Deck 10: Relevant Information for Decision Making

Question 1

Segment margin measures a segment's contribution to the coverage of indirect expenses.

Answer 1

True

Question 2

In an outsourcing decision, variable costs of production are relevant.

Answer 2

True

Question 3

The Robinson-Patman Act prohibits companies from pricing products at different levels when there are no significant differences in production costs.

Answer 3

True

Question 4

The outsourcing decision is also referred to as a "make-or-buy" decision.

Question 5

In setting compensation structures, fixed salary expense is normally not considered.

Question 6

Depreciation on factory equipment is normally a relevant cost in product line decisions.

Question 7

Minimization of contribution margin is a common objective function in linear programming.

Question 8

When making a decision to discontinue an operating segment, avoidable fixed costs are not considered.

Question 9

When making a decision to discontinue an operating segment, allocated common costs are not considered.

Question 10

In an outsourcing decision, unavoidable fixed costs are irrelevant.

Question 11

In an outsourcing decision, avoidable fixed costs are irrelevant.

Question 12

When multiple products are produced and sold, a change in the sales price of one product may cause a change in the sales mix of the firm.

Question 13

In an outsourcing decision, rent received from an outside party for facility use is a relevant cash inflow.

Question 14

In a special order decision, the sales price should be sufficient to cover a job's variable costs, incremental fixed costs, and generate a profit.

Question 15

Information that is related to past events is relevant in the decision-making process.

Question 16

A company may outsource some of its production in order to focus on core competencies.

Question 17

In a special order decision, unavoidable current fixed costs are taken into consideration in setting a sales price.

Question 18

Information that has a bearing on future events is relevant in the decision-making process.

Question 19

In evaluating alternative courses of action, a manager should select the alternative that provides the highest incremental benefit to the company.

Question 20

Minimization of variable costs is a common objective function in linear programming.

Question 21

The amount of revenue that differs across decision choices is referred to as ______________________________.

Question 22

In linear programming, a limiting factor that hampers management's pursuit of an objective is referred to as a ____________________.

Question 23

In linear programming, a surplus variable represents overachievement of minimum requirements.

Question 24

In linear programming, a surplus variable represents the unused portion of a resource.

Question 25

In linear programming, a ______________________________ represents the unused amount of a resource at any level of operation.

Question 26

Costs incurred in the past to acquire an asset are referred to as _________________________.

Question 27

The excess of revenues over direct variable expenses and avoidable fixed expenses is referred to as ______________________________.

Question 28

Maximization of contribution margin is a common objective function in linear programming.

Question 29

In linear programming, a slack variable is associated with constraints.

Question 30

The benefits foregone when one course of action is chosen over another are referred to as ______________________________.

Question 31

Costs forgone when an individual or organization chooses one option over another are

A) budgeted costs.
B) sunk costs.
C) historical costs.
D) opportunity costs.

Question 32

The relative product quantities composing a company's total sales is referred to as a company's _________________________.

Question 33

The amount of cost that differs across decision choices is referred to as _________________________.

Question 34

When a company has work performed by an external supplier, it is engaging in ____________________.

Question 35

In linear programming, a ______________________________ represents the overachievement of a minimum requirement.

Question 36

Maximization of variable costs is a common objective function in linear programming.

Question 37

In linear programming, the equation that specifies management's objective is referred to as a(n) ___________________________________.

Question 38

In linear programming, a slack variable represents the unused portion of a resource.

Question 39

In linear programming, a surplus variable is associated with constraints.

Question 40

In linear programming, resource constraints are usually expressed as inequalities.

Question 41

Most ____ are relevant to decisions to acquire capacity, but not to short-run decisions involving the use of that capacity.

A) sunk costs
B) incremental costs
C) fixed costs
D) prime costs

Question 42

Which of the following is the least likely to be a relevant item in deciding whether to replace an old machine?

A) acquisition cost of the old machine
B) outlay to be made for the new machine
C) annual savings to be enjoyed on the new machine
D) life of the new machine

Question 43

A cost is sunk if it

A) is not an incremental cost.
B) is unavoidable.
C) has already been incurred.
D) is irrelevant to the decision at hand.

Question 44

The term incremental cost refers to

A) the profit foregone by selecting one choice instead of another.
B) the additional cost of producing or selling another product or service.
C) a cost that continues to be incurred in the absence of activity.
D) a cost common to all choices in question and not clearly or feasibly allocable to any of them.

Question 45

The potential rental value of space used for production activities

A) is a variable cost of production.
B) represents an opportunity cost of production.
C) is an unavoidable cost.
D) is a sunk cost of production.

