Question 1

A study has been conducted to determine if Product A should be dropped.Sales of the product total $200,000 per year;variable expenses total $140,000 per year.Fixed expenses charged to the product total $90,000 per year.The company estimates that $40,000 of these fixed expenses will continue even if the product is dropped.These data indicate that if Product A is dropped,the company's overall net operating income would:

Accepted Answer

A)  decrease by $10,000 per year. 
B)  increase by $20,000 per year. 
C)  decrease by $20,000 per year. 
D)  increase by $30,000 per year.

Question 2

A sunk cost is a cost that has already been incurred and that cannot be avoided regardless of what action is chosen.

Accepted Answer

A) True 
 B)False

Question 3

Green Company produces 1,000 parts per year,which are used in the assembly of one of its products.The unit product cost of these parts is:  The part can be purchased from an outside supplier at $20 per unit.If the part is purchased from the outside supplier,two thirds of the fixed manufacturing costs can be eliminated.The annual impact on the company's net operating income as a result of buying the part from the outside supplier would be:

Accepted Answer

A)  $1,000 increase. 
B)  $1,000 decrease. 
C)  $2,000 decrease. 
D)  $5,000 increase.

Question 4

Variable costs are always relevant costs.

Accepted Answer

A) True 
 B)False

Question 5

Assuming all units that are produced can be sold,in deciding which of alternative products to produce in circumstances of constrained resources,managers will always seek to maximize the production of the product with the highest per-unit contribution margin.

Accepted Answer

A) True 
 B)False

Question 6

The split-off point is the stage in production of joint products at which the different end products are identified.

Accepted Answer

A) True 
 B)False

Question 7

Cardinal Company needs 20,000 units of a certain part to use in one of its products.The following information is available:  Oriole Company has offered to sell this part to Cardinal company for $36 each.If Cardinal buys the part from Oriole instead of making it,Cardinal would not have any use for the released capacity.In addition,60% of the fixed manufacturing overhead costs will continue regardless of what decision is made.Assume that direct labour is an avoidable cost in this decision.In deciding whether to make or buy the part,the total relevant costs to make the part are:

Accepted Answer

A)  $560,000. 
B)  $640,000. 
C)  $720,000. 
D)  $760,000.

Question 8

Lusk Company produces and sells 15,000 units of Product A each month.The selling price of Product A is $20 per unit,and variable expenses are $14 per unit.A study has been made concerning whether Product A should be discontinued.The study shows that $70,000 of the $100,000 in fixed expenses charged to Product A would continue even if the product were discontinued.These data indicate that if Product A is discontinued,the company's overall net operating income would:

Accepted Answer

A)  increase by $10,000 per month. 
B)  decrease by $20,000 per month. 
C)  increase by $20,000 per month. 
D)  decrease by $60,000 per month.

Question 9

To maximize total contribution margin,a firm faced with a production constraint should:

Accepted Answer

A)  promote those products having the highest unit contribution margins. 
B)  promote those products having the highest contribution margin ratios. 
C)  promote those products having the highest contribution margin per unit of constrained resource. 
D)  promote those products having the highest contribution margins and contribution margin ratios.

Question 10

Lusk Company produces and sells 15,000 units of Product A each month.The selling price of Product A is $20 per unit,and variable expenses are $14 per unit.A study has been made concerning whether Product A should be discontinued.The study shows that $70,000 of the $100,000 in fixed expenses charged to Product A would continue even if the product were discontinued.These data indicate that if Product A is discontinued,the company's overall net operating income would:

Accepted Answer

A)  increase by $10,000 per month. 
B)  decrease by $20,000 per month. 
C)  increase by $20,000 per month. 
D)  decrease by $60,000 per month.

Question 11

In a make or buy decision,which of the costs below are relevant?

Accepted Answer

A)  Fixed costs that will not change regardless of the decision. 
B)  Only conversion costs. 
C)  Fixed costs that can be avoided in the future if the decision is to buy. 
D)  Only direct material costs.

Question 12

Assuming all units that are produced can be sold,in deciding which of alternative products to produce in circumstances of constrained resources,managers will always seek to maximize the production of the product with the highest per-unit contribution margin.

Accepted Answer

A) True 
 B)False

Question 13

Golden,Inc.has been manufacturing 5,000 units of Part 10541 which is used in one of its products.At this level of production,the unit product cost of Part 10541 is as follows:  Brown Company has offered to sell Golden 5,000 units of Part 10541 for $19 a unit.Golden has determined that two thirds of the fixed manufacturing overhead will continue even if Part 10541 is purchased from Brown.Assume that direct labour is an avoidable cost in this decision.To determine whether to accept Brown's offer,the relevant costs to Golden of manufacturing the parts internally are:

Accepted Answer

A)  $70,000. 
B)  $80,000. 
C)  $90,000. 
D)  $95,000.

Question 14

Consider a decision facing a firm of either accepting or rejecting a special offer for one of its products.A cost that is not relevant is:

Accepted Answer

A)  direct materials. 
B)  variable overhead. 
C)  fixed overhead that will be avoided if the special offer is accepted. 
D)  common fixed overhead that will continue if the special offer is not accepted.

Question 15

Northern Stores is a retailer in the upper Midwest.The most recent monthly income statement for Northern Stores is given below:

Accepted Answer

The answer of Northern Stores is a retailer in the...

Question 16

An avoidable cost is a cost that can be eliminated (in whole or in part)as a result of choosing one alternative over another.

Accepted Answer

A) True 
 B)False

Question 17

Suppose there is ample idle capacity to produce the units required by the overseas customer and the special discounted price on the special order is $76.40 per unit.By how much would this special order increase (decrease)the company's net operating income for the month?

Accepted Answer

A)  ($5,000). 
B)  ($17,000). 
C)  $13,400. 
D)  $48,000.

Question 18

Consider the following production and cost data for two products,L and C:  The company can only perform 65,000 machine set-ups each period due to limited skilled labour and there is unlimited demand for each product.What is the largest possible total contribution margin that can be realized each period?

Accepted Answer

A)  $845,000. 
B)  $910,000. 
C)  $975,000. 
D)  $1,820,000.

Question 19

An avoidable cost is a cost that can be eliminated (in whole or in part)as a result of choosing one alternative over another.

Accepted Answer

A) True 
 B)False

Question 20

To maximize total contribution margin,a firm faced with a production constraint should:

Accepted Answer

A)  promote those products having the highest unit contribution margins. 
B)  promote those products having the highest contribution margin ratios. 
C)  promote those products having the highest contribution margin per unit of constrained resource. 
D)  promote those products having the highest contribution margins and contribution margin ratios.

Exam 9: Flexible Budgets and Overhead Analysis

A sunk cost is a cost that has already been incurred and that cannot be avoided regardless of what action is chosen.

Variable costs are always relevant costs.

Assuming all units that are produced can be sold,in deciding which of alternative products to produce in circumstances of constrained resources,managers will always seek to maximize the production of the product with the highest per-unit contribution margin.

The split-off point is the stage in production of joint products at which the different end products are identified.

To maximize total contribution margin,a firm faced with a production constraint should:

In a make or buy decision,which of the costs below are relevant?

Assuming all units that are produced can be sold,in deciding which of alternative products to produce in circumstances of constrained resources,managers will always seek to maximize the production of the product with the highest per-unit contribution margin.

Consider a decision facing a firm of either accepting or rejecting a special offer for one of its products.A cost that is not relevant is:

Northern Stores is a retailer in the upper Midwest.The most recent monthly income statement for Northern Stores is given below:

An avoidable cost is a cost that can be eliminated (in whole or in part)as a result of choosing one alternative over another.

Suppose there is ample idle capacity to produce the units required by the overseas customer and the special discounted price on the special order is $76.40 per unit.By how much would this special order increase (decrease) the company's net operating income for the month?

An avoidable cost is a cost that can be eliminated (in whole or in part)as a result of choosing one alternative over another.

To maximize total contribution margin,a firm faced with a production constraint should: