Question 1

Costs of manufacturing two or more products that are NOT separately identifiable as individual products until their split-off point are known as

Accepted Answer

A)  separable costs. 
B)  joint costs. 
C)  incremental costs. 
D)  sunk costs.

Question 2

Which of the following is NOT an example of a joint product?

Accepted Answer

A)  Sponges 
B)  Chemicals 
C)  Lumber 
D)  Meat packing

Question 3

Wykle Company purchases 10,000 units of a part that it needs for production of its product. Notification has just been received from the supplier that a price increase will take effect shortly which will bring the price of each part to $30. Wykle is considering using some idle facilities to produce the part. The production costs to produce the needed 10,000 parts are as follows:  The idle facilities could also be rented out at an annual rent of $36,000. All the factory overhead costs are avoidable.
Required: Determine if Wykle should continue to buy the part or produce it in house.

Accepted Answer

The answer of Wykle Company purchases 10,000 units of a...

Question 4

Pett Company produces a part that is used in the manufacture of one of its products. The costs associated with the production of 5,000 units of this part are as follows:
  Of the fixed factory overhead costs, $15,000 is avoidable.
-Titus Company has offered to sell 5,000 units of the same part to Pett for $18 per unit. Assuming there is no other use for the facilities, Pett should

Accepted Answer

A)  make the part as this would save $3 per unit. 
B)  buy the part as this would save $3 per unit. 
C)  buy the part as this would save the company $15,000. 
D)  make the part as this would save $1 per unit.

Question 5

A cost for which the outlay has already been made and that cannot be affected by a future decision.

Accepted Answer

The answer of A cost for which the outlay has...

Question 6

The costs of manufacturing joint products after the split-off point are referred to as

Accepted Answer

A)  joint costs. 
B)  outlay costs. 
C)  opportunity costs. 
D)  separable costs.

Question 7

Buckner Company is considering replacing a machine that is presently used in the production of its product. The following data are available: 
-Which of the data provided in the table is a sunk cost?

Accepted Answer

A)  The disposal value of the old machine 
B)  The original cost of the old machine 
C)  The annual cash operating costs of the old machine 
D)  The annual cash operating costs of the replacement machine

Question 8

The Malloy Corporation is contemplating the replacement of some old equipment. The pertinent information is as follows:  Required: Prepare a cost comparison of all relevant items for the next six years together. Ignore income taxes. Comment on the best alternative for The Malloy Corporation.

Accepted Answer

The answer of The Malloy Corporation is contemplating the replacement...

Question 9

Two or more manufactured products that have relatively significant sales values and are not separately identifiable as individual products until their split-off point.

Accepted Answer

The answer of Two or more manufactured products that have...

Question 10

Barker Company produces a part that is used in the manufacture of one of its products. The costs associated with the production of 5,000 units of this part are as follows:
  Of the fixed factory overhead costs, $60,000 is avoidable.
-Assume that Barker can buy 5,000 units of the part from another producer for $84 each. The current facilities could be used to make 5,000 units of a product that has a contribution margin of $20 per unit. Fixed factory overhead costs to produce this new product would be exactly the same as for the currently produced part. Barker should

Accepted Answer

A)  continue to make the part and earn an extra $40,000 in profit. 
B)  buy the part and produce the new product and earn an extra $4 per unit contribution to profit. 
C)  continue to make the part and earn an extra $8 per unit contribution to profit. 
D)  buy the part and produce the new product and earn an extra $20 per unit contribution to profit.

Question 11

The periodic cost of equipment which is spread over the future periods in which the equipment is expected to be used.

Accepted Answer

The answer of The periodic cost of equipment which is...

Question 12

The difference in total cost between two alternatives.

Accepted Answer

The answer of The difference in total cost between two...

Question 13

Mann Corporation has a joint process, which produces three products, A, B and C. Each product may be sold at split-off or processed further and then sold. Joint processing costs for a year amount to $125,000. Other relevant data are as follows:
 
-Product B

Accepted Answer

A)  should be processed further to increase profits by $32,500. 
B)  should be sold at split-off since processing further would only reduce profits by $32,500. 
C)  should be processed further to increase profits by $95,000. 
D)  can be processed further or sold at split-off. There is no difference in profit.

Question 14

Overland Company is considering replacing a machine that is presently used in the production of its product. The following data are available: 
-Which of the data provided in the table is irrelevant?

Accepted Answer

A)  The annual operating cost of the old machine 
B)  The original cost of the replacement machine 
C)  The disposal value of the old machine 
D)  The book value of the old machine

Question 15

Which of the following is NOT likely to be relevant in a decision to replace equipment?

Accepted Answer

A)  Cost of new equipment 
B)  Book value of old equipment 
C)  Selling price of old equipment 
D)  Maintenance costs of old equipment

Question 16

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

Accepted Answer

A)  adding the book value of the old equipment to 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 disposal value of the old equipment. 
D)  subtracting the book value of the old equipment from the cost of the new equipment.

Question 17

A homeowner has paid off the mortgage on his house and continues to live in the house. The interest income foregone by NOT selling the house and investing the proceeds is an example of a(n)

Accepted Answer

A)  sunk cost. 
B)  detrimental cost. 
C)  opportunity cost. 
D)  outlay cost.

Question 18

Bovee Company manufactures a part for its production cycle. The costs per unit for 10,000 units of this part are as follows:
  The fixed factory overhead costs are unavoidable.
-Assuming no other use of their facilities, the highest price that Bovee should be willing to pay for the part is

Accepted Answer

A)  $112. 
B)  $64. 
C)  $88. 
D)  $96.

Question 19

A relevant costing analysis that focuses on whether a component should be made internally or purchased externally.

Accepted Answer

The answer of A relevant costing analysis that focuses on...

Question 20

In practice, sunk costs often influence important decisions, especially when a decision maker doesn't want to admit that a previous decision was a bad decision.

Accepted Answer

A) True 
 B)False

Exam 9: Relevant Information and Decision Making: Production Decisions