Question 1

A purchasing agent has two potential firms from which to buy materials for production. If both firms charge the same price, the material cost is a(n)

Accepted Answer

A)  irrelevant cost. 
B)  relevant cost. 
C)  sunk cost. 
D)  opportunity cost.

Question 2

Areas that are physically on U.S. soil but considered to be outside U.S. commerce are
called __________ zones.

Accepted Answer

The answer of Areas that are physically on U.S. soil...

Question 3

If a firm is at full capacity, the minimum special order price must cover

Accepted Answer

A)  variable costs associated with the special order. 
B)  variable and fixed manufacturing costs associated with the special order. 
C)  variable and incremental fixed costs associated with the special order. 
D)  variable costs and incremental fixed costs associated with the special order plus foregone contribution margin on regular units not produced.

Question 4

Zildjian Corporation manufactures a single product with the following unit costs for 1,250 units:  Recently, a company approached Zildjian Corporation about buying 100 units for $5,100 each. Currently, the models are sold to dealers for $7,900. Zildjian Corporation's capacity is sufficient to produce the extra 100 units. No additional selling expenses would be incurred on the special order.
If Zildjian Corporation wants to increase its profit by $18,000 on the special order, what is the minimum price it should charge per unit?

Accepted Answer

A)  $4,064 
B)  $4,514 
C)  $5,100 
D)  $6,900

Question 5

Wallyworld Company manufactures a product with the following costs per unit at the expected production level of 84,000 units:  The company has the capacity to produce 90,000 units. The product regularly sells for $120. A wholesaler has offered to pay $110 a unit for 7,500 units.
If the special order is accepted, the effect on operating income would be a

Accepted Answer

A)  $75,000 decrease. 
B)  $429,000 increase. 
C)  $249,000 increase. 
D)  $495,000 increase.

Question 6

The activity resource usage model focuses on sorting out the behavior of various activity costs and assess their relevancy.

Accepted Answer

A) True 
 B)False

Question 7

Relevant costs and revenues are present costs and revenues that differ across alternatives.

Accepted Answer

A) True 
 B)False

Question 8

Describe the steps in the decision-making process. What is the role of qualitative factors in tactical decision-making?

Accepted Answer

The answer of Describe the steps in the decision-making process....

Question 9

Information about three joint products follows:  The cost of the joint process is $140,000. Which of the joint products should be processed further?

Accepted Answer

A)  X 
B)  Y 
C)  Z 
D)  both X and Y

Question 10

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

Accepted Answer

A)  $46,750. 
B)  $94,000. 
C)  $78,250. 
D)  $109,750.

Question 11

Senior Company currently buys 35,000 units of a part used to manufacture its product at $40 per unit. Recently the supplier informed Senior Company that a 20 percent increase will take effect next year. Senior has some additional space and could produce the units for the following per-unit costs (based on 35,000 units):
  If the units are purchased from the supplier, $200,000 of fixed costs will continue to be incurred. In addition, the plant can be rented out for $20,000 per year if the parts are purchased externally.
Required:
Should Senior Company buy the part externally or make it internally?

Accepted Answer

The answer of Senior Company currently buys 35,000 units of...

Question 12

The last of the six steps of the tactical decision model is to choose the quickest way to solve the problem.

Accepted Answer

A) True 
 B)False

Question 13

Firms may be asked to accept a special order of their product for a reduced price if

Accepted Answer

A)  it can be concealed from the government. 
B)  excess capacity exists. 
C)  the order is small. 
D)  the plant is producing at maximum capacity.

Question 14

Which of the following is NOT a step in the tactical decision-making process?

Accepted Answer

A)  Compare full costs and benefits for alternatives. 
B)  Identify feasible alternatives. 
C)  Select the best alternative. 
D)  Recognize and define the problem.

Question 15

How is understanding of committed resources and flexible resources important to the activity resource usage model? How does this relate to relevance?

Accepted Answer

The answer of How is understanding of committed resources and...

Question 16

Figure 17-2 Wannabee Company manufactures a product with the following costs per unit at the expected production level of 84,000 units:
 The company has the capacity to produce 90,000 units. The product regularly sells for $120.
Refer to Figure 17-2. A wholesaler has offered to pay $110 a unit for 7,500 units.
If the special order is accepted, the effect on operating income would be a

Accepted Answer

A)  $249,000 increase. 
B)  $429,000 increase. 
C)  $495,000 increase. 
D)  $75,000 decrease.

Question 17

Noreaster Company produces a product that has a regular selling price of $360 per unit. At a typical monthly production volume of 2,000 units, the product's average unit cost of goods sold amounts to $270. Included in this average is $120,000 of fixed manufacturing costs. All selling and administrative costs are fixed and amount to $30,000 per month. Noreaster Company has just received a special order for 1,000 units at $240 per unit. The buyer will pay transportation, and the regular selling price will not be affected if Noreaster accepts the order.
Assuming Noreaster Company has excess capacity, the effect on profits of accepting the order would be a

Accepted Answer

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

Question 18

Akaramasa, Inc., uses a joint process to produce Products W, X, Y, Z. Each product may be sold at its split-off point or processed further. Additional processing costs of specific products are entirely variable. Joint processing costs for a single batch of joint products are $200,000. Other relevant data are as follows:
  Required:

Accepted Answer

The answer of Akaramasa, Inc., uses a joint process to...

Question 19

Wallyworld Company manufactures a product with the following costs per unit at the expected production level of 84,000 units:  The company has the capacity to produce 90,000 units. The product regularly sells for $120.
If a wholesaler offered to buy 4,500 units for $100 each, the effect of the special order on income would be a

Accepted Answer

A)  $450,000 increase. 
B)  $45,000 increase. 
C)  $153,000 increase. 
D)  $90,000 decrease.

Question 20

Past cost __________ represents an allocation of a cost already incurred.

Accepted Answer

The answer of Past cost __________ represents an allocation of...

Exam 17: Activity Resource Usage Model and Tactical Decision Making

A purchasing agent has two potential firms from which to buy materials for production. If both firms charge the same price, the material cost is a(n)

Areas that are physically on U.S. soil but considered to be outside U.S. commerce are called __________ zones.

If a firm is at full capacity, the minimum special order price must cover

The activity resource usage model focuses on sorting out the behavior of various activity costs and assess their relevancy.

Relevant costs and revenues are present costs and revenues that differ across alternatives.

Describe the steps in the decision-making process. What is the role of qualitative factors in tactical decision-making?

Information about three joint products follows: The cost of the joint process is $140,000. Which of the joint products should be processed further?

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

The last of the six steps of the tactical decision model is to choose the quickest way to solve the problem.

Firms may be asked to accept a special order of their product for a reduced price if

Which of the following is NOT a step in the tactical decision-making process?

How is understanding of committed resources and flexible resources important to the activity resource usage model? How does this relate to relevance?

Past cost __________ represents an allocation of a cost already incurred.