Deck 11: Decision Making With a Strategic Emphasis

Question 1

A useful device for solving production problems involving multiple products and limited resources is:

A)Gross profit per unit of product.
B)Contribution per unit of scarce resource.
C)Net profit per unit of product.
D)Relevant cost pricing.
E)The contribution income statement.

Answer 1

B

Question 2

Fixed costs will often be irrelevant because they:

A)Are fixed in amount.
B)Are the same each time period.
C)Typically do not differ between options.
D)Are not committed.

Answer 2

C

Question 3

A cost is not relevant if it:

A)Does not differ for each option available to the decision maker.
B)Changes from period to period.
C)Is a future cost.
D)Is a mixed cost.
E)Is a fixed cost.

Answer 3

A

Question 4

Operating at or near full capacity will require a firm considering a special order to recognize potentially the:

A)Opportunity cost from lost sales.
B)Value of full employment.
C)Time value of money.
D)Need for good management.
E)Value of capacity resource management.

Question 5

Which one of the following is correct for determining relevant costs?

A)Differential.
B)Integrative.
C)Long-term focus.
D)Subjective.
E)Opportunistic.

Question 6

The decision to keep or drop products or services involves strategic consideration of all the following except:

A)Potential impact on remaining products or services.
B)Impact on employee morale.
C)Impact on organizational effectiveness.
D)Growth potential of the firm.
E)The current inventory of the product.

Question 7

Committed,or "sunk" costs are generally:

A)Not fixed.
B)Small in amount.
C)From bad decisions.
D)Occurred in the past.
E)Recoverable in trade.

Question 8

All the following are characteristic of relevant costs except:

A)They are generally variable.
B)They are not committed.
C)They are different in amount for different options.
D)They are in the future.
E)They are inventory costs.

Question 9

An effective analysis of sales mix needs to include an analysis of:

A)Value chain analysis.
B)Production constraints.
C)Sales mix costing.
D)Revenue forecasting.
E)Joint manufacturing costs.

Question 10

A special order is:

A)Typically expected.
B)A profitable opportunity to sell a specified quantity of a firm's product or service.
C)Typically unexpected.
D)A particularly large customer order.
E)A rush order.

Question 11

Special orders:

A)Are frequent.
B)Are infrequent.
C)Commonly represent a large part of a firm's overall business.
D)Can never be profitable to a firm.

Question 12

Which one of the following is most descriptive of strategic analysis?

A)Quantitative.
B)Customer focus.
C)Short-term focus.
D)Individual product focus.
E)Not linked to the firm's strategy.

Question 13

Depreciation is a relevant cost in a decision only in the context of:

A)Time value of money.
B)Amortized values.
C)Reducing tax liability.
D)Sunk cost.
E)Financial accounting.

Question 14

The value chain analysis used in connection with the make or buy decision often leads a firm to make use of:

A)Activity-based costing.
B)Cost-volume profit analysis.
C)Outsourcing activities.
D)Relevant cost-based pricing.
E)Process improvement.

Question 15

Which one of the following issues would least likely be addressed during the regular review of product profitability?

A)Which product managers should be rewarded?
B)Which products are most profitable?
C)Which product are most efficiently produced?
D)Which products should be promoted and advertised most aggressively?
E)Are the products priced properly?

Question 16

When using relevant cost analysis,it is a common mistake for untrained managers to include in their analysis all the following except:

A)Sunk costs.
B)Allocated fixed costs.
C)Average fixed costs.
D)Unit variable costs.

Question 17

One of the behavioral problems with relevant cost analysis is the overemphasis on:

A)Short-term goals.
B)Unit fixed costs.
C)Opportunity costs.
D)Long-term strategic goals.

Question 18

Done on a regular basis,relevant cost pricing in special order decisions can erode normal pricing policies and lead to:

A)Overconfidence in decision-making.
B)A loss in the firm's profitability.
C)Conflicting goals between management and sales personnel.
D)A cost leadership strategy.
E)Maximization of resources.

