Question 1

A cost that has already been incurred and cannot be changed is called a(n):

Accepted Answer

A)  Opportunity cost. 
B)  Out-of-pocket cost. 
C)  Joint cost. 
D)  Sunk cost.

Question 2

The most common method to allocate joint costs is in proportion to the relative sales value of the products.

Accepted Answer

A) True 
 B)False

Question 3

When faced with a limited availability of machine-hours, management should consider producing those products which:

Accepted Answer

A)  Have the highest contribution margin per unit. 
B)  Have the highest contribution margin ratios. 
C)  Require the fewest machine-hours to produce. 
D)  Contribute the highest contribution margin per machine-hour.

Question 4

The split-off point is the point at which joint products can be separated into two or more products.

Accepted Answer

A) True 
 B)False

Question 5

The net change in operating income resulting from a decision to manufacture MB-2 is (specify whether the change is an increase or a decrease): $_____________

Accepted Answer

The answer of The net change in operating income resulting...

Question 6

The cost of draining sap out of a maple tree to manufacture maple syrup and maple sugar is an example of:

Accepted Answer

A)  After-split-off costs. 
B)  Sunk costs. 
C)  Incremental costs. 
D)  Joint costs.

Question 7

Sunk costs may be defined as unavoidable future costs resulting from past decisions.

Accepted Answer

A) True 
 B)False

Question 8

Direct material costs are always considered relevant costs in a make or buy decision.

Accepted Answer

A) True 
 B)False

Question 9

Sunk costs have already been incurred and cannot be changed by future actions.

Accepted Answer

A) True 
 B)False

Question 10

On the basis of the above information only, which of the following is not true?

Accepted Answer

A)  At the 5,000-unit level of production, JCN's average cost per unit is $54.20. 
B)  At the 6,000-unit level of production, JCN's average cost per unit is $49.33. 
C)  It would not be profitable for JCN to consider the special order at a price less than $49 per unit. 
D)  Neither the fixed manufacturing costs of $146,000 nor the variable manufacturing costs of $25 per unit is relevant to this decision regarding the special order.

Question 11

Differential analysis is a tool for evaluating alternative courses of action always resulting in higher profits for the organization.

Accepted Answer

A) True 
 B)False

Question 12

Assume that seats can be purchased from the outside supplier at $25 each, and that 60% of total fixed costs incurred in producing TushSeat will be eliminated by this strategy. Buying the seats instead of manufacturing them would cause Perry's operating income to:

Accepted Answer

A)  Decrease by $20,000. 
B)  Increase by $36,000. 
C)  Increase by $16,000. 
D)  Decrease by $24,000.

Question 13

All incremental revenue or incremental costs are relevant.

Accepted Answer

A) True 
 B)False

Question 14

The Magic Microbrewery has a limited amount of vat capacity available in which it can ferment beer. In deciding which beers to brew, Magic management should consider:

Accepted Answer

A)  The contribution margins of the individual beers. 
B)  The unit contribution margins of the individual beers. 
C)  The contribution margin ratios of the individual beers. 
D)  The contribution margin per unit of vat capacity of the individual beers.

Question 15

If Creative Corporation has only 250,000 square yards of wood available, what is the highest total amount of fixed cost the company can incur and still break-even?

Accepted Answer

A)  $2,500,000. 
B)  $4,000,000. 
C)  $5,000,000. 
D)  $6,000,000.

Question 16

Which of the following costs is generally considered irrelevant in incremental analysis?

Accepted Answer

A)  Sunk costs. 
B)  Out-of-pocket costs. 
C)  Incremental costs. 
D)  Opportunity costs.

Question 17

Johnson produces 7,000 skateboards each month, which it sells for $60 each. Variable costs are $25 per unit, and fixed costs are $95,000 per month. A Canadian company has offered to buy an additional 1,000 skateboards for $30 per unit. Assuming that normal sales volume and fixed costs remain unchanged, filling this special order will cause Johnson's operating income to:

Accepted Answer

A)  Decrease by $30,000. 
B)  Decrease by $6,250. 
C)  Decrease by $5,000. 
D)  Increase by $5,000.

Question 18

Joint costs are the middle costs of a product.

Accepted Answer

A) True 
 B)False

Question 19

The net change in operating income resulting from a decision to manufacture product A2 is:

Accepted Answer

A)  $15,000 (increase). 
B)  $15,000 (decrease). 
C)  $5,000 (increase). 
D)  $45,000 (increase).

Question 20

In deciding whether to accept this special order from Computer Marketing Corp., Phoenix should be least concerned with:

Accepted Answer

A)  What Computer Marketing Corp. intends to do with the WizardCards. 
B)  The $45 average cost of manufacturing WizardCards. 
C)  The opportunity cost of not accepting the order. 
D)  The incremental cost of manufacturing an additional 10,000 WizardCards per month.

Exam 21: Incremental Analysis

A cost that has already been incurred and cannot be changed is called a(n) :

The most common method to allocate joint costs is in proportion to the relative sales value of the products.

When faced with a limited availability of machine-hours, management should consider producing those products which:

The split-off point is the point at which joint products can be separated into two or more products.

The net change in operating income resulting from a decision to manufacture MB-2 is (specify whether the change is an increase or a decrease): $_____________

The cost of draining sap out of a maple tree to manufacture maple syrup and maple sugar is an example of:

Sunk costs may be defined as unavoidable future costs resulting from past decisions.

Direct material costs are always considered relevant costs in a make or buy decision.

Sunk costs have already been incurred and cannot be changed by future actions.

On the basis of the above information only, which of the following is not true?

Differential analysis is a tool for evaluating alternative courses of action always resulting in higher profits for the organization.

Assume that seats can be purchased from the outside supplier at $25 each, and that 60% of total fixed costs incurred in producing TushSeat will be eliminated by this strategy. Buying the seats instead of manufacturing them would cause Perry's operating income to:

All incremental revenue or incremental costs are relevant.

The Magic Microbrewery has a limited amount of vat capacity available in which it can ferment beer. In deciding which beers to brew, Magic management should consider:

If Creative Corporation has only 250,000 square yards of wood available, what is the highest total amount of fixed cost the company can incur and still break-even?

Which of the following costs is generally considered irrelevant in incremental analysis?

Joint costs are the middle costs of a product.

The net change in operating income resulting from a decision to manufacture product A2 is:

In deciding whether to accept this special order from Computer Marketing Corp., Phoenix should be least concerned with: