Question 1

Santorino Company produces two models of a component, Model K-3 and Model P-4.The unit contribution margin for Model K-3 is $6; the unit contribution margin for Model P-4 is $14.Each model must spend time on a special machine.The firm owns two machines that together provide 4,000 hours of machine time per year.Model K-3 requires 15 minutes of machine time; Model P-4 requires 30 minutes of machine time.  
-
What is the contribution margin per unit of scarce resource (machine time) for Model K-3?

Accepted Answer

A)  $24 
B)  $12 
C)  $6 
D)  $14 
E)  $28

Question 2

Hyacinth Company is designing an all-in-one grill and cooler aimed at sports fans.The company believes that the product can be sold for $250.Hyacinth requires a 20% profit on new products.What is the target cost of the all-in-one grill and cooler?

Accepted Answer

A)  $122 
B)  $251 
C)  $145 
D)  $200 
E)  $180

Question 3

In short-run decision making, the alternative with the lowest overall cost is always chosen.

Accepted Answer

A) True 
 B)False

Question 4

The limitations faced by firms in terms of resources and product demand are called:

Accepted Answer

A)  exceptions. 
B)  advantages. 
C)  constraints. 
D)  cost enhancers. 
E)  contribution factors.

Question 5

The operations of Knickers Corporation are divided into the Pacers Division and the Bulls Division.Projections for the next year are as follows:

Operating income for Knickers Corporation as a whole if the Bulls Division were dropped would be

Accepted Answer

A)  $99,750. 
B)  $84,000. 
C)  $68,250. 
D)  $36,750.

Question 6

Short-run decision making only involves short-run decisions that have nothing to do with the firm's overall strategy.

Accepted Answer

A) True 
 B)False

Question 7

Santorino Company produces two models of a component, Model K-3 and Model P-4.The unit contribution margin for Model K-3 is $6; the unit contribution margin for Model P-4 is $14.Each model must spend time on a special machine.The firm owns two machines that together provide 4,000 hours of machine time per year.Model K-3 requires 15 minutes of machine time; Model P-4 requires 30 minutes of machine time.  
- 
What is the amount of machine time for model P-4 in terms of percent of a machine hour?

Accepted Answer

A)  10% 
B)  20% 
C)  25% 
D)  30% 
E)  50%

Question 8

StarZinc Company produced 200 defective units last month at a unit manufacturing cost of $50.The defective units were discovered before leaving the plant.StarZinc can sell them as is for $35 or can rework them at a cost of $25 and sell them at the regular price of $100.The total relevant cost of reworking the defective units is:

Accepted Answer

A)  $8,500. 
B)  $7,800. 
C)  $2,000. 
D)  $3,600. 
E)  $5,000.

Question 9

A manager will make a __________________ when determining if a specially priced order should be accepted or rejected.

Accepted Answer

The answer of A manager will make a __________________ when...

Question 10

Victor's Detailing customers would be willing to pay $57 per detail.The company requires a 40% profit on each job.The average job would cost $30. 
-  Victor's uses target costing.Victor's Detailing should:

Accepted Answer

A)  sell their business. 
B)  ask their customers to pay more. 
C)  sell their services at the price customers are willing to pay. 
D)  find a way to reduce costs. 
E)  reduce their required percentage to stay in business.

Question 11

Target costing can be used most effectively in the design and development stage of the product life cycle.

Accepted Answer

A) True 
 B)False

Question 12

Matching
​
Match each statement with the correct item below.
-​Sunk costs

Accepted Answer

A) ​the difference in total cost between the alternatives in a decision 
B) ​determine whether or not a segment should be kept or dropped 
C) ​limited resources and limited demand for each product 
D) ​a specific set of procedures that produces a decision 
E) ​the point at which products that have common processes and costs of production become distinguishable
F)​method of determining the cost of a product based on the price that customers are willing to pay
G)​decisions involving a choice between internal and external production
H)​products that have common processes and costs of production up to a point
I)​past costs that cannot be affected by future decisions
J)​a percentage applied to the base cost to cover other costs plus profit
K)​determine whether a specially priced order should be accepted or rejected
L)​determine whether it is more profitable to process a joint product further

Question 13

Ring Company makes telephones.Currently, Ring makes all components of the telephones in-house.An outside company has offered to supply one component, part number X76, for $12 each.Ring uses 22,000 of these components per year.Costs of X76 are as follows:​ ​
​
 Suppose that 30% of the fixed overhead is avoidable if part X76 is not made by Ring.Should Ring purchase the part from the outside supplier?

Accepted Answer

A)  No, income will decrease by $71,500. 
B)  No, income will decrease by $15,000. 
C)  Yes, income will increase by $74,500. 
D)  No, income will decrease by $10,500. 
E)  Yes, income will increase by $10,500.