Question 19

Variable costs will generally be relevant for decision making because they:

A)Differ between options.
B)Are volume-based.
C)Have not been committed and differ between options.
D)Differ between options and have been committed.
E)Measure opportunity cost.

Question 20

The major problem with relevant cost determination is that it fails to recognize the:

A)Impact of variable costs in the long run.
B)Long-term nature of most product-related decisions.
C)"Sunk" nature of most fixed product costs.
D)Short-term nature of most product-related decisions.
E)Need to calculate costs more precisely.

Question 21

To make a special order decision,managers need critical information about all the following except:

A)Relevant costs.
B)Prior period operating costs.
C)Any opportunity costs.
D)The strategic,competitive environment of the firm.

Question 22

The following cost information pertained to the Violin Division of Stringing Music Co.and was based on monthly demand and sales of 100 units:
Assuming that the original cost information pertained to five violins that had been produced in the current period,total relevant cost per unit is:

A)$82.80.
B)$70.80.
C)$66.00.
D)$24.00.
E)$36.00.

Question 23

Which one 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)Costs of fixed assets to be used in the alternatives.

Question 24

In a make or buy decision:

A)Only variable costs are relevant.
B)Fixed costs that can be avoided in the future are relevant.
C)Fixed costs that will continue regardless of the decision are relevant.
D)Only opportunity costs are relevant.

Question 25

Plainfield Company manufactures part G for use in its production cycle.The costs per unit for 10,000 units of part G are as follows:
Verona Company has offered to sell Plainfield 10,000 units of part G for $30 per unit.If Plainfield accepts Verona's offer,the released facilities could be used to save $45,000 in relevant costs in the manufacture of part H.In addition,$5 per unit of the fixed overhead applied to part G would be totally eliminated.What alternative is more desirable and by what amount?

A)A)
B)B)
C)C)
D)D)

Question 26

Management accountants are frequently asked to analyze various decision situations including the following:
(1)Alternative uses of plant space,to be considered in a make/buy decision.
(2)Joint production costs incurred,to be considered in a sell-at-split-off versus a process-further decision.
(3)Research and development costs incurred in prior months,to be considered in a product-introduction decision.
(4)The cost of a special device that is necessary if a special order is accepted.
(5)The cost of obsolete inventory to be considered in a keep-versus-disposal decision.
The costs described in situations 1 and 4 above are:

A)Prime costs.
B)Sunk costs.
C)Discretionary costs.
D)Relevant costs.
E)Differential costs.

Question 27

ZapVideo Inc.produces two basic types of video games,Clash and Slash.Pertinent data follow:
There is insufficient labor capacity in the plant to meet the combined demand for both Clash and Slash.
Both products are produced through the same production departments.In view of the labor shortage,which of the two products is most profitable,and how much is the profit per hour?

A)Slash,$23
B)Clash,$18
C)Slash,$11.5
D)Slash,$11

Question 28

Walman Corp.manufactures products X,Y,and Z from a joint process.Joint costs are allocated on the basis of relative sales value at the split-off point.Additional information is as follows:
Which of the three products should be manufactured beyond the split-off point?

A)X only
B)Y only
C)Z only
D)Y and Z
E)X,Y and Z

Question 29

The Blade Division of Dana Company produces hardened steel blades.Approximately one-third of the Blade Division's output is sold to the Lawn Products Division of Dana;the remainder is sold to outside customers.The Blade Division's estimated sales and cost data for the year ending June 30 are as follows:
The Lawn Products Division has an opportunity to purchase 10,000 identical quality blades from an outside supplier at a cost of $1.25 per unit on a continual basis.Assume that the Blade Division cannot sell any additional products to outside customers.Should Dana allow its Lawn Products Division to purchase the blades from the outside supplier,and why?

A)Yes,because buying the blades would save Dana Company $500.
B)No,because making the blades would save Dana Company $1,500.
C)Yes,because buying the blades would save Dana Company $2,500.
D)No,because making the blades would save Dana Company $2,500.

Question 30

A company owns equipment that is used to manufacture important parts for its production process.Because the equipment is repeatedly breaking down,the company plans to sell the equipment for $10,000 and to select one of the following alternatives: (1)acquire new equipment for $80,000 and continue to manufacture the part at the same variable cost,or (2)purchase the parts from an outside company at $4 per part.In the short run the company should quantitatively analyze the alternatives by comparing the variable cost of manufacturing the parts:

A)Plus $80,000,to the cost of buying the parts.
B)To the cost of buying the parts less $10,000.
C)Less $10,000 to the cost of buying the parts.
D)To the cost of buying the parts.

Question 31

Walman Corp.manufactures products X,Y,and Z from a joint process.Joint costs are allocated on the basis of relative sales value at the split-off point.Additional information is as follows:
Product X's sales value at split-off is:

A)$306,000.
B)$135,000.
C)$340,000.
D)$150,000.
E)$233,000.

Question 32

A boat,costing $108,000 and uninsured,was wrecked the very first day it was used.It can either be disposed of for $11,000 cash and be replaced with a similar boat costing $110,000,or rebuilt for $98,000 and be brand new as far as operating characteristics and looks are concerned.The total relevant cost of replacing the boat is:

A)$97,000.
B)$87,000.
C)$99,000.
D)$110,000.
E)$98,000.

Question 33

Kingston Company,which needs 10,000 units of a certain part to be used in its production cycle,can make or buy the part.If Kingston buys the part from Utica Company,Kingston could not use the released facilities in another manufacturing activity within the coming year.60% of the fixed overhead applied will continue regardless of which decision is made.The following information is available: Cost to Kingston to make the part:
In deciding whether to make or buy the part,Kingston's total relevant costs to make the part are:

A)$342,000.
B)$480,000.
C)$530,000.
D)$570,000.
10,000 x [$6 + 24 + 12 + (0.4x15)] = $480,000

Question 34

The time value of money is:

A)Never relevant.
B)Relevant only to merchandising firms.
C)Relevant when deciding among alternatives with cash flows over one month to a year.
D)Relevant when deciding among alternatives with cash flows over six months to a year.
E)Relevant when deciding among alternatives with cash flows over two or more years.

Question 35

Quirch Inc.manufactures machine parts for aircraft engines.The CEO,Chucky Valters,was considering an offer from a subcontractor who would provide 2,400 units of product PQ107 for Valters for a price of $150,000.If Quirch does not purchase these parts from the subcontractor it must produce them in-house with the following costs:
In addition to the above costs,if Valters produces part PQ107,he would also have a retooling and design cost of $9,800.The relevant costs of producing 2,400 units of product PQ107 are:

A)$149,000.
B)$129,800.
C)$150,000.
D)$164,200.
E)$148,300.

Question 36

Management accountants are frequently asked to analyze various decision situations including the following:
(1)Alternative uses of plant space,to be considered in a make/buy decision.
(2)Joint production costs incurred,to be considered in a sell-at-split-off versus a process-further decision.
(3)Research and development costs incurred in prior months,to be considered in a product-introduction decision.
(4)The cost of a special device that is necessary if a special order is accepted.
(5)The cost of obsolete inventory to be considered in a keep-versus-disposal decision.
The costs described in situations 2,3,and 5 above are:

A)Prime costs.
B)Sunk costs.
C)Discretionary costs.
D)Relevant costs.
E)Differential costs.

Question 37

The following cost information pertained to the Violin Division of Stringing Music Co.and was based on monthly demand and sales of 100 units:
Assume that the Violin Division was evaluating whether or not it would accept a special order for ten violins at $390 per unit.For this purpose,total relevant cost per unit is:

A)$330.
B)$342.
C)$390.
D)$366.
E)$354.

Question 38

For the past 12 years,the Blue Company has produced the small electric motors that fit into its main product line of dental drilling equipment.As material costs have steadily increased,the controller of the Blue Company is reviewing the decision to continue to make the small motors and has identified the following facts:
(1)The equipment used to manufacture the electric motors has a book value of $150,000.
(2)The space now occupied by the electric motor manufacturing department could be used to eliminate the need for storage space now being rented.
(3)Comparable units can be purchased from an outside supplier for $59.75.
(4)Four of those who work in the electric motor manufacturing department would be terminated and given eight weeks' severance pay.
(5)A $10,000 unsecured note is still outstanding on the equipment used in the manufacturing process.Which of the items above are relevant to the decision that the controller has to make?

