Question 1

All the following are characteristic of relevant costs except:

Accepted Answer

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 2

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:

Accepted Answer

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

Question 3

Which one of the following costs would be relevant in short-term decision-making?

Accepted Answer

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 4

A decision bias is an inherent tendency of most decision makers that leads to incorrect decisions.An example of decision bias is:

Accepted Answer

A) Failure to consider all relevant costs. 
B) Failure to properly identify sunk costs as irrelevant. 
C) Failure to consider opportunity cost. 
D) Failure to adjust for the time value of money.

Question 5

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

Accepted Answer

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

Question 6

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:

Accepted Answer

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

Question 7

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:

Accepted Answer

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

Question 8

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:

Accepted Answer

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

Question 9

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?

Accepted Answer

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 10

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:

Accepted Answer

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

Question 11

The time value of money is:

Accepted Answer

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 12

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

Accepted Answer

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

Question 13

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

Accepted Answer

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 14

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

Accepted Answer

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 15

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:

Accepted Answer

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

Question 16

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:

Accepted Answer

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

Question 17

The controller for Warner Mfg.is trying to implement some of the characteristics of a just-in-time (JIT)inventory system.She has accumulated data on Warner's present inventory system and obtained some projections and estimates of what the results of a JIT system would be.

Accepted Answer

The answer of The controller for Warner Mfg.is trying to...

Question 18

A cost is not relevant if it:

Accepted Answer

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.

Question 19

Three Stars Inc.manufactures prefabricated houses.The firm's president,Michelle Brown,is interested in determining whether it would be better to manufacture the doors used in the houses or to buy them from a supplier.The following information,based on production of 500 doors,has been gathered to help determine the best option:

Accepted Answer

The answer of Three Stars Inc.manufactures prefabricated houses.The firm's president,Michelle...

Question 20

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?

Accepted Answer

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

Exam 11: Decision Making With a Strategic Emphasis