Question 1

In making a decision,management will look thoroughly at both relevant and irrelevant data.

Accepted Answer

A) True 
 B)False

Question 2

Opportunity costs are irrelevant in decision-making.

Accepted Answer

A) True 
 B)False

Question 3

Scrap or rework decision
Nielson has 5,000 defective televisions on hand,which cost $380,000 to manufacture.Nielson can either sell these defective televisions as scrap for $65 per unit,or spend an additional $120,000 on repairs and then sell the televisions for $135 per unit.
Should Nielson repair the defective TVs to sell them as scrap?
Show your supporting computations:

Accepted Answer

Decision-R

Question 4

[The following information applies to the questions displayed below.]
John Boyd Corporation manufactures and sells 1,000 tractors each month.The primary component in each tractor is the motor.John Boyd has the monthly capacity to produce 1,300 motors.The variable costs associated with manufacturing each motor are shown below:
   Fixed manufacturing overhead per month (for up to 1,300 units of production)averages $27,000.Joan Reid,Inc.has offered to purchase 200 motors from John Boyd per month to be used in its own outboard motors.
-What is the incremental cost of producing each additional motor?

Accepted Answer

A) $29 per unit 
B) $69 per unit 
C) $95 per unit 
D) Some other amount 
A) $29 per unit 
B) $69 per unit 
C) $95 per unit 
D) Some other amount

Question 5

The cost of draining sap out of a maple tree to manufacture maple syrup and maple sugar is an example of:

Accepted Answer

A) After-split-off costs. 
B) Sunk costs. 
C) Incremental costs. 
D) Joint costs. 
A) After-split-off costs. 
B) Sunk costs. 
C) Incremental costs. 
D) Joint costs.

Question 6

[The following information applies to the questions displayed below.]
Creative Star Corporation produces three lines of desks from wood: Classic,Royal,and Standard.Cost and revenue data pertaining to each product are shown below:
   Classic desks require five square yards of wood,Royal requires ten square yards,and Standard requires three square yards.High demand for each product line far exceeds the company's production capacity.
-If Creative Star Corporation has an unlimited supply of wood available,which products should it produce?

Accepted Answer

A) Royal only. 
B) Classic and Royal. 
C) Royal and Standard. 
D) Classic only. 
A) Royal only. 
B) Classic and Royal. 
C) Royal and Standard. 
D) Classic only.

Question 7

Seidman Company manufactures and sells 30,000 units of product X per month.Each unit of product X sells for $16 and has a contribution margin of $7.If product X is discontinued,$85,000 in fixed monthly overhead costs would be eliminated and there would be no effect on the sales volume of Seidman Company's other products.If product X is discontinued,Seidman Company's monthly income before taxes should:

Accepted Answer

A) Increase by $210,000. 
B) Increase by $125,000. 
C) Decrease by $210,000. 
D) Decrease by $125,000. 
A) Increase by $210,000. 
B) Increase by $125,000. 
C) Decrease by $210,000. 
D) Decrease by $125,000.

Question 8

Using an incremental analysis approach,Burns should consider accepting this special order only if the price per unit offered by Allen is at least:

Accepted Answer

A) $20. 
B) $50. 
C) $80. 
D) $40. 
A) $20. 
B) $50. 
C) $80. 
D) $40.

Question 9

An opportunity cost is a relevant cost when making a business decision.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is not relevant to management's decision regarding refinishing the tables or selling them as is?

Accepted Answer

A) The additional $300,000 revenue that can be generated if the tables are refinished. 
B) The $355,000 manufacturing cost of the tables already incurred. 
C) The additional $315,000 cost to refinish the tables. 
D) The effect of selling "seconds" on Fancy's reputation as a fine-furniture manufacturer. 
A) The additional $300,000 revenue that can be generated if the tables are refinished. 
B) The $355,000 manufacturing cost of the tables already incurred. 
C) The additional $315,000 cost to refinish the tables. 
D) The effect of selling "seconds" on Fancy's reputation as a fine-furniture manufacturer.

Question 11

[The following information applies to the questions displayed below.]
Creative Star Corporation produces three lines of desks from wood: Classic,Royal,and Standard.Cost and revenue data pertaining to each product are shown below:
   Classic desks require five square yards of wood,Royal requires ten square yards,and Standard requires three square yards.High demand for each product line far exceeds the company's production capacity.
-If Creative Star Corporation has only 250,000 square yards of wood available,what is the highest total amount of fixed cost the company can incur and still break-even?

Accepted Answer

A) $2,500,000 
B) $4,000,000 
C) $5,000,000 
D) $6,000,000 
A) $2,500,000 
B) $4,000,000 
C) $5,000,000 
D) $6,000,000

Question 12

The term "out-of-pocket cost" is often used to describe costs which have not yet been incurred and which may vary among alternative courses of action.

