Deck 26: Standard Costs and Balanced Scorecard

Question 1

If a company has excess capacity and present markets will not be affected, it would be profitable to accept an order at a special unit price even though the price is less than the unit variable cost to manufacture the item.

Answer 1

False

Question 2

An important step in management's decision-making process is to determine and evaluate possible courses of action.

Answer 2

True

Question 3

Decision-making involves choosing among alternative courses of action.

Answer 3

True

Question 4

In a decision to retain or replace old equipment, the salvage value of the old equipment is relevant in incremental analysis.

Question 5

A special one-time order should never be accepted if the unit sales price is less than the unit variable cost.

Question 6

If an incremental make or buy analysis indicates that it is cheaper to buy rather than make an item, management should always make the decision to choose the lowest cost alternative.

Question 7

Financial data are developed for a course of action under an incremental basis and then it is compared to data developed under a differential basis before a decision is made.

Question 8

The elimination of an unprofitable product line may adversely affect the remaining product lines.

Question 9

Accountants are mainly involved in developing nonfinancial information for management's consideration in choosing among alternatives.

Question 10

An opportunity cost is the potential benefit obtained by using resources in an alternative course of action.

Question 11

A decision whether to continue to make a product or buy it externally, depends on the external price and the amount of variable and fixed costs that can be eliminated assuming no alternative uses of resources.

Question 12

It is better not to replace old equipment if it is not fully depreciated.

Question 13

In making decisions, management ordinarily considers both financial and nonfinancial information.

Question 14

In incremental analysis, total variable costs will always change under alternative courses of action, and total fixed costs will always remain constant.

Question 15

From a quantitative standpoint, a segment should be eliminated if its contribution margin is less than the fixed costs that can be eliminated.

Question 16

In a sell or process further decision, management should process further as long as the incremental revenues from additional processing exceed the incremental variable costs.

Question 17

When a company has limited resources to manufacture products, it should manufacture those products which have the highest contribution margin per unit of limited resource.

Question 18

A company should never accept an order for its product at less than its regular sales price.

Question 19

In a decision concerning replacing old equipment with new equipment, the book value of the old equipment can be considered a sunk cost.

Question 20

It is always better to sell now rather than process further because of the time value of money.

Question 21

Which of the following stages of the management decision-making process is improperly sequenced?

A) Evaluate possible courses of action $\rightarrow$ Make decision.
B) Assign responsibility for the decision $\rightarrow$ Identify the problem.
C) Identify the problem $\rightarrow$ Determine possible courses of action.
D) Assign responsibility for decision $\rightarrow$ Determine possible courses of action.

Question 22

Internal reports that review the actual impact of decisions are prepared by

A) department heads.
B) the controller.
C) management accountants.
D) factory workers.

Question 23

A major accounting contribution to the managerial decision-making process in evaluating possible courses of action is to

A) assign responsibility for the decision.
B) provide relevant revenue and cost data about each course of action.
C) determine the amount of money that should be spent on a project.
D) decide which actions that management should consider.

Question 24

Capital budgeting decisions usually involve large investments and can have a significant impact on a company's future profitability.

Question 25

If a company has only a certain number of machine hours available for production, it is generally more profitable to produce and sell the product with the highest unit contribution margin.

Question 26

The cash payback capital budgeting technique is a quick way to calculate a project's net present value.

Question 27

The net present value method can only be used in capital budgeting if the expected cash flows from a project are an equal amount each year.

Question 28

The cash payback method is frequently used as a screening tool but it does not take into consideration the profitability of a project.

Question 29

If a company is operating at full capacity, the incremental costs of a special order will likely include fixed manufacturing costs.

Question 30

The discounted cash flow technique considers estimated total cash inflows from the investment but not the time value of money.

Question 31

The interest rate yielded by a project is a rate that will cause the present value of the proposed capital expenditure to equal the present value of the expected annual cash inflows.

Question 32

The basic decision rule in a sell or process further decision is: sell without further processing as long as the incremental revenue from processing exceeds the incremental processing costs.

Question 33

The process used to identify the financial data that change under alternative courses of action is called allocation of limited resources.

