether or not a segment should be kept or dropped

Introduction to Managerial Accounting

Basic Managerial Accounting Concepts

Cost Behaviour

Cost-Volume-Profit Analysis: a Managerial Planning Tool

Job-Order Costing

Process Costing

Activity-Based Costing and Management

Absorption and Variable Costing, and Inventory Management

Budgeting, Production, Cash, and Master Budget

Standard Costing: a Managerial Control Tool

Flexible Budgets and Overhead Analysis

Performance Evaluation and Decentralization

Capital Investment Decisions

Filters