Deck 5: Relevant Information for Decision Making With a Focus

Question 1

In considering whether to produce a single product,the associated direct materials and direct labor costs would probably be ________.

A)relevant qualitative factors
B)relevant quantitative factors
C)irrelevant qualitative factors
D)irrelevant quantitative factors

Answer 1

B

Question 2

In determining whether to purchase a labor-saving machine,extreme resistance to the machine by employees would be a(n)________.

A)relevant qualitative factor
B)relevant quantitative factor
C)irrelevant qualitative factor
D)irrelevant quantitative factor

Answer 2

A

Question 3

Precise but irrelevant information may still be useful for decision making.

Answer 3

False

Question 4

In the decision-making process,the accountant's primary role is ________.

A)making the decision
B)providing relevant information
C)choosing the least costly alternative
D)choosing the best alternative

Question 5

Which statement is FALSE about information used for decision making?

A)Precise but irrelevant information is worthless for decision making.
B)Imprecise but relevant information can be useful for decision making.
C)Relevant information must be reasonably accurate but not precisely so.
D)Relevant information must be totally accurate or it is useless.

Question 6

________ is the predicted future costs and revenues that will differ among alternative courses of action.

A)Relevant information
B)Sunk costs
C)Predictable information
D)Target pricing

Question 7

The accountant's role in decision making involves providing the relevant information for decision makers.

Question 8

If perfectly accurate and relevant information is not available for decision making,the accountant should consider using information that is ________.

A)precise but irrelevant
B)imprecise but irrelevant
C)imprecise but relevant
D)imprecise but timely

Question 9

What are the qualitative aspects of a decision?

A)those for which measurement in dollars and cents is difficult and imprecise
B)those with a definite dollar value
C)those with a cost figure
D)those which are never relevant to a decision

Question 10

Relevant information is the historical costs and revenues that differ due to alternative courses of action.

Question 11

In the decision process,________ is the process of putting a decision into action.

A)Prediction
B)Feedback
C)Implementation
D)Evaluation by performance

Question 12

Historical or past information can have an indirect bearing on a decision because ________.

A)the past can be changed
B)it can help predict the future
C)past decisions are always good decisions
D)none of the above

Question 13

Cougar Company is trying to decide which product to manufacture.Expected direct materials costs are $4 for each product.In choosing between the two products,the direct materials costs are ________.

A)relevant because it is an expected future cost
B)relevant because it is a product cost
C)irrelevant because it is an estimated cost
D)irrelevant because it does not differ between the two alternatives

Question 14

In the decision process,predictions obtained from the accounting system and other sources become ________.

A)inputs to a business evaluation of a decision
B)inputs to implementation of a decision
C)feedback
D)inputs to a decision model

Question 15

________ is (are)defined as any method used for making a choice.

A)A decision model
B)An implementation model
C)Relevant costs
D)The prediction model

Question 16

A company is trying to decide which product to manufacture.The following information is available: Which product cost is relevant to the decision?

A)Direct Materials 1
B)Direct Materials 2
C)Direct Materials 3
D)Direct Labor

Question 17

Historical data may have a direct bearing on a decision made today.

Question 18

In decision making,relevance is more crucial than ________.

A)precision
B)predictability
C)variable costs
D)fixed costs

Question 19

In decision making situations,________ aspects may dominate quantitative aspects in many decisions.

A)relevant
B)precision
C)accuracy
D)qualitative

Question 20

Information is relevant in business decisions if it is a(n)________.

A)expected future cost or it differs among alternatives
B)expected future cost and it differs among alternatives
C)historical cost and it differs among alternatives
D)expected future cost that differs from a past cost

Question 21

Under the contribution approach,variable selling and administrative expenses are used to calculate ________.Under the absorption approach,variable selling and administrative expenses are used to calculate ________.

A)contribution margin; operating income
B)gross margin; operating income
C)contribution margin; gross margin
D)gross margin; contribution margin

Question 22

Accountants are sometimes forced to trade relevant information for accurate information.

Question 23

Colorado Company has the following data about its only product: Colorado Company uses the absorption approach.What is the product cost per unit?