A)1,3,and 4.
B)2,3,and 4.
C)2,3,4,and 5.
D)1,2,4,and 5.

Question 39

ZapVideo Inc.produces two basic types of video games,Clash and Slash.Pertinent data follow:
There is insufficient labor capacity in the plant to meet the combined demand for both Clash and Slash.
Both products are produced through the same production departments.Unit contribution margin for Clash is:

A)$53.
B)$35.
C)$47.
D)$42.
E)$23.

Question 40

In deciding whether to manufacture a part or buy it from an outside vendor,a cost that is irrelevant to the short-run decision is:

A)Direct labor.
B)Variable overhead.
C)Fixed overhead that will be avoided if the part is bought from an outside vendor.
D)Fixed overhead that will continue even if the part is bought from an outside vendor.

Question 41

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

A)The variable manufacturing cost of the component.
B)The total manufacturing cost of the component.
C)The total variable cost of the component.
D)The fixed manufacturing cost of the component.
E)Zero.

Question 42

The Sand Cruiser is a takeout food store at a popular beachside resort.Teresa Texton,owner of the Sand Cruiser,was deciding how much refrigerator space to devote to four different beverages.Appropriate data on the four beverages follow:
The contribution margin per case for Ginger Ale is:

A)$5.50.
B)$6.40.
C)$5.40.
D)$4.80.
E)$9.90.

Question 43

The Tee Box is a golf shop inside the clubhouse of a North Carolina golf course.Derek Dunlop,owner of the Tee Box,was deciding how much shelf space to devote to four different golf ball types.Derek had a maximum front shelf space of fifteen feet to devote to the four golf ball types.He wanted a minimum of three feet and a maximum of seven feet of front shelf for each golf ball type.Appropriate data on the four ball types follow:
The daily contribution per foot of front shelf space for Durable is calculated to be:

A)$228.00
B)$249.00
C)$227.00
D)$233.00
E)$259.00

Question 44

The Tee Box is a golf shop inside the clubhouse of a North Carolina golf course.Derek Dunlop,owner of the Tee Box,was deciding how much shelf space to devote to four different golf ball types.Derek had a maximum front shelf space of fifteen feet to devote to the four golf ball types.He wanted a minimum of three feet and a maximum of seven feet of front shelf for each golf ball type.Appropriate data on the four ball types follow:
The contribution margin per case for Durable is calculated to be:

A)$7.00
B)$6.00
C)$5.00
D)$4.00
E)$9.00

Question 45

The Sand Cruiser is a takeout food store at a popular beachside resort.Teresa Texton,owner of the Sand Cruiser,was deciding how much refrigerator space to devote to four different beverages.Appropriate data on the four beverages follow:
The daily contribution per foot of front shelf space for Limeaid is:

A)$165.00.
B)$162.00.
C)$154.00.
D)$134.40.
E)$153.90.

Question 46

The Tee Box is a golf shop inside the clubhouse of a North Carolina golf course.Derek Dunlop,owner of the Tee Box,was deciding how much shelf space to devote to four different golf ball types.Derek had a maximum front shelf space of fifteen feet to devote to the four golf ball types.He wanted a minimum of three feet and a maximum of seven feet of front shelf for each golf ball type.Appropriate data on the four ball types follow:
The daily contribution per foot of front shelf space for Straight is calculated to be:

A)$190.00
B)$140.00
C)$120.00
D)$130.00
E)$170.00

Question 47

The Sand Cruiser is a takeout food store at a popular beachside resort.Teresa Texton,owner of the Sand Cruiser,was deciding how much refrigerator space to devote to four different beverages.Appropriate data on the four beverages follow:
The daily contribution per foot of front shelf space for Ginger Ale is:

A)$27.00.
B)$49.50.
C)$27.50.
D)$33.00.
E)$59.40.

