Question 1

Three Point Company currently produces 10,000 units of a key part at a total cost of $512,000. Variable costs are $300,000. Of the fixed cost, $140,000 relate specifically to this part. The remaining fixed costs are unavoidable. Another manufacturer has offered to supply the part for $48 per unit. The facilities currently used to manufacture the part could be used to manufacture a new product with an expected contribution margin of $55,000. Alternately, the facilities could be rented out at $63,000. is the opportunity cost to Three Point Company to make the part:

Accepted Answer

A)   $480,000
B)   $63,000
C)   $55,000
D)   None of these answers is correct. B

Question 2

A cost that has already been incurred and is irrelevant to the decision- making process

Accepted Answer

Sunk cost

Question 3

Conflicts in the decision- making process can arise when superiors evaluate a manager's performance using a model consistent with the decision model.

Accepted Answer

A) True 
 B)False  False

Question 4

Melissa Company produces and sells a product that has variable costs of $7 per unit and fixed costs of $240,000 per year. is the cost per unit if 20,000 units per year are produced and sold.

Accepted Answer

A)   $5
B)   $7
C)   $12
D)   $19

Question 5

Only unit costs computed using the same denominator level of production should be compared.

Accepted Answer

A) True 
 B)False

Question 6

Tabitha Company is considering replacing a machine that is presently used in the production of its product. The following data are available: $\begin{array}{lll}&& \text { Replacement } \
&\text { Old Machine } & \text { Machine }\
\text { Origin al cost } & \$ 60,000 & \$ 35,000 \
\text { Useful lif in years } & 10 & 5 \
\text { Current age in years } & 5 & 0 \
\text { Book value } & \$ 25,000 & - \
\text { Disposal value now } & \$ \$, 000 & - \
\text { Disposal value in 5 years } & 0 & 0 \
\text { Annual cash operating costs } & \$ 10,000 & \$ 4,000
\end{array}$ The total relevant costs to consider if the old machine is kept are:

Accepted Answer

A)   $50,000
B)   $30,000
C)   $52,000
D)   $60,000

Question 7

Partridge Company provided the following information regarding its one and only product-ice skates. $\begin{array}{ll}
\text { Direct materials used } & \$ 200,000 \
\text { Direct labor } & \$ 0,000 \
\text { Fixed overhead } & 100,000 \
\text { Fixed s elling and administrative costs } & 150,000\\text { Variable overhead } & 20,000 \
\text { Variable selling and administrative } & 60,000 \
\text { Selling unit price } & 75 \
\text { Units produced and sold } & 10,000
\end{array}$ The difference in manufacturing cost per unit between the absorption approach and contribution approach is:

Accepted Answer

A)   $10 higher if absorption cost is used
B)   $36 higher if contribution is used
C)   $10 higher if contribution cost is used
D)   $36 higher if absorption is used

Question 8

There are two major reasons why unit costs should be analyzed with care in decision making. What are they?

Accepted Answer

The answer of There are two major reasons why unit...

Question 9

The gain or loss on the disposal of equipment is determined by:

Accepted Answer

A)   subtracting the book value of the old equipment from the cost of the new equipment
B)   adding the disposal value and the book value of the old equipment
C)   subtracting the book value from the cash received for the old equipment
D)   adding the book value of the old equipment to the cost of the new equipment

Question 10

Adios Company provided the following information regarding its one and only product -skateboards. $$\begin{array} { l l } 
\text { Direct materials used } & \$ 350,000 \
\text { Direct labor } & 170,000 \
\text { Fixed overhead } & 80,000 \
\text { Variable overhead } & 20,000 \
\text { Variable selling and administrative } & 50,000 \
\text { Units produced and sold } & 40,000
\end{array}$$ The difference in manufacturing cost per unit, if the absorption approach is used in place of the contribution approach, is:

Accepted Answer

A)   cost per unit decreases by $0.75
B)   cost per unit increases by $2
C)   cost per unit decreases by $2
D)   cost per unit increases by $0.75

Question 11

Major Nelson Company is considering replacing a machine that is presently used in the production of its product. The following data are available: $\begin{array}{lll}&& \text { Replacement } \
&\text { Old Machine } & \text { Machine }\
\text { Original cost } & \$ 57,000 & \$ 35,000 \
\text { Useful life in years } & 17 & 5 \
\text { Current age in years } & 12 & 0 \
\text { Book value } & \$ 39,000 & - \
\text { Disposal value now } & \$ 8,000 & - \
\text { Disposal value in 5 years } & 0 & 0 \
\text { Annual cash operating } & \$ 7,000 & \$ 4,000\\text {costs}
\end{array}$ The difference in cost between keeping the old machine and replacing the old machine, ignoring income taxes, is:

Accepted Answer

A)   $22,000 in favor of replacing the old machine
B)   $12,000 in favor of keeping the old machine
C)   $22,000 in favor of keeping the old machine
D)   $37,000 in favor of replacing the old machine

Question 12

In a decision to keep or replace existing equipment, is a false statement.

Accepted Answer

A)   the book value of the old equipment is irrelevant
B)   the disposal value of the old equipment is irrelevant
C)   depreciation on the new equipment is relevant
D)   the cost of the new equipment is relevant

Question 13

The maximum available contribution to profit forgone by using limited resources for a particular purpose

Accepted Answer

The answer of The maximum available contribution to profit forgone...

Question 14

Bueno Company provided the following information regarding its one and only product-ice skates. $\begin{array}{ll}
\text { Direct materials used } & \$ 200,000 \
\text { Direct labor } & 80,000 \
\text { Fixed overhead } & 100,000 \
\text { Fixed s elling and administrative costs } & 150,000 \
\text { Variable overhe ad } & 20,000 \
\text { Variable selling and administrative } & 60,000 \
\text { Selling unit price } & 75 \
\text { Units produced and sold } & 10,000
\end{array}$ is the manufacturing cost per unit if the absorption approach is used.

Accepted Answer

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

Question 15

Manufacturing costs incurred after the split- off are known as:

Accepted Answer

A)   product costs
B)   separable costs
C)   split- off costs
D)   joint costs

Question 16

Jordan Company manufactures a part for its production cycle. The costs per unit for 20,000 units of this part are as follows: $$\begin{array} { l l } 
\text { Direct materials } & \$ 15 \
\text { Direct labor } & 12 \
\text { Variable factory overhead } & 20 \
\text { Unavoidable fixed factory overhead } & \underline { 18 } \
\text { Total cost } & \underline { \$ 65 }
\end{array}$$ The Jordan Company has been approached by a supplier who claims it can sell Jordan Company 20,000 units of the same part for $940,000.
Required:
a. Assuming there is no alternative use for the facilities, how much money would Jordan Company save by buying the part?
b. Assuming the facilities can be rented out for $10,000 per year, should Jordan Company buy the part, and if so, how much money would be saved?
c. Are there any other factors Jordan Company should consider?

Accepted Answer

The answer of Jordan Company manufactures a part for its...

Question 17

Cancun Corporation has a joint process which produces three products: X, Y, and Z. Each product may be sold at split- off or processed further and then sold. Joint processing costs for a year amount to $100,000. Other relevant data are as follows: $\begin{array}{llll}
&&\text { Separable }\&&\text { Processing }\
\text { Product } & \begin{array}{l}
\text { Sales Value at } \
\text { Split-off }
\end{array} & \begin{array}{l}
\text { Costs after } \
\text { Split-off }
\end{array} & \begin{array}{l}
\text { Sales Value at } \
\text { Completion }
\end{array}\
\mathrm{X} & \$ 128,000 & \$ 16,000 & \$ 160,000 \
\mathrm{Y} & 75,000 & 26,000 & 99,000 \
\mathrm{Z} & 32,600 & 20,000 & 50,000
\end{array}$ Once product X is produced, processing it further will cause profits to:

Accepted Answer

A)   decrease by $16,000
B)   increase by $16,000
C)   decrease by $32,000
D)   increase by $32,000

Question 18

Past costs may affect future payments for income taxes.

Accepted Answer

A) True 
 B)False

Question 19

is an example of a joint product.

Accepted Answer

A)   Lumber
B)   Flour
C)   Chemicals
D)   All of these answers are correct.

Question 20

Separable costs are part of a joint process and cannot be exclusively identified with individual products.

Accepted Answer

A) True 
 B)False

Exam 6: Relevant Information and Decision-Making: Product Decisions

A cost that has already been incurred and is irrelevant to the decision- making process

Conflicts in the decision- making process can arise when superiors evaluate a manager's performance using a model consistent with the decision model.

Melissa Company produces and sells a product that has variable costs of $7 per unit and fixed costs of $240,000 per year. is the cost per unit if 20,000 units per year are produced and sold.

Only unit costs computed using the same denominator level of production should be compared.

There are two major reasons why unit costs should be analyzed with care in decision making. What are they?

The gain or loss on the disposal of equipment is determined by:

In a decision to keep or replace existing equipment, is a false statement.

The maximum available contribution to profit forgone by using limited resources for a particular purpose

Manufacturing costs incurred after the split- off are known as:

Past costs may affect future payments for income taxes.

is an example of a joint product.

Separable costs are part of a joint process and cannot be exclusively identified with individual products.