Question 1

If a company has excess capacity,the most it would pay for buying a product that it currently makes would be the ________.

Accepted Answer

A) total variable cost of producing the product 
B) full cost of producing the product 
C) total cost of producing the product 
D) business function cost of the product 
A) total variable cost of producing the product 
B) full cost of producing the product 
C) total cost of producing the product 
D) business function cost of the product

Question 2

Why is the depreciation of an old equipment irrelevant to decision making?

Accepted Answer

Depreciation cost is irrelevant in decis

Question 3

When there is a constraining resource,a firm should attempt to maximize sales of the product or service with the greatest contribution margin per unit.

Accepted Answer

A) True 
 B)False

Question 4

Swan Manufacturing is approached by a customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers.The following per unit data apply for sales to regular customers:
   
Swan Manufacturing has excess capacity.
Required:
a.What is the full cost of the product per unit if the marketing costs is $3,000?
b.What is the contribution margin per unit?
c.Which costs are relevant for making the decision regarding this one-time-only special order? Why?
d.For Swan Manufacturing,what is the minimum acceptable price of this one-time-only special order?
e.For this one-time-only special order,should Parker and Spitzer Manufacturing consider a price of $5,400 per unit? Why or why not?

Accepted Answer

a.Full cost of the product = $10,025
b.C

Question 5

A company has three products possible products that it can produce in a machine intensive production process.Capacity is constrained by the number of hours the machines can run during a period and the products are so popular that all units produced will be sold.Here is additional information:
 
Which of the following would be an accurate conclusion based on these facts?

Accepted Answer

A) A balanced mix of 1/3 A,1/3 B,and 1/3 C should be the goal when maximizing operating income in the short-run. 
B) Since Product C has the greatest contribution margin per unit and therefore emphasizing its production and sales will lead to the highest operating income in the short-run 
C) Since A takes less time to produce,maximization of operating income will occur by emphasizing production and sales of A. 
D) Product B should be emphasized if the goal is to maximize contribution margin. 
A) A balanced mix of 1/3 A,1/3 B,and 1/3 C should be the goal when maximizing operating income in the short-run. 
B) Since Product C has the greatest contribution margin per unit and therefore emphasizing its production and sales will lead to the highest operating income in the short-run 
C) Since A takes less time to produce,maximization of operating income will occur by emphasizing production and sales of A. 
D) Product B should be emphasized if the goal is to maximize contribution margin.

Question 6

Which of the following is an example of sunk costs?

Accepted Answer

A) wages to security staffs 
B) cost of purchasing raw materials 
C) cost of an alternative investment 
D) wages payable to skilled laborers to make a product 
A) wages to security staffs 
B) cost of purchasing raw materials 
C) cost of an alternative investment 
D) wages payable to skilled laborers to make a product

Question 7

Bid prices and costs that are relevant for regular orders are the same costs that are relevant for one-time-only special orders.

Accepted Answer

A) True 
 B)False

Question 8

Performance evaluation focuses on responsibility centers for a specific period,not on projects or individual items of equipment over their useful lives.

Accepted Answer

A) True 
 B)False

Question 9

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

Question 10

Crandle Manufacturers Inc.is approached by a potential customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers.The company has excess capacity.The following per unit data apply for sales to regular customers:
 
For Crandle Manufacturers Inc. ,what is the minimum acceptable price of this special order?

Accepted Answer

A) $400 
B) $320 
C) $480 
D) $640 
A) $400 
B) $320 
C) $480 
D) $640

Question 11

Capacity constraints include ________.

Accepted Answer

A) increased demand of warranty services for a pharmaceutical product 
B) increased need of display space for a retailer 
C) decreased demand for a pharmaceutical product 
D) increased fuel efficiency of cars 
A) increased demand of warranty services for a pharmaceutical product 
B) increased need of display space for a retailer 
C) decreased demand for a pharmaceutical product 
D) increased fuel efficiency of cars

Question 12

Dantley's Furniture manufactures rustic furniture.The cost accounting system estimates manufacturing costs to be $240 per table,consisting of 75% variable costs and 25% fixed costs.The company has surplus capacity available.It is Back Forrest's policy to add a 45% markup to full costs.A large hotel chain is currently expanding and has decided to decorate all new hotels using the rustic style.Dantley's Furniture Incorporated is invited to submit a bid to the hotel chain.What is the lowest price per unit Dantley's Furniture should bid on this long-term order?

Accepted Answer

A) $168 
B) $180 
C) $240 
D) $348 
A) $168 
B) $180 
C) $240 
D) $348

Question 13

Revenues that remain the same for two alternatives being examined are relevant revenues.