Question 14

Matching
​
Match each statement with the correct item below.
-​Constraints

Accepted Answer

A) ​the difference in total cost between the alternatives in a decision 
B) ​determine whether or not a segment should be kept or dropped 
C) ​limited resources and limited demand for each product 
D) ​a specific set of procedures that produces a decision 
E) ​the point at which products that have common processes and costs of production become distinguishable
F)​method of determining the cost of a product based on the price that customers are willing to pay
G)​decisions involving a choice between internal and external production
H)​products that have common processes and costs of production up to a point
I)​past costs that cannot be affected by future decisions
J)​a percentage applied to the base cost to cover other costs plus profit
K)​determine whether a specially priced order should be accepted or rejected
L)​determine whether it is more profitable to process a joint product further

Question 15

Elegance Bath Products, Inc.(EBP) makes a variety of ceramic sinks and tubs.EBP has just developed a line of sinks and tubs made from a mixture of glass and ceramic.The sinks sell for $150 each and have variable costs of $80.The tubs sell for $600 and have variable costs of $450.The glass and ceramic sinks and tubs require the use of specialized molding equipment.The specialized molding equipment has 4,050 hours of capacity per year.A sink uses an average of 2 hours of specialized molding equipment time; a tub uses an average of 5 hours of specialized molding equipment time  
-
Assume that EBP can sell as many as 1,000 sinks and 500 tubs per year.How many tubs should EBP produce?

Accepted Answer

A)  1,000 
B)  500 
C)  410 
D)  675 
E)  0

Question 16

Linear programming is a special technique that can be used to determine the optimal product mix when there are multiple constraints.

Accepted Answer

A) True 
 B)False

Question 17

A _________________ can be used to structure the decision maker's thinking and to organize the information to make a good decision.

Accepted Answer

The answer of A _________________ can be used to structure...

Question 18

Santorino Company produces two models of a component, Model K-3 and Model P-4.The unit contribution margin for Model K-3 is $6; the unit contribution margin for Model P-4 is $14.Each model must spend time on a special machine.The firm owns two machines that together provide 4,000 hours of machine time per year.Model K-3 requires 15 minutes of machine time; Model P-4 requires 30 minutes of machine time.  
- 
What is the contribution margin per unit of scarce resource (machine time) for Model P-4?

Accepted Answer

A)  $6 
B)  $12 
C)  $24 
D)  $14 
E)  $28

Question 19

A company is considering a special order for 1,000 units to be priced at $8.90 (the normal price would be $11.50).The order would require specialized materials costing $4.00 per unit.Direct labor and variable factory overhead would cost $2.15 per unit.Fixed factory overhead is $1.20 per unit.However, the company has excess capacity and acceptance of the order would not raise total fixed factory overhead.The warehouse, however, would have to add capacity costing $1,300.Which of the following is relevant to the special order?

Accepted Answer

A)  $11.50 normal selling price 
B)  $1.20 fixed factory overhead per unit 
C)  $7.35 spent on donuts and coffee 
D)  $8.90 selling price per unit of special order 
E)  None of these.

Question 20

Sabor Inc.is a medical testing laboratory that performs several tests and analyses for hospitals in the area.Four of the tests that they perform require the use of a specialized machine that can supply 14,000 hours per year.Information on the four lab tests follows:  
 
-  What is the contribution margin per unit of machine time for Test D?

Accepted Answer

A)  $20 
B)  $32 
C)  $8 
D)  $48 
E)  $24

Exam 8: Tactical Decision-Making and Relevant Costing

Hyacinth Company is designing an all-in-one grill and cooler aimed at sports fans.The company believes that the product can be sold for $250.Hyacinth requires a 20% profit on new products.What is the target cost of the all-in-one grill and cooler?

In short-run decision making, the alternative with the lowest overall cost is always chosen.

The limitations faced by firms in terms of resources and product demand are called:

The operations of Knickers Corporation are divided into the Pacers Division and the Bulls Division.Projections for the next year are as follows: Operating income for Knickers Corporation as a whole if the Bulls Division were dropped would be

Short-run decision making only involves short-run decisions that have nothing to do with the firm's overall strategy.

A manager will make a __________________ when determining if a specially priced order should be accepted or rejected.

Victor's Detailing customers would be willing to pay $57 per detail.The company requires a 40% profit on each job.The average job would cost $30. - Victor's uses target costing.Victor's Detailing should:

Target costing can be used most effectively in the design and development stage of the product life cycle.

Matching Match each statement with the correct item below. -Sunk costs

Matching Match each statement with the correct item below. -Constraints

Linear programming is a special technique that can be used to determine the optimal product mix when there are multiple constraints.

A _________________ can be used to structure the decision maker's thinking and to organize the information to make a good decision.

Exam 8: Tactical Decision-Making and Relevant Costing

Hyacinth Company is designing an all-in-one grill and cooler aimed at sports fans.The company believes that the product can be sold for $250.Hyacinth requires a 20% profit on new products.What is the target cost of the all-in-one grill and cooler?

In short-run decision making, the alternative with the lowest overall cost is always chosen.

The limitations faced by firms in terms of resources and product demand are called:

The operations of Knickers Corporation are divided into the Pacers Division and the Bulls Division.Projections for the next year are as follows: Operating income for Knickers Corporation as a whole if the Bulls Division were dropped would be

Short-run decision making only involves short-run decisions that have nothing to do with the firm's overall strategy.

A manager will make a __________________ when determining if a specially priced order should be accepted or rejected.

Victor's Detailing customers would be willing to pay $57 per detail.The company requires a 40% profit on each job.The average job would cost $30. - Victor's uses target costing.Victor's Detailing should:

Target costing can be used most effectively in the design and development stage of the product life cycle.

Matching ​ Match each statement with the correct item below. -​Sunk costs

Matching ​ Match each statement with the correct item below. -​Constraints

Linear programming is a special technique that can be used to determine the optimal product mix when there are multiple constraints.

A _________________ can be used to structure the decision maker's thinking and to organize the information to make a good decision.

Matching Match each statement with the correct item below. -Sunk costs

Matching Match each statement with the correct item below. -Constraints