Question 34

Accounting contributes to management's decision-making process through internal reports that review the actual impact of the decision.

Question 35

A hurdle rate is the rate of return set by applying ideal standards.

Question 36

In deciding on the future status of an unprofitable segment, management should recognize that net income could decrease by eliminating the unprofitable segment.

Question 37

The annual rate of return technique requires dividing a project's annual cash inflows by the economic life of the project.

Question 38

The annual rate of return is computed by dividing expected annual net income by average investment.

Question 39

A major advantage of the annual rate of return technique is that it considers the time value of money.

Question 40

Using the net present value method, a net present value of zero indicates that the project would be acceptable.

Question 41

The process of evaluating financial data that change under alternative courses of action is called

A) double entry analysis.
B) contribution margin analysis.
C) incremental analysis.
D) cost-benefit analysis.

Question 42

In incremental analysis,

A) costs are not relevant if they change between alternatives.
B) all costs are relevant if they change between alternatives.
C) only fixed costs are relevant.
D) only variable costs are relevant.

Question 43

Which of the following is not a true statement?

A) Incremental analysis might also be referred to as differential analysis.
B) Incremental analysis is the same as CVP analysis.
C) Incremental analysis is useful in making decisions.
D) Incremental analysis focuses on decisions that involve a choice among alternative courses of action.

Question 44

In incremental analysis,

A) only costs are analyzed.
B) only revenues are analyzed.
C) both costs and revenues may be analyzed.
D) both costs and revenues that stay the same between alternate courses of action will be analyzed.

Question 45

Baden Company manufactures a product with a unit variable cost of $50 and a unit sales price of $88. Fixed manufacturing costs were $240,000 when 10,000 units were produced and sold. The company has a one-time opportunity to sell an additional 1,000 units at $70 each in a foreign market which would not affect its present sales. If the company has sufficient capacity to produce the additional units, acceptance of the special order would affect net income as follows:

A) Income would decrease by $4,000.
B) Income would increase by $4,000.
C) Income would increase by $70,000.
D) Income would increase by $20,000.

Question 46

Incremental analysis is synonymous with

A) difficult analysis.
B) differential analysis.
C) gross profit analysis.
D) derivative analysis.

Question 47

If a company anticipates that other sales will be affected by the acceptance of a special order, then

A) lost sales should be considered in the incremental analysis.
B) lost sales should not be considered in the incremental analysis.
C) the order should not be accepted.
D) the order will only be accepted if the plant is below capacity.

Question 48

Which of the following steps in the management decision-making process does not generally involve the managerial accountant?

A) Determine possible courses of action
B) Make the appropriate decision based on relevant data
C) Prepare internal reports that review the impact of decisions
D) None of these

Question 49

If a company must expand capacity to accept a special order, it is likely that there will be

A) an increase in unit variable costs.
B) no increase in fixed costs.
C) an increase in variable and fixed costs per unit.
D) an increase in fixed costs.

Question 50

If a plant is operating at full capacity and receives a one-time opportunity to accept an order at a special price below its usual price, then

A) only variable costs are relevant.
B) fixed costs are not relevant.
C) the order will likely be accepted.
D) the order will likely be rejected.

Question 51

It costs Garner Company $12 of variable and $5 of fixed costs to produce one bathroom scale which normally sells for $35. A foreign wholesaler offers to purchase 2,000 scales at $15 each. Garner would incur special shipping costs of $1 per scale if the order were accepted. Garner has sufficient unused capacity to produce the 2,000 scales. If the special order is accepted, what will be the effect on net income?

A) $4,000 increase
B) $4,000 decrease
C) $6,000 decrease
D) $30,000 increase

Question 52

A company is considering the following alternatives: Which of the following are relevant in choosing between the alternatives?

A) Variable costs
B) Revenues
C) Fixed costs
D) Variable costs and fixed costs

Question 53

The source of data to serve as inputs in incremental analysis is generated by

A) market analysts.
B) engineers.
C) accountants.
D) all of these.

