Question 1

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

Accepted Answer

A) fixed costs that will still be incurred 
B) prepaid rent expense for warehousing finished goods and inventories 
C) potential rental income from space occupied by the production area 
D) unchanged supervisory costs 
A) fixed costs that will still be incurred 
B) prepaid rent expense for warehousing finished goods and inventories 
C) potential rental income from space occupied by the production area 
D) unchanged supervisory costs

Question 2

A sunk cost is a relevant cost in a decision making.

Accepted Answer

A) True 
 B)False

Question 3

Qualitative factors,as well as relevant revenues and relevant costs need to be considered when selecting among alternatives.

Accepted Answer

A) True 
 B)False

Question 4

Kitchens Sales Inc.is approached by Mr.Louis Cifer,a new customer,to fulfill a large one-time-only special order for a product similar to one offered to regular customers.The following per unit data apply for sales to regular customers:
 
Kitchens Sales Inc.has excess capacity.Mr.Cifer wants the cabinets in cherry rather than oak,so direct material costs will increase by $70 per unit.The average marketing cost of Kitchens Sales product is $173 per order.For Kitchens,what is the full cost of the one-time-only special order?

Accepted Answer

A) $1,034 
B) $1,174 
C) $1,104 
D) $1,347 
A) $1,034 
B) $1,174 
C) $1,104 
D) $1,347

Question 5

Planet Design Services,Inc. ,is considering replacing a machine.The following data are available:
 
For the decision to keep the old machine,the relevant costs of keeping the old machine is ________.

Accepted Answer

A) $492,000 
B) $642,000 
C) $804,000 
D) $107,000 
A) $492,000 
B) $642,000 
C) $804,000 
D) $107,000

Question 6

State Road Fabricators Inc.is considering eliminating Model A02777 because of losses over the past quarter.The past three months of information for Model A02777 are summarized below:
 
Overhead costs are 75% variable and the remaining 25% is depreciation of special equipment for model A02777 that has no resale value.
If Model A02777 is dropped from the product line,operating income will ________.

Accepted Answer

A) increase by $80,000 
B) decrease by $117,500 
C) increase by $37,500 
D) decrease by $80,000 
A) increase by $80,000 
B) decrease by $117,500 
C) increase by $37,500 
D) decrease by $80,000

Question 7

If management takes a multiple-year view in the decision model and judges success according to the current year's results,a problem will occur in the ________.

Accepted Answer

A) decision model 
B) performance evaluation model 
C) production evaluation model 
D) quantitative model 
A) decision model 
B) performance evaluation model 
C) production evaluation model 
D) quantitative model

Question 8

The management accountant for Giada's Book Store has prepared the following income statement for the most current year:
 
If the travel book line had been discontinued,corporate profits for the current year would have decreased by ________.

Accepted Answer

A) $97,000 
B) $72,000 
C) $68,000 
D) $58,000 
A) $97,000 
B) $72,000 
C) $68,000 
D) $58,000

Question 9

Sunk costs are ________.

Accepted Answer

A) costs incurred as a result of an investment position 
B) costs that is the sum of all costs in a particular business function of the value chain 
C) the contributions to operating income that is forgone by not using a limited resource in its next-best alternative use 
D) costs that are unavoidable and cannot be changed no matter what action is taken 
A) costs incurred as a result of an investment position 
B) costs that is the sum of all costs in a particular business function of the value chain 
C) the contributions to operating income that is forgone by not using a limited resource in its next-best alternative use 
D) costs that are unavoidable and cannot be changed no matter what action is taken

Question 10

Explain why sunk costs are not considered relevant when choosing among alternatives with example.

Accepted Answer

Amounts that remain the same among alter

Question 11

Based on the theory of constraints,investments equal ________.

Accepted Answer

A) the sum of material costs in direct and indirect materials,work-in-process,and finished goods inventories;R&D costs;and business function costs 
B) the sum of material costs in direct materials,work-in-process,and finished goods inventories;R&D costs;and capital costs of equipment and buildings 
C) the sum of material costs in direct and indirect materials,work-in-process,and finished goods inventories;R&D costs;and full costs 
D) the sum of material costs in direct materials,work-in-process,and finished goods inventories;R&D costs;sunk costs,full costs,and business function costs 
A) the sum of material costs in direct and indirect materials,work-in-process,and finished goods inventories;R&D costs;and business function costs 
B) the sum of material costs in direct materials,work-in-process,and finished goods inventories;R&D costs;and capital costs of equipment and buildings 
C) the sum of material costs in direct and indirect materials,work-in-process,and finished goods inventories;R&D costs;and full costs 
D) the sum of material costs in direct materials,work-in-process,and finished goods inventories;R&D costs;sunk costs,full costs,and business function costs

Question 12

What role does a trade-in allowance on old equipment play in a decision to retain or replace equipment?

Accepted Answer

A) It is relevant since it increases the cost of the new equipment. 
B) It is irrelevant since it reduces the cost of the old equipment. 
C) It is irrelevant to the decision since it does not impact the cost of the new equipment. 
D) It is relevant since it reduces the cost of the new equipment. 
A) It is relevant since it increases the cost of the new equipment. 
B) It is irrelevant since it reduces the cost of the old equipment. 
C) It is irrelevant to the decision since it does not impact the cost of the new equipment. 
D) It is relevant since it reduces the cost of the new equipment.

Question 13

Biden Company sells two items,product A and product B.The company is considering dropping product B.It is expected that sales of product A will increase by 40% as a result.Dropping product B will allow the company to cancel its monthly equipment rental costing $200 per month.The other existing equipment will be used for additional production of product A.One employee earning $500 per month can be terminated if product B production is dropped.Biden's other fixed costs are allocated and will continue regardless of the decision made.A condensed,budgeted monthly income statement with both products follows:
   
Required:
Prepare an incremental analysis to determine the financial effect of dropping product B.