A)$28
B)$30
C)$36
D)$40

Question 24

Using absorption costing,the primary classifications of costs on the income statement are by:

A)cost behavior patterns
B)manufacturing departments
C)major management functions
D)manufacturing segments

Question 25

Imprecise but relevant information can be useful.

Question 26

Under absorption costing,all ________ costs are product or inventoriable costs.

A)direct and indirect manufacturing
B)direct manufacturing
C)indirect manufacturing
D)selling and administrative

Question 27

Penn Company has the following data about its only product: Penn Company uses the absorption approach.What is the gross margin?

A)$300,000
B)$390,000
C)$450,000
D)$470,000

Question 28

When absorption costing is used for the income statement,the difference between sales and ________ is gross margin.

A)manufacturing cost of goods sold
B)selling expenses
C)selling and administrative expenses
D)variable expenses

Question 29

The contribution approach to the income statement emphasizes the distinction between ________.

A)value chain functions
B)different functional areas in a firm
C)different business segments
D)variable and fixed costs

Question 30

Qualitative aspects of information are those for which measurement in dollars and cents is easy and precise.

Question 31

Under the contribution approach to the income statement,the difference between sales and ________ is contribution margin.

A)cost of goods sold
B)manufacturing costs
C)all variable expenses
D)all fixed expenses

Question 32

Under absorption costing,product costs include direct manufacturing costs and ________.

A)variable selling and administrative expenses
B)indirect manufacturing costsvariable costs only
C)indirect manufacturing costsfixed costs only
D)indirect manufacturing costsvariable and fixed costs

Question 33

Ohio Company has the following data about its only product: Ohio Company uses the absorption approach.What is the manufacturing cost of goods sold?

A)$280,000
B)$300,000
C)$360,000
D)$500,000

Question 34

Santa Company reported the following information for its only product: Santa Company uses the absorption approach.What is the product cost per unit?

A)$13.00
B)$13.50
C)$14.75
D)$18.00

Question 35

The degree to which information is relevant or precise often depends on the degree to which it is qualitative or quantitative.

Question 36

Wyoming Company has the following data about its only product: Wyoming Company uses the absorption approach.What is the operating income?

A)$2,060,000
B)$2,120,000
C)$2,240,000
D)$2,970,000

Question 37

Arizona Company has the following data about its only product: Arizona Company uses the contribution approach.What is the operating income?

A)$2,060,000
B)$2,120,000
C)$2,240,000
D)$2,970,000

Question 38

Under absorption costing,fixed manufacturing costs are used to calculate ________.

A)contribution margin
B)manufacturing cost of goods sold
C)product costs
D)manufacturing cost of goods sold and product costs

Question 39

The contribution approach offers several benefits to decision makers.Which of the following is NOT a benefit of this approach?

A)This approach makes it easier to understand the impact of changes in sales demand on operating income.
B)This approach stresses the role of fixed costs in operating income.
C)This approach is used with CVP analysis.
D)This approach is accepted by U.S.Generally Accepted Accounting Principles.

Question 40

Qualitative aspects of information can carry more weight than quantitative aspects in a business decision.

Question 41

Wisconsin Company has a current production capacity level of 200,000 units per month.At this level of production,variable costs are $0.90 per unit and fixed costs are $0.50 per unit.Current monthly sales are 164,500 units.Gates Company has contracted Wisconsin Company about purchasing 20,000 units at $2.00 each.Current sales would not be affected by the special order and no additional fixed costs would be incurred on the special order.If the order is accepted,what is Wisconsin Company's increase in costs?

A)$18,000
B)$20,000
C)$24,000
D)$40,000

Question 42

Washington Company has the following data about its only product: Washington Company uses the absorption approach.What is the gross margin?

A)$240,000
B)$540,000
C)$600,000
D)$660,000

Question 43

Georgia Company has been producing and selling 100,000 units per year.They have excess capacity.The following budget was prepared for the next year:
Required:

A)Prepare an income statement using the contribution approach.
B)Prepare an income statement using the absorption approach.

Question 44

Which of the following statements is correct?