Question 54

Incremental analysis is most useful

A) in developing relevant information for management decisions.
B) in choosing between the net present value method and the internal rate of return method.
C) in evaluating the master budget.
D) as a replacement technique for variance analysis.

Question 55

Miley, Inc. has excess capacity. Under what situations should the company accept a special order for less than the current selling price?

A) Never
B) When additional fixed costs must be incurred to accommodate the order
C) When the company thinks it can use the cheaper materials without the customer's knowledge
D) When incremental revenues exceed incremental costs

Question 56

Which of the following is a true statement about cost behaviors in incremental analysis?
1) Fixed costs will not change between alternatives.
2) Fixed costs may change between alternatives.
3) Variable costs will always change between alternatives.

A) 1
B) 2
C) 3
D) 2 and 3

Question 57

Which of the following is true if a company can accept a special order without affecting its regular sales and is within plant capacity?

A) Net income will not be affected.
B) Net income will increase if the special sales price per unit exceeds the unit variable costs.
C) Net income will decrease.
D) Additional fixed costs will probably be incurred.

Question 58

Nonfinancial information that management might evaluate in making a decision would not include

A) employee turnover.
B) contribution margin.
C) the environment.
D) the corporate profile in the community.

Question 59

Incremental analysis would be appropriate for

A) acceptance of an order at a special price.
B) a retain or replace equipment decision.
C) a sell or process further decision.
D) all of these.

Question 60

Incremental analysis would not be appropriate for

A) a make or buy decision.
B) an allocation of limited resource decision.
C) elimination of an unprofitable segment.
D) analysis of manufacturing variances.

Question 61

Opportunity cost must be considered in decisions involving

A) budgeting.
B) financial accounting.
C) CVP analysis.
D) resources that have alternative uses.

Question 62

Fornelli, Inc. can produce 100 units of a component part with the following costs: If Fornelli, Inc. can purchase the units externally for $80,000, by what amount will its total costs change?

A) An increase of $80,000
B) An increase of $5,000
C) An increase of $17,000
D) A decrease of $22,000

Question 63

Opportunity cost is usually

A) a standard cost.
B) a potential benefit.
C) a sunk cost.
D) included as part of cost of goods sold.

Question 64

Which decision will involve no incremental revenues?

A) Make or buy decision
B) Drop a product line
C) Accept a special order
D) Additional processing decision

Question 65

Ruth Company produces 1,000 units of a necessary component with the following costs: None of Ruth Company's fixed overhead costs can be reduced, but another product could be made that would increase profit contribution by $8,000 if the components were acquired externally. If cost minimization is the major consideration and the company would prefer to buy the components, what is the maximum external price that Ruth Company would be willing to accept to acquire the 1,000 units externally?

A) $43,000
B) $55,000
C) $48,000
D) $52,000

Question 66

Tex's Manufacturing Company can make 100 units of a necessary component part with the following costs: If Tex's Manufacturing Company can purchase the component externally for $110,000 and only $5,000 of the fixed costs can be avoided, what is the correct make-or-buy decision?

A) Make and save $5,000
B) Buy and save $5,000
C) Make and save $15,000
D) Buy and save $15,000

Question 67

The opportunity cost of an alternate course of action that is relevant to a make-or-buy decision is

A) subtracted from the "Make" costs.
B) added to the "Make" costs.
C) added to the "Buy" costs.
D) none of these.

Question 68

NF Toy Company is unsure of whether to sell its product assembled or unassembled. The unit cost of the unassembled product is $30 and NF Toy would sell it for $65. The cost to assemble the product is estimated at $21 per unit and the company believes the market would support a price of $85 on the assembled unit. What decision should NF Toy make?

A) Sell before assembly, the company will be better off by $1 per unit.
B) Sell before assembly, the company will be better off by $20 per unit.
C) Process further, the company will be better off by $29 per unit.
D) Process further, the company will be better off by $14 per unit.

Question 69

An opportunity cost

A) should be initially recorded as an asset.
B) is the cost of a new product proposal.
C) is the potential benefit that may be obtained by following an alternative course of action.
D) is classified as manufacturing overhead.

