Question 1

The difference in total costs between two alternatives is referred to as the

Accepted Answer

A)  incremental cost. 
B)  sunk cost. 
C)  opportunity cost. 
D)  direct cost.

Question 2

Facts that are the same for each alternative are not relevant for management decision making.

Accepted Answer

A) True 
 B)False

Question 3

A cost that does not change between the alternatives is known as a differential cost.

Accepted Answer

A) True 
 B)False

Question 4

In a proposal to increase the production of clock radios,the sales managers of Rinaldo Electronics reported the total additional cost required to meet the increased production level.The increase in total cost is known as the

Accepted Answer

A)  opportunity cost. 
B)  out-of-pocket cost. 
C)  controllable cost. 
D)  incremental cost.

Question 5

In choosing among alternatives,managers are guided by historical cost information.

Accepted Answer

A) True 
 B)False

Question 6

The purpose of incremental analysis is to find the alternative

Accepted Answer

A)  with the fewest relevant costs. 
B)  that brings in the most revenue. 
C)  that contributes the most to profits. 
D)  with the lowest fixed costs.

Question 7

The decision analysis,which uses incremental analysis to identify the relevant costs and revenues,consists of two steps.

Accepted Answer

A) True 
 B)False

Question 8

Anderson Co.makes and uses 5,000 components each year in its manufacturing operations.An outside supplier has offered to supply the components to Anderson at $66 per unit.Anderson's production costs are as follows: $\begin{array}{ll}
\text { Direct materials } & \$ 8 \
\text { Direct labor } & 32 \
\text { Variable overhead } & 12 \
\text { Fixed overhead (based on normal capacity) } & 34
\end{array}$ If Anderson accepts the order,$8 of fixed overhead per unit will be eliminated.
If the offer is accepted,operating income will

Accepted Answer

A)  increase by $100,000. 
B)  decrease by $70,000. 
C)  decrease by $30,000. 
D)  increase by $60,000.

Question 9

Managers rely strictly on financial information when faced with decisions.

Accepted Answer

A) True 
 B)False

Question 10

The term incremental cost refers to

Accepted Answer

A)  the difference in total costs between alternatives. 
B)  a cost that does not entail any dollar outlay but that is relevant to the decision-making process. 
C)  the profit forgone by selecting one choice instead of another. 
D)  a cost that constitutes expenses to be incurred even though there is no activity.

Question 11

Opportunity costs arise when the choice of one course of action eliminates the possibility of another course of action.

Accepted Answer

A) True 
 B)False

Question 12

If the incremental costs are greater than the incremental revenue,the product should not be processed further and should be sold at the split-off point.

Accepted Answer

A) True 
 B)False

Question 13

During 2010,America,Inc.,produced,among other products,9,300 cameras,incurring the following unit costs: $5 in direct materials,$3 in direct labor,$2 in variable overhead,$4 in fixed overhead,$0.50 in variable selling and administrative expenses,and $1 in fixed selling and administrative expenses.An outsider had offered to produce the cameras for $12 each.Assuming that the factory space would have been idle otherwise,acceptance of the outside offer would have

Accepted Answer

A)  lost the company $9,300. 
B)  saved the company $33,950. 
C)  saved the company $18,950. 
D)  lost the company $13,950.

Question 14

Taylor manufactures 12,000 units of a part used in its production to manufacture guitars.The annual production activities related to this part are as follows:
 Direct materials,$24,000
Direct labor,$60,000
Variable overhead,$54,000
Fixed overhead,$84,000

Best Guitars,Inc.,has offered to sell 12,000 units of the same part to Taylor for $22 per unit.If Taylor were to accept the offer,some of the facilities presently used to manufacture the part could be rented to a third party at an annual rental of $18,000.Moreover,$4 per unit of the fixed overhead applied to the part would be totally eliminated.
In the decision to make or buy the part,what is the relevant fixed overhead?

Accepted Answer

A)  $30,000 
B)  $54,000 
C)  $84,000 
D)  $48,000

Question 15

Discuss the qualitative factors that should be considered in short-run decision making.