Accepted Answer

Incremental change in revenue:

Question 14

The theory of constraints is more useful for the long-run management of costs since it takes a long-run
perspective and focuses on improving processes by eliminating non-value-added activities and reducing the costs of performing value-added activities.

Accepted Answer

A) True 
 B)False

Question 15

Kinnane's Fine Furniture manufactures two models,Standard and Premium.Weekly demand is estimated to be 100 units of the Standard Model and 70 units of the Premium Model.The following per unit data apply:
 
If there are 720 machine-hours available per week,how many rockers of each model should Kinnane produce to maximize profits?

Accepted Answer

A) 100 units of Standard and 48 units of Premium 
B) 71 units of Standard and 70 units of Premium 
C) 100 units of Standard and 70 units of Premium 
D) 82 units of Standard and 62 units of Premium 
A) 100 units of Standard and 48 units of Premium 
B) 71 units of Standard and 70 units of Premium 
C) 100 units of Standard and 70 units of Premium 
D) 82 units of Standard and 62 units of Premium

Question 16

John's 8-year-old Chevrolet Trail Blazer requires repairs estimated at $10,000 to make it road worthy again.His wife,Sherry,suggested that he should buy a 5-year-old used Jeep Grand Cherokee instead for $10,000 cash.Sherry estimated the following costs for the two cars:
 
The cost NOT relevant for this decision is the ________.

Accepted Answer

A) acquisition cost of the Trail Blazer 
B) acquisition cost of the Grand Cherokee 
C) repairs to the Trail Blazer 
D) annual operating costs of the Grand Cherokee 
A) acquisition cost of the Trail Blazer 
B) acquisition cost of the Grand Cherokee 
C) repairs to the Trail Blazer 
D) annual operating costs of the Grand Cherokee

Question 17

When deciding to accept a one-time-only special order from a wholesaler,management should ________.

Accepted Answer

A) consider the sunk costs and opportunity costs 
B) not consider the special order's impact on future prices of their products 
C) determine whether excess capacity is available 
D) verify past design costs for the product 
A) consider the sunk costs and opportunity costs 
B) not consider the special order's impact on future prices of their products 
C) determine whether excess capacity is available 
D) verify past design costs for the product

Question 18

Planet Design Services,Inc. ,is considering replacing a machine.The following data are available:
 
Which of the data provided in the table is a sunk cost?

Accepted Answer

A) the annual cash operating costs of the old machine 
B) the annual cash operating costs of the replacement machine 
C) the disposal value of the old machine 
D) the original cost of the old machine 
A) the annual cash operating costs of the old machine 
B) the annual cash operating costs of the replacement machine 
C) the disposal value of the old machine 
D) the original cost of the old machine

Question 19

Genent's Preserves currently makes jams and jellies and a variety of decorative jars used for packaging.An outside supplier has offered to supply all of the needed decorative jars.For this make-or-buy decision,a cost analysis revealed the following avoidable unit costs for the decorative jars:
 
The relevant cost per jar is ________.

Accepted Answer

A) $0.67 per jar 
B) $0.91 per jar 
C) $1.74 per jar 
D) $2.30 per jar 
A) $0.67 per jar 
B) $0.91 per jar 
C) $1.74 per jar 
D) $2.30 per jar

Question 20

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

Accepted Answer

A) True 
 B)False

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

A sunk cost is a relevant cost in a decision making.

Qualitative factors,as well as relevant revenues and relevant costs need to be considered when selecting among alternatives.

Planet Design Services,Inc. ,is considering replacing a machine.The following data are available: For the decision to keep the old machine,the relevant costs of keeping the old machine is ________.

If management takes a multiple-year view in the decision model and judges success according to the current year's results,a problem will occur in the ________.

The management accountant for Giada's Book Store has prepared the following income statement for the most current year: If the travel book line had been discontinued,corporate profits for the current year would have decreased by ________.

Sunk costs are ________.

Explain why sunk costs are not considered relevant when choosing among alternatives with example.

Based on the theory of constraints,investments equal ________.

What role does a trade-in allowance on old equipment play in a decision to retain or replace equipment?

The theory of constraints is more useful for the long-run management of costs since it takes a long-run perspective and focuses on improving processes by eliminating non-value-added activities and reducing the costs of performing value-added activities.

When deciding to accept a one-time-only special order from a wholesaler,management should ________.

Planet Design Services,Inc. ,is considering replacing a machine.The following data are available: Which of the data provided in the table is a sunk cost?

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

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

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

A sunk cost is a relevant cost in a decision making.

Qualitative factors,as well as relevant revenues and relevant costs need to be considered when selecting among alternatives.

Planet Design Services,Inc. ,is considering replacing a machine.The following data are available: For the decision to keep the old machine,the relevant costs of keeping the old machine is ________.

If management takes a multiple-year view in the decision model and judges success according to the current year's results,a problem will occur in the ________.

The management accountant for Giada's Book Store has prepared the following income statement for the most current year: If the travel book line had been discontinued,corporate profits for the current year would have decreased by ________.

Sunk costs are ________.

Explain why sunk costs are not considered relevant when choosing among alternatives with example.

Based on the theory of constraints,investments equal ________.

What role does a trade-in allowance on old equipment play in a decision to retain or replace equipment?

The theory of constraints is more useful for the long-run management of costs since it takes a long-run perspective and focuses on improving processes by eliminating non-value-added activities and reducing the costs of performing value-added activities.

When deciding to accept a one-time-only special order from a wholesaler,management should ________.

Planet Design Services,Inc. ,is considering replacing a machine.The following data are available: Which of the data provided in the table is a sunk cost?

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

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