Question 70

Ruth Company produces 1,000 units of a necessary component with the following costs: Ruth Company could avoid $3,000 in fixed overhead costs if it acquires the components externally. If cost minimization is the major consideration and the company would prefer to buy the components, what is the maximum external price that Ruth Company would accept to acquire the 1,000 units externally?

A) $51,000
B) $47,000
C) $48,000
D) $44,000

Question 71

Crigui Music produces 60,000 CDs on which to record music. The CDs have the following costs: Crigui could avoid $4,000 in fixed overhead costs if it acquires the CDs externally. If cost minimization is the major consideration and the company would prefer to buy the 60,000 units externally, what is the maximum external price that Crigui would expect to pay for the units?

A) $32,000
B) $29,000
C) $36,000
D) $33,000

Question 72

Fornelli, Inc. can produce 100 units of a component part with the following costs: If Fornelli, Inc. can purchase the component part externally for $88,000 and only $8,000 of the fixed costs can be avoided, what is the correct make-or-buy decision?

A) Make and save $1,000
B) Buy and save $1,000
C) Make and save $5,000
D) Buy and save $13,000

Question 73

Martin Company incurred the following costs for 50,000 units: Martin has received a special order from a foreign company for 5,000 units. There is sufficient capacity to fill the order without jeopardizing regular sales. Filling the order will require spending an additional $8,500 for shipping.
If Martin wants to earn $8,000 on the order, what should the unit price be?

A) $3.30
B) $11.70
C) $5.20
D) $6.90

Question 74

Tasty Bites produces corn chips. The cost of one batch is below: An outside supplier has offered to produce the corn chips for $25 per batch. How much will Tasty Bites save if it accepts the offer?

A) $2.00 per batch
B) $17.00 per batch
C) $31.00 per batch
D) $6.00 per batch

Question 75

Each of the following is a disadvantage of buying rather than making a component of a company's product except that

A) quality control specifications may not be met.
B) the outside supplier could increase prices significantly in the future.
C) profitable product lines may be dropped.
D) the supplier may not deliver on time.

Question 76

Martin Company incurred the following costs for 50,000 units:
Variable costs $180,000
Fixed costs 240,000
Martin has received a special order from a foreign company for 5,000 units. There is sufficient capacity to fill the order without jeopardizing regular sales. Filling the order will require spending an additional $8,500 for shipping.
If Martin wants to break even on the order, what should the unit sales price be?

A) $10.10
B) $5.30
C) $3.60
D) $8.40

Question 77

Bell's Shop can make 1,000 units of a necessary component with the following costs:
Direct Materials $72,000
Direct Labor 18,000
Variable Overhead 9,000
Fixed Overhead ?
The company can purchase the 1,000 units externally for $117,000. The avoidable fixed costs are $6,000 if the units are purchased externally. An analysis shows that at this external price, the company is indifferent between making or buying the part. What are the fixed overhead costs of making the component?

A) $24,000
B) $18,000
C) $12,000
D) Cannot be determined.

Question 78

Moreland Clean Company spent $4,000 to produce Product 89, which can be sold as is for $5,000, or processed further incurring additional costs of $1,500 and then be sold for $7,000. Which amounts are relevant to the decision about Product 89?

A) $4,000, $5,000, and $7,000
B) $4,000, $1,500, and $7,000
C) $5,000, $1,500, and $7,000
D) $4,000, $5,000, $1,500 and $7,000

Question 79

Crigui Music produces 60,000 CDs on which to record music. The CDs have the following costs: None of Crigui's fixed overhead costs can be reduced, but another product could be made that would increase profit contribution by $4,000 if the CDs were acquired externally. If cost minimization is the major consideration and the company would prefer to buy the CDs, what is the maximum external price that Crigui would be willing to accept to acquire the 60,000 units externally?

A) $36,000
B) $32,000
C) $33,000
D) $40,000

Question 80

Tex's Manufacturing Company can make 100 units of a necessary component part with the following costs: If Tex's Manufacturing Company purchases the component externally, $15,000 of the fixed costs can be avoided. At what external price for the 100 units is the company indifferent between making or buying?

A) $120,000
B) $85,000
C) $115,000
D) $100,000