Accepted Answer

A) True 
 B)False

Question 14

A supplier offers to make Part A for $30.Altec Services Corporation has relevant costs of $47 a unit to manufacture 1,020 units of Part A.If there is excess capacity,the opportunity cost of buying Part A from the supplier is ________.

Accepted Answer

A) $0 
B) $47,940 
C) $30,600 
D) $78,540 
A) $0 
B) $47,940 
C) $30,600 
D) $78,540

Question 15

Hartley's Meat Pies is considering replacing its existing delivery van with a new one.The new van can offer considerable savings in operating costs.Information about the existing van and the new van follow:
 
If Hartley's Meat Pies replaces the existing delivery van with the new one,over the next 10 years operating income will ________.

Accepted Answer

A) decrease by $95,000 
B) increase by $75,000 
C) decrease by $75,000 
D) increase by $95,000 
A) decrease by $95,000 
B) increase by $75,000 
C) decrease by $75,000 
D) increase by $95,000

Question 16

A study by a consultant shows that a company that had $2,000,000 of inventory was holding excess inventory of $320,000 that could be eliminated with a few process improvements.It also has $620,000 in marketable securities that yield 5% per year.What is the estimated annual opportunity cost of holding the excess inventory?

Accepted Answer

A) $16,000 
B) $100,000 
C) $31,000 
D) $47,000 
A) $16,000 
B) $100,000 
C) $31,000 
D) $47,000

Question 17

Quantitative factors ________.

Accepted Answer

A) include financial information,but not nonfinancial information 
B) include both financial and nonfinancial information 
C) are always relevant when making decisions 
D) include employee morale 
A) include financial information,but not nonfinancial information 
B) include both financial and nonfinancial information 
C) are always relevant when making decisions 
D) include employee morale

Question 18

An incremental cost is the difference in total irrelevant costs between two alternatives.

Accepted Answer

A) True 
 B)False

Question 19

Planet Furniture,Inc.is currently producing well below its full capacity.The Swansea Company has approached Plant with an offer to buy 5,000 tools at $17.50 each.Planet sells its end table for $18.50 each;the average cost per unit is $18.30,of which $2.70 is fixed costs.If Planet accepts the order,the increase in operating income will be $7,500.

Accepted Answer

A) True 
 B)False

Question 20

In a make-or-buy decision when there are alternative uses for capacity,the opportunity cost of idle capacity is relevant.

Accepted Answer

A) True 
 B)False

If a company has excess capacity,the most it would pay for buying a product that it currently makes would be the ________.

Why is the depreciation of an old equipment irrelevant to decision making?

When there is a constraining resource,a firm should attempt to maximize sales of the product or service with the greatest contribution margin per unit.

Which of the following is an example of sunk costs?

Bid prices and costs that are relevant for regular orders are the same costs that are relevant for one-time-only special orders.

Performance evaluation focuses on responsibility centers for a specific period,not on projects or individual items of equipment over their useful lives.

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

Capacity constraints include ________.

Revenues that remain the same for two alternatives being examined are relevant revenues.

A supplier offers to make Part A for $30.Altec Services Corporation has relevant costs of $47 a unit to manufacture 1,020 units of Part A.If there is excess capacity,the opportunity cost of buying Part A from the supplier is ________.

Quantitative factors ________.

An incremental cost is the difference in total irrelevant costs between two alternatives.

In a make-or-buy decision when there are alternative uses for capacity,the opportunity cost of idle capacity is relevant.

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

If a company has excess capacity,the most it would pay for buying a product that it currently makes would be the ________.

Why is the depreciation of an old equipment irrelevant to decision making?

When there is a constraining resource,a firm should attempt to maximize sales of the product or service with the greatest contribution margin per unit.

Which of the following is an example of sunk costs?

Bid prices and costs that are relevant for regular orders are the same costs that are relevant for one-time-only special orders.

Performance evaluation focuses on responsibility centers for a specific period,not on projects or individual items of equipment over their useful lives.

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

Capacity constraints include ________.

Revenues that remain the same for two alternatives being examined are relevant revenues.

A supplier offers to make Part A for $30.Altec Services Corporation has relevant costs of $47 a unit to manufacture 1,020 units of Part A.If there is excess capacity,the opportunity cost of buying Part A from the supplier is ________.

Quantitative factors ________.

An incremental cost is the difference in total irrelevant costs between two alternatives.

In a make-or-buy decision when there are alternative uses for capacity,the opportunity cost of idle capacity is relevant.

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