Question 46

Which of the following costs would be relevant in short-term decision making?

A) incremental fixed costs
B) all costs of inventory
C) total variable costs that are the same in the considered alternatives
D) the cost of a fixed asset that could be used in all the considered alternatives

Question 47

A fixed cost is relevant if it is

A) uncontrollable.
B) avoidable.
C) sunk.
D) a product cost.

Question 48

Which of the following qualitative factors favors the buy choice in a make or buy decision for a part?

A) maintaining a long-term relationship with suppliers
B) quality control is critical
C) utilization of idle capacity
D) part is critical to product

Question 49

In deciding whether an organization will keep an old machine or purchase a new machine, a manager would ignore the

A) estimated disposal value of the old machine.
B) acquisition cost of the old machine.
C) operating costs of the new machine.
D) estimated disposal value of the new machine.

Question 50

If a cost is irrelevant to a decision, the cost could not be

A) a sunk cost.
B) a future cost.
C) a variable cost.
D) an incremental cost.

Question 51

Which of the following are relevant in a make or buy decision?

A) yes yes yes
B) yes no yes
C) yes no no
D) no no yes

Question 52

The opportunity cost of making a component part in a factory with excess capacity for which there is no alternative use is

A) the total manufacturing cost of the component.
B) the total variable cost of the component.
C) the fixed manufacturing cost of the component.
D) zero.

Question 53

In a make or buy decision, the reliability of a potential supplier is

A) an irrelevant decision factor.
B) relevant information if it can be quantified.
C) an opportunity cost of continued production.
D) a qualitative decision factor.

Question 54

Which of the following is not a characteristic of relevant costing information? It is

A) associated with the decision under consideration.
B) significant to the decision maker.
C) readily quantifiable.
D) related to a future endeavor.

Question 55

Which of the following are relevant in a make or buy decision?

A) no yes yes
B) yes no yes
C) no no yes
D) yes yes no

Question 56

Which of the following costs would not be accounted for in a company's recordkeeping system?

A) an unexpired cost
B) an expired cost
C) a product cost
D) an opportunity cost

Question 57

In a make or buy decision, the opportunity cost of capacity could

A) be considered to decrease the price of units purchased from suppliers.
B) be considered to decrease the cost of units manufactured by the company.
C) be considered to increase the price of units purchased from suppliers.
D) not be considered since opportunity costs are not part of the accounting records.

Question 58

Irrelevant costs generally include

A) yes yes no
B) yes no no
C) no no yes
D) yes yes yes

Question 59

Relevant costs are

A) all fixed and variable costs.
B) all costs that would be incurred within the relevant range of production.
C) past costs that are expected to be different in the future.
D) anticipated future costs that will differ among various alternatives.

Question 60

When a scarce resource, such as space, exists in an organization, the criterion that should be used to determine production is

A) contribution margin per unit.
B) selling price per unit.
C) contribution margin per unit of scarce resource.
D) total variable costs of production.

Question 61

An ad hoc sales discount is

A) an allowance for an inferior quality of marketed goods.
B) a discount that an ad hoc committee must decide on.
C) brought about by competitive pressures.
D) none of the above.

Question 62

An increase in direct fixed costs could reduce all of the following except

A) product line contribution margin.
B) product line segment margin.
C) product line operating income.
D) corporate net income.

Question 63

Thomas Company has only 25,000 hours of machine time each month to manufacture its two products. Product X has a contribution margin of $50, and Product Y has a contribution margin of $64. Product X requires 5 hours of machine time, and Product Y requires 8 hours of machine time. If Thomas Company wants to dedicate 80 percent of its machine time to the product that will provide the most income, the company will have a total contribution margin of

A) $250,000.
B) $240,000.
C) $210,000.
D) $200,000.

Question 64

Fixed costs are ignored in allocating scarce resources because

A) they are sunk.
B) they are unaffected by the allocation of scarce resources.
C) there are no fixed costs associated with scarce resources.
D) fixed costs only apply to long-run decisions.

Question 65

For a particular product in high demand, a company decreases the sales price and increases the sales commission. These changes will not increase

A) sales volume.
B) total selling expenses for the product.
C) the product contribution margin.
D) the total variable cost per unit.

Question 66

Swanson Company has 3 divisions: X, Y, and Z. Division X's income statement shows the following for the year ended December 31: Cost of goods sold is 75 percent variable and 25 percent fixed. Of the fixed costs, 60 percent are avoidable if the division is closed. All of the selling expenses relate to the division and would be eliminated if Division X were eliminated. Of the administrative expenses, 90 percent are applied from corporate costs. If Division X were eliminated, Swanson's income would

A) increase by $150,000.
B) decrease by $ 75,000.
C) decrease by $155,000.
D) decrease by $215,000.