Question 48

The Sand Cruiser is a takeout food store at a popular beachside resort.Teresa Texton,owner of the Sand Cruiser,was deciding how much refrigerator space to devote to four different beverages.Appropriate data on the four beverages follow:
The daily contribution per foot of front shelf space for Grape Juice is:

A)$27.00.
B)$49.50.
C)$27.50.
D)$33.00.
E)$59.40.

Question 49

The Sand Cruiser is a takeout food store at a popular beachside resort.Teresa Texton,owner of the Sand Cruiser,was deciding how much refrigerator space to devote to four different beverages.Appropriate data on the four beverages follow:
The contribution margin per case for Lemonaid is:

A)$5.50.
B)$6.40.
C)$5.40.
D)$4.80.
E)$9.90.

Question 50

The Sand Cruiser is a takeout food store at a popular beachside resort.Teresa Texton,owner of the Sand Cruiser,was deciding how much refrigerator space to devote to four different beverages.Appropriate data on the four beverages follow:
Teresa had a maximum front shelf space of fourteen feet to devote to the four beverages.She wanted a minimum of two feet and a maximum of seven feet of front shelf for each beverage.The contribution margin per case for Limeaid is:

A)$5.50.
B)$6.40.
C)$5.40.
D)$4.80.
E)$9.90.

Question 51

The Car Lot is a New York car dealership located in a highly visible area along a prominent highway.Fred Barns,owner of The Car Lot,was deciding how much front-row space along the highway to devote to four different car models.Fred had a maximum front-row space of 200 feet to devote to the four car models.He wanted a minimum of twenty feet and a maximum of eighty feet of front-row space for each car model.Appropriate data on the four car models follow:
The contribution margin per convertible is calculated to be:

A)$5,000.
B)$6,000.
C)$7,000.
D)$4,000.
E)$8,000.

Question 52

The Tee Box is a golf shop inside the clubhouse of a North Carolina golf course.Derek Dunlop,owner of the Tee Box,was deciding how much shelf space to devote to four different golf ball types.Derek had a maximum front shelf space of fifteen feet to devote to the four golf ball types.He wanted a minimum of three feet and a maximum of seven feet of front shelf for each golf ball type.Appropriate data on the four ball types follow:
The contribution margin per case for Spin is calculated to be:

A)$5.10
B)$6.70
C)$5.80
D)$4.40
E)$6.30

Question 53

Lyman Company has the opportunity to increase annual credit sales $100,000 by selling to a new,riskier group of customers.The expenses of collecting credit sales are expected to be 15 percent of credit sales.The company's manufacturing and selling expenses are 70 percent of sales,and its effective tax rate is 40 percent.If Lyman should accept this opportunity,the company's after tax profits would increase by:

A)$9,000.
B)$10,000.
C)$10,200.
D)$14,400.
E)Some amount other than those given above.

Question 54

The Tee Box is a golf shop inside the clubhouse of a North Carolina golf course.Derek Dunlop,owner of the Tee Box,was deciding how much shelf space to devote to four different golf ball types.Derek had a maximum front shelf space of fifteen feet to devote to the four golf ball types.He wanted a minimum of three feet and a maximum of seven feet of front shelf for each golf ball type.Appropriate data on the four ball types follow:
The daily contribution per foot of front shelf space for Spin is calculated to be:

A)$185.80
B)$162.10
C)$174.20
D)$144.30
E)$153.90

Question 55

The Sand Cruiser is a takeout food store at a popular beachside resort.Teresa Texton,owner of the Sand Cruiser,was deciding how much refrigerator space to devote to four different beverages.Appropriate data on the four beverages follow:
The contribution margin per case for Grape Juice is:

A)$5.50.
B)$6.40.
C)$5.40.
D)$4.80.
E)$9.90.

Question 56

The opportunity cost of making a component part in a factory with no excess capacity is the:

A)Variable manufacturing cost of the component.
B)Fixed manufacturing cost of the component.
C)Total manufacturing cost of the component.
D)Cost of the production given up in order to manufacture the component.
E)Net benefit foregone from the best alternative use of the capacity required.

