Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

When determining the opportunity cost of a project,it depends on the alternatives available.

Accepted Answer

A) True 
 B)False

Question 3

A key factor in a make-or-buy decision is ________.

Accepted Answer

A) whether there are idle facilities 
B) the amount of sunk costs 
C) the total joint costs 
D) the total separable costs

Question 4

Past costs that are unavoidable and unchangeable are known as sunk costs.

Accepted Answer

A) True 
 B)False

Question 5

Hitch Company currently produces 10,000 units of a key part at a total cost of $512,000 annually.Annual variable costs are $300,000.Of the annual fixed costs,$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 annually.Alternatively,the facilities could be rented out at $68,000 annually.If Hitch Company makes the part,what is the annual opportunity cost of the facilities?

Accepted Answer

A) $13,000 
B) $28,000 
C) $55,000 
D) $68,000

Question 6

Bert Company is considering the replacement of a machine that is presently used in production.The following data are available:  Adding all five years together,the difference in total cost between the old machine and the new machine is ________ the old machine.

Accepted Answer

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

Question 7

In retail sales,the limiting resource is often floor space.

Accepted Answer

A) True 
 B)False

Question 8

When adding or dropping a product line,fixed avoidable costs may be relevant costs.

Accepted Answer

A) True 
 B)False

Question 9

If the limiting factor is demand,the most profitable product is the one with the highest contribution margin per unit.

Accepted Answer

A) True 
 B)False

Question 10

If the limiting factor is demand and there are no scarce resources,managers should emphasize the product with ________.

Accepted Answer

A) the highest selling price per unit 
B) the lowest variable costs per unit 
C) the highest contribution margin per unit 
D) the lowest fixed costs per unit

Question 11

Goldwater Company manufactures a part for its production cycle.The annual costs per unit for 10,000 units of the part are as follows:  The fixed factory overhead costs are unavoidable.Olson Company has offered to sell 10,000 units of the same part to Goldwater Company for $60 per unit.The facilities currently used to make the part could be used to make 10,000 units per year of a new product that has a contribution margin of $20 per unit.No additional fixed costs would be incurred with the new product.Goldwater Company should ________.

Accepted Answer

A) make the part to save $10,000 
B) make the part to save $90,000 
C) make the new product and buy the part to save $90,000 
D) make the new product and buy the part to save $110,000

Question 12

Aloa Company has three product lines: A,B and C.The following annual information is available:  Assume Aloa Company drops Product C.Aloa Company then doubles the production and sales of Product B without increasing fixed costs.What will happen to operating income?

Accepted Answer

A) increase $15,000 
B) increase $24,000 
C) increase $36,000 
D) increase $42,000

Question 13

The salary foregone by a person who quits a job to start a business is an example of a(n)________.

Accepted Answer

A) sunk cost 
B) opportunity cost 
C) depreciable cost 
D) outlay cost

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

Jack Bowers 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) differential cost 
C) opportunity cost 
D) outlay cost

Question 16

Past costs may affect future payments for income taxes.

Accepted Answer

A) True 
 B)False

Question 17

Birch Company manufactures a part for its production cycle.The costs per unit for 5,000 units of the part are as follows:  The fixed factory overhead costs are unavoidable.Spalding Company has offered to sell 5,000 units of the same part to Birch Company for $15 per unit.Assuming no other use for the facilities,Birch Company should ________.

Accepted Answer

A) make the part to save $1 per unit 
B) make the part to save $3 per unit 
C) buy the part from Spalding Company to save $1 per unit 
D) buy the part from Spalding Company to save $3 per unit

Question 18

An equipment's book value is the original cost plus accumulated depreciation.

Accepted Answer

A) True 
 B)False

Question 19

Heating and air conditioning costs are examples of common costs to the different departments in a retail store.

Accepted Answer

A) True 
 B)False

Question 20

Examples of joint products include chemicals,lumber and flour.

Accepted Answer

A) True 
 B)False

Exam 6: Relevant Information for Decision Making With a Focus

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

When determining the opportunity cost of a project,it depends on the alternatives available.

A key factor in a make-or-buy decision is ________.

Past costs that are unavoidable and unchangeable are known as sunk costs.

Bert Company is considering the replacement of a machine that is presently used in production.The following data are available: Adding all five years together,the difference in total cost between the old machine and the new machine is ________ the old machine.

In retail sales,the limiting resource is often floor space.

When adding or dropping a product line,fixed avoidable costs may be relevant costs.

If the limiting factor is demand,the most profitable product is the one with the highest contribution margin per unit.

If the limiting factor is demand and there are no scarce resources,managers should emphasize the product with ________.

Aloa Company has three product lines: A,B and C.The following annual information is available: Assume Aloa Company drops Product C.Aloa Company then doubles the production and sales of Product B without increasing fixed costs.What will happen to operating income?

The salary foregone by a person who quits a job to start a business is an example of a(n) ________.

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

Jack Bowers 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) ________.

Past costs may affect future payments for income taxes.

An equipment's book value is the original cost plus accumulated depreciation.

Heating and air conditioning costs are examples of common costs to the different departments in a retail store.

Examples of joint products include chemicals,lumber and flour.