Question 1

Which of the following would NOT be relevant to a decision to replace equipment?

Accepted Answer

A)  Operating costs of old equipment 
B)  Cost of old equipment 
C)  Disposal value of old equipment 
D)  Acquisition cost of new equipment

Question 2

Speck 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 Speck should be willing to pay for the part is

Accepted Answer

A)  $24. 
B)  $28. 
C)  $16. 
D)  $22.

Question 3

Book value is defined as the cost of a depreciable asset.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following statements is true?

Accepted Answer

A)  Fixed costs should always be unitized as this would result in a better decision. 
B)  Unit costs need not be computed on the same volume basis. 
C)  Unit cost data are always more relevant than total cost data. 
D)  Unit cost changes with volume of activity, and therefore this fact must be considered in decision making.

Question 5

Which of the following is NOT likely to be relevant in a decision concerning the disposal of obsolete inventory?

Accepted Answer

A)  Inventory cost 
B)  Expected future revenues 
C)  Scrap value of inventory 
D)  Expected future costs

Question 6

Swenson Company produces a part that is used in the manufacture of one of its products. The costs associated with the production of 10,000 units of this part are as follows:  Of the fixed factory overhead costs, $35,000 is avoidable.
Required:
a. Assuming there is no alternative use for the facilities, should Swenson take advantage of an offer from a supplier who is willing to sell Swenson 10,000 units of the same part for $64 per unit?
b. Would your answer to Part (a) change if the facilities could be rented for $50,000 a year?

Accepted Answer

The answer of Swenson Company produces a part that is...

Question 7

Variable costs are

Accepted Answer

A)  irrelevant whenever they do not differ among alternatives. 
B)  always irrelevant. 
C)  always relevant. 
D)  relevant whenever they do not differ among alternatives.

Question 8

The costs of manufacturing joint products prior to the split-off point.

Accepted Answer

The answer of The costs of manufacturing joint products prior...

Question 9

Hamilton, Inc. produces three products using a joint process which provides for $350,000 in joint costs. The products X, Y and Z can be sold at split-off or processed further and then sold. The production level for each product is 5,000 units. The following unit information is also available:
 
-In processing product Z further,

Accepted Answer

A)  incremental revenues will exceed incremental costs. 
B)  profits will increase by $8 per unit. 
C)  profits will decrease by $20,000. 
D)  additional costs will be less than additional revenues.

Question 10

Avey Corporation has a joint process which produces three products, M, L and B. Each product may be sold at split-off or processed further and then sold. Joint processing costs for a year amount to $500,000. Other relevant data are as follows:
 
-In processing Product B further,

Accepted Answer

A)  profits will decrease by $28,000. 
B)  incremental profits will exceed incremental costs. 
C)  profits will increase by $100,000. 
D)  the additional revenue produced will exceed the additional costs.

Question 11

Separable costs are part of a joint process and can be exclusively identified with individual products.

Accepted Answer

A) True 
 B)False

Question 12

Future costs are relevant in decision making when

Accepted Answer

A)  they differ between alternatives. 
B)  they equal future revenues. 
C)  they are not based on an estimate. 
D)  they are the same between alternatives.

Question 13

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.
-Clarke Company has offered to sell 10,000 units of the same part to Bovee for $104 a unit. Assuming no other use for the facilities, Bovee should

Accepted Answer

A)  make the part as this would save $8 per unit. 
B)  buy from Clarke as this would save $20 per unit. 
C)  make the part as this would save $20 per unit 
D)  buy from Clarke as this would save $8 per unit.

Question 14

The Martin Company is considering the replacement of a machine that is presently used in the production of its product. The following data are available:  Required: Ignoring income taxes, prepare a cost comparison of all relevant items for the next seven years together. Indicate the best alternative for Martin Company.

Accepted Answer

The answer of The Martin Company is considering the replacement...

Question 15

The juncture in manufacturing where the joint products become individually identifiable.

Accepted Answer

The answer of The juncture in manufacturing where the joint...

Question 16

Hamilton, Inc. produces three products using a joint process which provides for $350,000 in joint costs. The products X, Y and Z can be sold at split-off or processed further and then sold. The production level for each product is 5,000 units. The following unit information is also available:
 
-Once X is produced, processing it further will cause profits to

Accepted Answer

A)  increase by $120,000. 
B)  stay the same. 
C)  decrease by $120,000. 
D)  increase by $24 per unit.

Question 17

Avey Corporation has a joint process which produces three products, M, L and B. Each product may be sold at split-off or processed further and then sold. Joint processing costs for a year amount to $500,000. Other relevant data are as follows:
 
-Product L

Accepted Answer

A)  should be processed further to increase profits by $130,000. 
B)  should be sold at split-off since processing further would only reduce profits by $130,000. 
C)  should be processed further to increase profits by $380,000. 
D)  can be processed further or sold at split-off. There is no difference in profit.

Question 18

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

Accepted Answer

A)  separable products. 
B)  by-products. 
C)  distinct products. 
D)  joint products.

Question 19

It is profitable to extend processing or to incur additional distribution costs on a joint product if the

Accepted Answer

A)  incremental expenses exceed incremental revenues. 
B)  sale of the product is guaranteed. 
C)  additional revenue exceeds the additional expenses. 
D)  joint products are inseparable.

Question 20

Any costs beyond the split-off point.

Accepted Answer

The answer of Any costs beyond the split-off point....

Exam 9: Relevant Information and Decision Making: Production Decisions