Question 57

The Tee Box is a golf shop inside the clubhouse of a North Carolina golf course.Derek Dunlop,owner of the Tee Box,was deciding how much shelf space to devote to four different golf ball types.Derek had a maximum front shelf space of fifteen feet to devote to the four golf ball types.He wanted a minimum of three feet and a maximum of seven feet of front shelf for each golf ball type.Appropriate data on the four ball types follow:
The daily contribution per foot of front shelf space for Distance is calculated to be:

A)$279.70
B)$268.80
C)$254.30
D)$234.10
E)$253.90

Question 58

The Tee Box is a golf shop inside the clubhouse of a North Carolina golf course.Derek Dunlop,owner of the Tee Box,was deciding how much shelf space to devote to four different golf ball types.Derek had a maximum front shelf space of fifteen feet to devote to the four golf ball types.He wanted a minimum of three feet and a maximum of seven feet of front shelf for each golf ball type.Appropriate data on the four ball types follow:
The contribution margin per case for Distance is calculated to be:

A)$5.90
B)$6.80
C)$5.20
D)$4.80
E)$8.40

Question 59

The Sand Cruiser is a takeout food store at a popular beachside resort.Teresa Texton,owner of the Sand Cruiser,was deciding how much refrigerator space to devote to four different beverages.Appropriate data on the four beverages follow:
The daily contribution per foot of front shelf space for Lemonaid is:

A)$165.00.
B)$162.00.
C)$154.00.
D)$134.40.
E)$153.90.

Question 60

The Tee Box is a golf shop inside the clubhouse of a North Carolina golf course.Derek Dunlop,owner of the Tee Box,was deciding how much shelf space to devote to four different golf ball types.Derek had a maximum front shelf space of fifteen feet to devote to the four golf ball types.He wanted a minimum of three feet and a maximum of seven feet of front shelf for each golf ball type.Appropriate data on the four ball types follow:
The contribution margin per case for Straight is calculated to be:

A)$8.50
B)$4.80
C)$5.10
D)$6.80
E)$9.90

Question 61

A truck,costing $25,000 and uninsured,was wrecked the very first day it was used.It can either be disposed of for $5,000 cash and be replaced with a similar truck costing $27,000,or rebuilt for $20,000 and be brand new as far as operating characteristics and looks are concerned.The net relevant cost of replacing the truck is:

A)$5,000.
B)$20,000.
C)$22,000.
D)$25,000.
E)$27,000.

Question 62

A truck,costing $25,000 and uninsured,was wrecked the very first day it was used.It can either be disposed of for $5,000 cash and be replaced with a similar truck costing $27,000,or rebuilt for $20,000 and be brand new as far as operating characteristics and looks are concerned.The best choice provides a net savings of:

A)$2,000.
B)$5,000.
C)$7,000.
D)$12,000.
$22,000 - $20,000 = $2,000

Question 63

One of the key management functions is to perform a regular review of product profitability.Which question(s)below would not be asked when performing the analysis?

A)Are the products priced properly?
B)Which products are the most profitable?
C)Which products should be advertised more aggressively?
D)Should any product manager be rewarded?
E)What was the product manager paid last year?

Question 64

Triad Children's Center,a non-profit organization,uses relevant cost analysis to determine whether or not new services are desirable.TCC is looking at adding a new educational program for grade school children who are having difficulty with their reading and math skills.The following relevant costs will be incurred if the program is accepted:
TCC estimates that a maximum of 40 children will participate in this program in the first year.If TCC decides to implement this program,funding will be received from the City Chamber of Commerce ($50,000)and a local Private University Endowment Fund ($35,000).In deciding between alternative choices for a given situation,managers usually employ a five-step process.Which of the following is not a step in the decision making process?

A)Evaluate performance.
B)Specify the criteria and identify the alternative actions.
C)Select and implement the best course of action.
D)Perform relevant and strategic cost analysis.
E)Review the audit report.

Question 65

Value streams are useful in decision-making because:

A)They identify all value-added products and services.
B)They help to highlight the improved efficiency in the plant.
C)Special orders can be evaluated within the context of the value stream.
D)Irrelevant costs are identified.
E)Lean thinking produces better decision making.