Question 67

When a company discontinues a segment, total corporate costs may decrease in all of the following categories except

A) variable production costs.
B) allocated common costs.
C) direct fixed costs.
D) variable period costs.

Question 68

Calvert Company has 3 divisions: A, B, and C. Division A's income statement shows the following for the year ended December 31: Cost of goods sold is 80 percent variable and 20 percent fixed. Of the fixed costs, 50 percent are avoidable if the division is closed. All of the selling expenses relate to the division and would be eliminated if Division A were eliminated. Of the administrative expenses, 85 percent are applied from corporate costs. If Division A were eliminated, Calvert's income would

A) increase by $100,000.
B) decrease by $197,500.
C) decrease by $310,000.
D) decrease by $422,500.

Question 69

The minimum selling price that should be acceptable in a special order situation is equal to total

A) production cost.
B) variable production cost.
C) variable costs.
D) production cost plus a normal profit margin.

Question 70

In evaluating the profitability of a specific organizational segment, all ____ would be ignored.

A) segment variable costs
B) segment fixed costs
C) costs allocated to the segment
D) period costs

Question 71

Contracting with vendors outside the organization to obtain or acquire goods and/or services is called

A) target costing.
B) insourcing.
C) outsourcing.
D) product harvesting.

Question 72

Credell Company uses 12,000 units of a part in its production process. The costs to make a part are: direct material, $15; direct labor, $27; variable overhead, $15; and applied fixed overhead, $32. Anderson has received a quote of $60 from a potential supplier for this part. If Credell buys the part, 75 percent of the applied fixed overhead would continue. Credell Company would be better off by

A) $30,000 to manufacture the part.
B) $348,000 to buy the part.
C) $60,000 to buy the part.
D) $216,000 to manufacture the part.

Question 73

Anderson Company uses 10,000 units of a part in its production process. The costs to make a part are: direct material, $12; direct labor, $25; variable overhead, $13; and applied fixed overhead, $30. Anderson has received a quote of $55 from a potential supplier for this part. If Anderson buys the part, 70 percent of the applied fixed overhead would continue. Anderson Company would be better off by

A) $50,000 to manufacture the part.
B) $150,000 to buy the part.
C) $40,000 to buy the part.
D) $160,000 to manufacture the part.

Question 74

A manager is attempting to determine whether a segment of the business should be eliminated. The focus of attention for this decision should be on

A) the net income shown on the segment's income statement.
B) sales minus total expenses of the segment.
C) sales minus total direct expenses of the segment.
D) sales minus total variable expenses and avoidable fixed expenses of the segment.

Question 75

The ____ prohibits companies from pricing products at different amounts unless these differences reflect differences in the cost to manufacture, sell, or distribute the products.

A) Internal Revenue Service
B) Governmental Accounting Office
C) Sherman Antitrust Act
D) Robinson-Patman Act

Question 76

Which of the following costs is irrelevant in making a decision about a special order price if some of the company facilities are currently idle?

A) direct labor
B) equipment depreciation
C) variable cost of utilities
D) opportunity cost of production

Question 77

Henke Company has only 30,000 hours of machine time each month to manufacture its two products. Product X has a contribution margin of $60, and Product Y has a contribution margin of $72. Product X requires 6 hours of machine time, and Product Y requires 10 hours of machine time. If Thomas Company wants to dedicate 85 percent of its machine time to the product that will provide the most income, the company will have a total contribution margin of

A) $216,000
B) $228,600.
C) $287,400
D) $300,000

Question 78

Which of the following activities within an organization would be least likely to be outsourced?

A) accounting
B) data processing
C) transportation
D) product design

Question 79

Haskins Company is currently operating at a loss of $15,000. The sales manager has received a special order for 5,000 units of product, which normally sells for $35 per unit. Costs associated with the product are: direct material, $6; direct labor, $10; variable overhead, $3; applied fixed overhead, $4; and variable selling expenses, $2. The special order would allow the use of a slightly lower grade of direct material, thereby lowering the price per unit by $1.50 and selling expenses would be decreased by $1. If Haskins wants this special order to increase the total net income for the firm to $10,000, what sales price must be quoted for each of the 5,000 units?

A) $23.50
B) $24.50
C) $27.50
D) $34.00

Question 80

An outside firm selected to provide services to an organization is called a

A) contract vendor.
B) lessee.
C) network organization.
D) centralized insourcer.