A)The income statement prepared under the contribution approach reports gross margin.
B)The income statement prepared under the absorption approach reports contribution margin.
C)The income statement prepared under the contribution approach reports total variable expenses.
D)None of the above

Question 45

Nevada Company has the following data about its only product: Nevada Company uses the contribution approach.What is the contribution margin?

A)$570,000
B)$720,000
C)$900,000
D)$960,000

Question 46

Minnesota Company has the following data about its only product: Assume there is excess capacity.The company has received a special order for 1,000 units at $80.00 per unit.If the special order is accepted,what will be the effect on net income?

A)net income increases $1,000
B)net income increases $30,000
C)net income decreases $80,000
D)net income decreases $200,000

Question 47

The absorption costing approach to the income statement is used by companies for external financial reporting.

Question 48

Colbert Company has the following information about its only product:
Required:

A)Prepare an income statement using the contribution approach.
B)Prepare an income statement using the absorption approach.

Question 49

Mexico Company has the following data about its only product: Mexico Company uses the contribution approach.What is the contribution margin?

A)$350,000
B)$390,000
C)$440,000
D)$500,000

Question 50

Missouri Company has a current production capacity level of 200,000 units per month.At this level of production,variable costs are $0.50 per unit and fixed costs are $0.50 per unit.Current monthly sales are 173,000 units.Gates Company has contracted Missouri Company about purchasing 20,000 units at $1.00 each.Current sales would not be affected by the special order and no additional fixed costs would be incurred on the special order.If the order is accepted,what is Missouri Company's change in profits?

A)$20,000 increase
B)$20,000 decrease
C)$10,000 increase
D)$10,000 decrease

Question 51

Oregon Company has the following data about its only product: Oregon Company uses the contribution approach.What is the contribution margin?

A)$450,000
B)$550,000
C)$640,000
D)$700,000

Question 52

Each month Fig Company produces 11,000 units of a product that sells for $18 per unit,and has variable costs of $12 per unit.Total fixed costs for the month are $77,000.A special order is received for 5,000 units at a price of $14 per unit.Fig Company has adequate capacity for the special order.If Fig Company accepts the special order,what is the profit to Fig Company?

A)There is no profit; it is loss.
B)$10,000
C)$22,000
D)$99,000

Question 53

The ________ approach is useful for short-run decisions and the ________ approach is useful for long-run decisions.

A)contribution; absorption
B)absorption; contribution
C)full costing; target costing
D)full costing; contribution

Question 54

Today Company has the following data about its only product: Today Company uses the contribution approach.What is the operating income?

A)$2,060,000
B)$2,120,000
C)$2,240,000
D)$2,970,000

Question 55

The absorption approach separates manufacturing costs from ________.

A)some nonmanufacturing costs
B)all nonmanufacturing costs
C)all variable costs
D)all fixed costs

Question 56

Each month Newton Company produces 30,000 units of a product that has variable costs of $70 per unit.Total fixed costs for the month are $990,000.A special order is received for 1,000 units at a price of $77 per unit.Newton Company has adequate capacity for the special order.If Newton Company accepts the special order,what is the profit to Newton Company?

A)There is no profit; it is loss.
B)$7,000
C)$21,000
D)$210,000

Question 57

Dakota Company has been producing and selling 42,000 hats a year.The Dakota Corporation has the capacity to produce 52,000 hats.The following data is available: If a special order is accepted for 10,000 hats at a price of $25 per unit,net income would ________.

A)increase $90,000
B)increase $50,000
C)increase $120,000
D)decrease $24,000

Question 58

The contribution margin is computed using variable manufacturing costs and variable selling and administrative costs.

Question 59

Which item is usually NOT important to special order decisions?

A)affect of special order on regular business
B)whether idle capacity is available
C)antitrust issues concerning price discrimination
D)all are important

Question 60

The absorption approach to the income statement emphasizes the distinction between fixed and variable costs.

Question 61

With perfect competition,marginal revenue is the additional revenue resulting from the sale of an additional unit.

Question 62

In perfect competition,the marginal revenue curve is a vertical line equal to the price per unit at all volumes of sales.