Question 66

The Car Lot is a New York car dealership located in a highly visible area along a prominent highway.Fred Barns,owner of The Car Lot,was deciding how much front-row space along the highway to devote to four different car models.Fred had a maximum front-row space of 200 feet to devote to the four car models.He wanted a minimum of twenty feet and a maximum of eighty feet of front-row space for each car model.Appropriate data on the four car models follow:
The contribution margin per truck is calculated to be:

A)$5,000.
B)$7,000.
C)$1,000.
D)$4,000.
E)$6,000.

Question 67

Triad Children's Center,a non-profit organization,uses relevant cost analysis to determine whether or not new services are desirable.TCC is looking at adding a new educational program for grade school children who are having difficulty with their reading and math skills.The following relevant costs will be incurred if the program is accepted:
TCC estimates that a maximum of 40 children will participate in this program in the first year.If TCC decides to implement this program,funding will be received from the City Chamber of Commerce ($50,000)and a local Private University Endowment Fund ($35,000).Calculate the expected surplus or deficit from operations given the above information.

A)$28,000 surplus.
B)$10,000 surplus.
C)$17,000 deficit.
D)$18,000 deficit.
Total cost = $39,000 + $28,000 + ($900x40)= $103,000;Total funding = $50,000 + 35,000 = $85,000;Deficit = $103,000 - $85,000 = $18,000

Question 68

Orange Computer Co.is quickly becoming a major player in the personal computer market.The company currently has multiple companies producing products that go into an Orange computer.This practice of having an outside firm provide a function for Orange Computer Co.is called:

A)Outsourcing.
B)Opportunity costing.
C)Profitability maximization.
D)Strategic positioning.

Question 69

The Car Lot is a New York car dealership located in a highly visible area along a prominent highway.Fred Barns,owner of The Car Lot,was deciding how much front-row space along the highway to devote to four different car models.Fred had a maximum front-row space of 200 feet to devote to the four car models.He wanted a minimum of twenty feet and a maximum of eighty feet of front-row space for each car model.Appropriate data on the four car models follow:
The contribution margin per SUV is calculated to be:

A)$2,000.
B)$6,000.
C)$5,000.
D)$4,000.
E)$9,000.

Question 70

You just bought a new car for $125,000.Before you had time to get insurance,the car was wrecked.Weird Wally offers to take it off your hands for $10,000.You can then purchase a similar model for $128,000.A body-shop with an excellent reputation offers to rebuild it for $90,000 and loan you a similar model while the vehicle is being rebuilt.Once rebuilt,the body-shop claims,it will run like a new car and nobody will be able to tell the difference.What would you do from a financial point of view?

A)Rebuild to save $13,000.
B)Rebuild to save $28,000.
C)Rebuild to save $38,000.
D)Sell to Weird Wally and save $7,000.
$128,000-10,000 = $118,000;$118,000 - $90,000 = $28,000 benefit to rebuild

Question 71

The Car Lot is a New York car dealership located in a highly visible area along a prominent highway.Fred Barns,owner of The Car Lot,was deciding how much front-row space along the highway to devote to four different car models.Fred had a maximum front-row space of 200 feet to devote to the four car models.He wanted a minimum of twenty feet and a maximum of eighty feet of front-row space for each car model.Appropriate data on the four car models follow:
The contribution margin per sedan is calculated to be:

A)$18,000.
B)$14,000.
C)$15,000.
D)$16,000.
E)$19,000.

Question 72

The Car Lot is a New York car dealership located in a highly visible area along a prominent highway.Fred Barns,owner of The Car Lot,was deciding how much front-row space along the highway to devote to four different car models.Fred had a maximum front-row space of 200 feet to devote to the four car models.He wanted a minimum of twenty feet and a maximum of eighty feet of front-row space for each car model.Appropriate data on the four car models follow:
The SUV model's monthly contribution per 10 feet of front-row space is calculated to be

A)$225,000.
B)$249,000.
C)$227,000.
D)$233,000.
E)$259,000.