Accepted Answer

A) True 
 B)False

Question 13

The most common method to allocate joint costs is in proportion to the relative sales value of the products.

Accepted Answer

A) True 
 B)False

Question 14

In deciding whether or not to accept a special order,what is the opportunity cost of using machinery for which the firm has sufficient excess capacity to accept the order?

Accepted Answer

A) The historical cost of the machinery 
B) The undepreciated cost of the machinery 
C) The same machinery cost allocated to regular production orders 
D) Zero 
A) The historical cost of the machinery 
B) The undepreciated cost of the machinery 
C) The same machinery cost allocated to regular production orders 
D) Zero

Question 15

Sunk costs may be defined as unavoidable future costs resulting from past decisions.

Accepted Answer

A) True 
 B)False

Question 16

Costs that have not yet been incurred and that may vary among different courses of action are called:

Accepted Answer

A) Opportunity costs. 
B) Out-of-pocket costs. 
C) Joint costs. 
D) Sunk costs. 
A) Opportunity costs. 
B) Out-of-pocket costs. 
C) Joint costs. 
D) Sunk costs.

Question 17

Accounting terminology
Listed below are eight technical accounting terms introduced or emphasized in this chapter:   Each of the following statements may (or may not)describe one of these technical terms.In the space provided beside each statement,indicate the accounting term described,or answer "None" if the statement does not correctly describe any of the terms.
________ (a)Data pertaining to future time periods that may vary among alternative courses of action.
________ (b)The point at which manufacturing costs are split between finished goods inventory and work in progress.
________ (c)The benefit foregone by pursuing one course of action over another.
________ (d)Products that emerge from common materials and shared production processes.
________ (e)A cost incurred in the past that will not change as a result of future actions.
________ (f)Costs yet to be incurred which are expected to vary under different courses of action.
________ (g)The examination of differences between future costs and revenue under varying courses of action.

Accepted Answer

(a)Relevant information (b)Non

Question 18

Assuming John Boyd wants to earn a pretax profit of $10,000 on this special order,what price must it charge Joan Reid?

Accepted Answer

A) $69 per unit 
B) $83 per unit 
C) $95 per unit 
D) $119 per unit 
A) $69 per unit 
B) $83 per unit 
C) $95 per unit 
D) $119 per unit

Question 19

Which of the following would be an example of a sunk cost?

Accepted Answer

A) The cost of a new oil burner that replaced a destroyed one 
B) The cost of an old inefficient oil burner that will be replaced by a more modern and efficient one 
C) Depreciation expense 
D) Lost revenue from a bad debt 
A) The cost of a new oil burner that replaced a destroyed one 
B) The cost of an old inefficient oil burner that will be replaced by a more modern and efficient one 
C) Depreciation expense 
D) Lost revenue from a bad debt

Question 20

Sunk costs are relevant to decisions about replacing plant assets.

Accepted Answer

A) True 
 B)False

Exam 21: Incremental Analysis

In making a decision,management will look thoroughly at both relevant and irrelevant data.

Opportunity costs are irrelevant in decision-making.

The cost of draining sap out of a maple tree to manufacture maple syrup and maple sugar is an example of:

Using an incremental analysis approach,Burns should consider accepting this special order only if the price per unit offered by Allen is at least:

An opportunity cost is a relevant cost when making a business decision.

Which of the following is not relevant to management's decision regarding refinishing the tables or selling them as is?

The term "out-of-pocket cost" is often used to describe costs which have not yet been incurred and which may vary among alternative courses of action.

The most common method to allocate joint costs is in proportion to the relative sales value of the products.

In deciding whether or not to accept a special order,what is the opportunity cost of using machinery for which the firm has sufficient excess capacity to accept the order?

Sunk costs may be defined as unavoidable future costs resulting from past decisions.

Costs that have not yet been incurred and that may vary among different courses of action are called:

Assuming John Boyd wants to earn a pretax profit of $10,000 on this special order,what price must it charge Joan Reid?

Which of the following would be an example of a sunk cost?

Sunk costs are relevant to decisions about replacing plant assets.

Accounting: Information for Decision Making

Basic Financial Statements

The Accounting Cycle: Capturing Economic Events

The Accounting Cycle: Accruals and Deferrals

The Accounting Cycle: Reporting Financial Results

Merchandising Activities

Financial Assets

Inventories and the Cost of Goods Sold

Plant and Intangible Assets

Liabilities

Stockholders Equity: Paid-In Capital

Income and Changes in Retained Earnings

Statement of Cash Flows

Financial Statement Analysis

Global Business and Accounting

Management Accounting

Job Order Cost Systems and Overhead Allocations

Process Costing

Costing and the Value Chain

Cost-Volume-Profit Analysis

Responsibility Accounting and Transfer Pricing

Operational Budgeting

Standard Cost Systems

Rewarding Business Performance

Capital Budgeting

the Time Value of Money: Future Amounts and Present Values

Forms of Business Organization

Filters