Question 1

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. A

Question 2

Estimated future costs that differ between alternative courses of action are termed __________ costs in management decision analysis.

Accepted Answer

A)   variable overhead
B)   relevant
C)   absorption
D)   replacement B

Question 3

Opportunity costs are irrelevant costs.

Accepted Answer

A) True 
 B)False  False

Question 4

The objective of a sales mix decision is to select the alternative that maximizes the contribution margin per constrained resource.

Accepted Answer

A) True 
 B)False

Question 5

It is not possible for a company to provide the full variety of products or services which the customer demands within a given time.

Accepted Answer

A) True 
 B)False

Question 6

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.

Question 7

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 8

Irrelevant costs are costs that are

Accepted Answer

A)   different among alternatives.
B)   avoidable costs.
C)   opportunity costs.
D)   sunk costs.

Question 9

Sunk costs are omitted from decision analysis

Accepted Answer

A)   always.
B)   never.
C)   sometimes.
D)   only if immaterial.

Question 10

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 11

What two criteria must be met for information to be considered relevant to decision making?

Accepted Answer

The answer of What two criteria must be met for...

Question 12

Relevant costs in a sell or process-further decision include

Accepted Answer

A)   costs of additional processing.
B)   both additional revenues and additional costs.
C)   revenues after additional processing.
D)   joint product costs.

Question 13

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 14

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 15

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

Accepted Answer

A) True 
 B)False

Question 16

If the incremental costs of processing further is greater than the incremental revenue,the decision to process the product or service further is justified.

Accepted Answer

A) True 
 B)False

Question 17

Contribution margin information is not relevant for

Accepted Answer

A)   the elimination of unprofitable segment decisions.
B)   pricing decisions for special orders.
C)   sales mix with resource constraint decisions.
D)   determining the amount that sales exceeded fixed costs.

Question 18

The Dropinsky Company's management wants to determine if Division Y should be eliminated.The following data are available (in thousands).
 $$\text { Segmnented Income Statement }$$
$\begin{array}{lrrrr}
&\text { Division } \mathrm{X} & \text { Division } \mathrm{Y} & \text { Division } \mathrm{Z} & \text { Total }\
\text { Sales } & \$ 200 & \$ 300 & \$ 400 & \$ 900 \
\text { Less variable costs } & \frac{80}{} & \underline{150} & \underline{160} & \underline{390} \
\text { Contribution margin } & \$ 120 & \$ 150 & \$ 240 & \$ 510 \
\text { Less direct fixed costs } & \underline{70} & \underline{170} & \underline{120} & \underline{360} \
\text { Segment margin } & \underline{\$ 50} & \underline{\$ 20)} & \underline{\$ 120} & \$ 150 \
\text { Less common fixed costs } & & & & \underline{90} \
\text { Operating income } & & & & \$ 60
\end{array}$ 
a. Assuming all direct fixed costs of Division Y are avoidable, what would be the change in operating income if Division Y were eliminated?
b. Assuming one-half of the direct fixed costs of Division Y are avoidable, what would be the change in operating income if Division Y were eliminated?

Accepted Answer

The answer of The Dropinsky Company's management wants to determine...

Question 19

Segment profitability analysis includes the preparation of a segmented income statement.

Accepted Answer

A) True 
 B)False

Question 20

The first step in the incremental analysis is to eliminate any irrelevant revenues and costs.

Accepted Answer

A) True 
 B)False

Exam 24: Short Run Decision Analysis

The term incremental cost refers to

Estimated future costs that differ between alternative courses of action are termed __________ costs in management decision analysis.

Opportunity costs are irrelevant costs.

The objective of a sales mix decision is to select the alternative that maximizes the contribution margin per constrained resource.

It is not possible for a company to provide the full variety of products or services which the customer demands within a given time.

Cost information for short-run decision making focuses on

Irrelevant costs are costs that are

Sunk costs are omitted from decision analysis

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

What two criteria must be met for information to be considered relevant to decision making?

Relevant costs in a sell or process-further decision include

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

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

If the incremental costs of processing further is greater than the incremental revenue,the decision to process the product or service further is justified.

Contribution margin information is not relevant for

Segment profitability analysis includes the preparation of a segmented income statement.

The first step in the incremental analysis is to eliminate any irrelevant revenues and costs.