Question 73

Using sales revenue as a basis for commissions is:

A)Not consistent with the goal of improving profitability.
B)Never a profitable idea.
C)The only way to motivate and reward sales staff.
D)Consistent with the goal of improving profitability.

Question 74

The Car Lot is a New York car dealership located in a highly visible area along a prominent highway.Fred Barns,owner of The Car Lot,was deciding how much front-row space along the highway to devote to four different car models.Fred had a maximum front-row space of 200 feet to devote to the four car models.He wanted a minimum of twenty feet and a maximum of eighty feet of front-row space for each car model.Appropriate data on the four car models follow:
The convertible model's monthly contribution per 10 feet of front-row space is calculated to be:

A)$70,000.
B)$60,000.
C)$90,000.
D)$80,000.
E)$30,000.

Question 75

Smith Co. ,maker of high-quality eyewear,incurs fixed costs of $18 and variable costs of $36 in making one unit of its matrix line of sunglasses.Smith Co.'s major supplier has offered to make all 100,000 matrix sunglasses for $44 each.If Smith accepts the offer of the supplier,Smith will save $4 per unit in fixed costs.Based on this information,should Smith Co.make or buy the sunglasses and how much will they save?

A)Smith Co.should buy the sunglasses in order to save $200,000.
B)Smith Co.should buy the sunglasses in order to save $500,000.
C)Smith Co.should make the sunglasses in order to save $400,000.
D)Smith Co.should make the sunglasses in order to save $300,000.
= 100,000 x ($44-36-4)= $400,000

Question 76

Zippy Company has a product which it currently sells in the market for $50 per unit.Zippy has developed a new feature which,if added to the existing product,will allow Zippy to receive a price of $65 per unit.The cost of adding this new feature is $26,000 and Zippy expects to sell 1,600 units over the next year.What is the cost or benefit of Zippy adding the feature to the product?

A)$2,000 benefit.
B)$3,000 cost.
C)$3,500 benefit.
D)$4,000 cost.
E)$2,000 loss.

Question 77

The Robinson Patman Act,administered by the U.S.Federal Trade Commission,addresses pricing that could substantially damage the competition in an industry.This pricing is called:

A)Competitive pricing.
B)Predatory pricing.
C)Cost-benefit pricing.
D)Variable pricing.
E)Incentive pricing.

Question 78

The Car Lot is a New York car dealership located in a highly visible area along a prominent highway.Fred Barns,owner of The Car Lot,was deciding how much front-row space along the highway to devote to four different car models.Fred had a maximum front-row space of 200 feet to devote to the four car models.He wanted a minimum of twenty feet and a maximum of eighty feet of front-row space for each car model.Appropriate data on the four car models follow:
The truck model's monthly contribution per 10 feet of front-row space is calculated to be

A)$185,000.
B)$162,000.
C)$126,000.
D) $$153,000.
$7,000 x 18 = $126,000

Question 79

Maxwell Manufacturing is contemplating the purchase of a new machine to replace a machine that has been in use for seven years.The old machine has a net book value of $50,000 and still has five years of useful life remaining.The old machine has a current market value of $5,000,and would have no market value after five years.The variable operating costs and depreciation expenses (straight-line)are $135,000 per year.The new machine will cost $90,000,has an estimated useful life of five years with zero disposal value after five years,and an annual operating expense of $118,000 (including straight-line depreciation).Considering the five years in total and ignoring the time value of money and income taxes,what is the difference in total relevant decision-making costs if the old machine is replaced?

A)$5,000.
B)$15,000.
C)$25,000.
D)$35,000.
E)$40,000.

Question 80

The Car Lot is a New York car dealership located in a highly visible area along a prominent highway.Fred Barns,owner of The Car Lot,was deciding how much front-row space along the highway to devote to four different car models.Fred had a maximum front-row space of 200 feet to devote to the four car models.He wanted a minimum of twenty feet and a maximum of eighty feet of front-row space for each car model.Appropriate data on the four car models follow:
The sedan model's monthly contribution per 10 feet of front-row space is calculated to be

A)$90,000.
B)$140,000.
C)$120,000.
D)$130,000.
E)$170,000.