Question 63

With perfect competition,at some point marginal costs begin to rise with increases in production because facilities become inefficient.

Question 64

Price elasticity measures the ________.

A)amount customers are willing to pay for a product or service
B)effect of price changes on sales volume
C)number of units a company is willing to sell
D)amount of competition in a given industry

Question 65

In perfect competition,the profit-maximizing volume is the quantity at which ________.

A)marginal cost equals marginal revenue
B)contribution margin equals fixed cost
C)marginal revenue equals price
D)price exceeds marginal cost

Question 66

________ is the additional cost resulting from producing and selling one additional unit.

A)Marginal cost
B)Common cost
C)Opportunity cost
D)Target cost

Question 67

A small appliance manufacturer is deciding whether to accept or reject a special order for 1,750 appliances.There is sufficient capacity available for the special order.What is relevant information for the decision whether to accept or reject the special order?

A)the cost of the parts for the 1,750 appliances
B)the supervisor's salary
C)the depreciation on assembly equipment
D)the accountant's salary

Question 68

If a small price increase causes large volume declines,demand is highly inelastic.

Question 69

In perfect competition,additional sales will be profitable if ________.

A)the marginal cost is less than marginal revenue
B)sales price exceeds the variable product cost
C)total variable cost is less than sales price
D)the fixed cost equals the contribution margin

Question 70

In a special order decision,fixed costs that do not differ between two alternatives are ________.

A)of major importance to the decision
B)opportunity costs
C)irrelevant
D)important if they are a material dollar amount

Question 71

In perfect competition,the profit-maximizing volume is the quantity at which the difference between the sales price and marginal cost is at its greatest.

Question 72

Kansas Company produces and sells 20,000 units at $22 per unit.Kansas Company's product cost is calculated as follows: A total of 500 setups at a cost of $120 per setup are required to produce the 20,000 units.Kansas Company has received a special order to sell 5,000 units at $12 per unit.Kansas Company has excess capacity available,but these 5,000 units would require 60 setups.If Kansas Company accepts the special order,what is the increase in costs to them?

A)$7,200
B)$40,000
C)$57,200
D)$65,000

Question 73

The only decision for a manager to make with perfect competition is how much to produce.

Question 74

Arkansas Company provided the following data for its only product: Assume there is excess capacity.There is a special order outstanding for 1,000 units at $40.00 per unit.If Arkansas Company accepts the special order,net income would ________.

A)increase $40,000
B)increase $11,250
C)decrease $28,750
D)decrease $10,000

Question 75

Marginal cost is the additional cost resulting from producing and selling one additional unit.

Question 76

Stangle Company manufactures ties.When 28,000 ties are produced,the costs per unit are:
The ties normally sell for $22 each.The company has received a special order for 2,000 ties at $10.00 per tie.The company has excess capacity.
Required:
Compute the amount by which the operating income would change if the order were accepted.

Question 77

In imperfect competition,________.

A)a firm will produce as many units as it can sell
B)the price a firm charges for a unit influences the quantity of units it sells
C)a firm's costs exceeds a competitor's costs
D)a firm's market share is less than a competitor's market share

Question 78

Texas Company produces and sells 22,000 units of a single product.Costs associated with this level of production are as follows:
The product normally sells for $160 per unit.Texas Company has received a special order to sell 2,000 units at $120 per unit.Texas Company has excess production capacity.
Required:
Compute the amount by which the operating income of Texas Company would change if the special order was accepted.

Question 79

With perfect competition and a fixed set of production facilities,the marginal cost often increases as production increases up to a point because of efficiencies created by larger amounts.

Question 80

Nebraska Company produces and sells 20,000 units at $20 per unit.Nebraska Company's product cost is calculated as follows: A total of 500 setups at a cost of $120 per setup are required to produce the 20,000 units.Nebraska Company has received a special order to sell 5,000 units at $10 per unit.Nebraska Company has excess capacity available,but these 5,000 units would require 60 setups.If Nebraska Company accepts the special order,what is Nebraska's increase in net income?

A)decrease $5,000
B)increase $20,000
C)increase $5,000
D)increase $2,800