Accepted Answer

The answer of Discuss the qualitative factors that should be...

Question 16

Lispell Co.manufactures in-line skates that sell for $128 a pair.The company is currently operating at capacity,2,000 pairs.A special order from a foreign distributor for 400 pairs of skates at $120 a pair has just been received.In order to accept this order,Lispell Co.would have to give up 400 pairs of its regular sales.However,there would be no sales commission incurred on the order.Shown below are the current costs of operation:
 $\begin{array}{ll}
\text { Direct materials } & \$ 48 \
\text { Direct labor } & 12 \
\text { Variable overhead } & 4 \
\text { Fixed overhead } & 5(\$ 10,000 \div\text { 2,000 pairs) }\
\text { Variable selling and administrative } & 8 \text { (sales commissions) } \
\text { Fixed selling and administrative } & 4(\$ 8,000\div\text { 2,000 pairs) } 
\end{array}$ 
a. What costs are relevant to this decision?
b. Provide an incremental analysis to be used in determining whether or not the order should be accepted.
c. Are there any qualitative considerations that need to be addressed? Explain.

Accepted Answer

The answer of Lispell Co.manufactures in-line skates that sell for...

Question 17

Competition,social issues,and timeliness are examples of qualitative factors.

Accepted Answer

A) True 
 B)False

Question 18

There is no limit on the availability of resources such as machine time,labor hours.

Accepted Answer

A) True 
 B)False

Question 19

On November 15,20xx,The Cooper Co.received a special order for 6,000 three-wood golf club sets.These golf clubs will be marketed in Asia.Seto Imports,Inc.,the purchasing company,wants the clubs bulk packaged and is willing to pay $72 per set for the clubs.The president of The Cooper Co.has gathered the following product costing information about the set of woods being discussed: direct materials (wood),$900 per 100 sets; direct materials (metal shafts),$1,200 per 100 sets; and direct materials (grips),$200 per 100 sets.Direct labor is $27 per set.Variable manufacturing costs are $19 per set,and fixed manufacturing costs are 20 percent of direct labor dollars.Variable selling expenses are $14 per set,and variable shipping costs are $9 per set.Fixed general and administrative costs are figured at 30 percent of direct labor dollars.Bulk shipping costs will total $10,000,thus eliminating both variable selling and variable shipping costs from consideration.The company did not expect this order and will reach planned production capacity for the year.However,there is enough plant capacity for the special order.Round answers to two decimal places.
a. Prepare an analysis for the president to use in deciding whether to accept or reject the offer by Seto Imports, Inc. What decision should be made?
b. What is the lowest possible price The Cooper Co. could charge per set of woods and still make a $12,000 profit on this order?

Accepted Answer

The answer of On November 15,20xx,The Cooper Co.received a special...

Question 20

Cost information for short-run decision making focuses on

Accepted Answer

A)  what happened. 
B)  what is happening. 
C)  what will happen. 
D)  why it happened.

Exam 24: Short Run Decision Analysis

The difference in total costs between two alternatives is referred to as the

Facts that are the same for each alternative are not relevant for management decision making.

A cost that does not change between the alternatives is known as a differential cost.

In a proposal to increase the production of clock radios,the sales managers of Rinaldo Electronics reported the total additional cost required to meet the increased production level.The increase in total cost is known as the

In choosing among alternatives,managers are guided by historical cost information.

The purpose of incremental analysis is to find the alternative

The decision analysis,which uses incremental analysis to identify the relevant costs and revenues,consists of two steps.

Managers rely strictly on financial information when faced with decisions.

The term incremental cost refers to

Opportunity costs arise when the choice of one course of action eliminates the possibility of another course of action.

If the incremental costs are greater than the incremental revenue,the product should not be processed further and should be sold at the split-off point.

Discuss the qualitative factors that should be considered in short-run decision making.

Competition,social issues,and timeliness are examples of qualitative factors.

There is no limit on the availability of resources such as machine time,labor hours.

Cost information for short-run decision making focuses on