Question 1

The Lemaire Company manufactures wiring tools.The company is currently producing well below its full capacity.The Boisvert Company has approached Lemaire with an offer to buy 10,000 tools at $1.75 each.Lemaire sells its tools wholesale for $1.85 each;the average cost per unit is $1.83,of which $0.27 is fixed costs.If Lemaire were to accept Boisvert's offer,what would be the increase in Lemaire's operating profits?

Accepted Answer

A)  $800.
B)  $1,000.
C)  $1,900.
D)  $2,900. C

Question 2

Lerner Inc has 6,600 machine hours available each month.The following information on the company's three products is available:  If market demand exceeds the available capacity,in what sequence should orders be filled to maximize the company's profits?

Accepted Answer

A)  Product X first,product Z second,and product Y third.
B)  Product Y first,product Z second,and product X third.
C)  Product Y first,product X second,and product Z third.
D)  Product Z first,product X second,and product Y thirD.X CM/hr = 20/2 = $10;Y: 21/3 = $7;Z: 17.50/2 = 8.75 A

Question 3

Differential costs are: (CMA adapted)

Accepted Answer

A)  the difference in total costs that result from selecting one choice instead of another.
B)  the profit foregone by selecting one choice instead of another.
C)  a cost that continues to be incurred in the absence of activity.
D)  a cost common to all choices in questions and not clearly allocable to any of them. A

Question 4

The Axle Division of Becker Company produces axles for off-road sport vehicles.One-third of Axle's output is sold to an internal division of Becker;the remainder is sold to outside customers.Axle's estimated operating profit for the year is:  The internal division has an opportunity to purchase 10,000 axles of the same quality from an outside supplier on a continuing basis.The Axle Division cannot sell any additional products to outside customers.Should the Becker Company allow its internal division to purchase the axles from the outside supplier at $13.00 per unit?

Accepted Answer

A)  No;making the axles will save Becker $15,000.
B)  Yes;buying the axles will save Becker $15,000.
C)  No;making the axles will save Becker $30,000.
D)  Yes;buying the axles will save Becker $30,000.

Question 5

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

Accepted Answer

A)  $133,000.
B)  $112,000.
C)  $91,000.
D)  $49,000.

Question 6

The Blade Division of Axe Company produces hardened steel blades.One-third of Blade's output is sold to the Forestry Products Division of Axe;the remainder is sold to outside customers.Blades' estimated operating profit for the year is:  The Forestry Division has an opportunity to purchase 10,000 blades of the same quality from an outside supplier on a continuing basis.The Blade Division cannot sell any additional products to outside customers.Should the Axe Company allow its Forestry Division to purchase the blades from the outside supplier at $1.25 per unit?

Accepted Answer

A)  No;making the blades will save Axe $1,500.
B)  Yes;buying the blades will save Axe $1,500.
C)  No;making the blades will save Axe $2,500.
D)  Yes;buying the blades will save Axe $2,500.

Question 7

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

Accepted Answer

A)  $66,500.
B)  $56,000.
C)  $45,500.
D)  $24,500.

Question 8

Broze Company makes four products in a single facility.These products have the following unit product costs:  Additional data concerning these products are listed below.  The grinding machines are the constraint in the production facility.A total of 53,600 minutes are available per month on these machines.Direct labor is a variable cost in this company.Up to how much should the company be willing to pay for one additional minute of grinding machine time if the company has made the best use of the existing grinding machine capacity? (Round off to the nearest whole cent. )

Accepted Answer

A)  $35.90.
B)  $0.00.
C)  $8.58.
D)  $11.60.

Question 9

Target costs equal the difference between the target selling price and the desired profit margin.Target cost focuses on what level of costs would be allowed.

Accepted Answer

A) True 
 B)False

Question 10

The practice of setting prices highest when the quantity demanded for the product approaches capacity:

Accepted Answer

A)  predatory pricing.
B)  target pricing.
C)  peak-load pricing.
D)  price fixing.

Question 11

If there is excess capacity,the minimum acceptable price for a special order must cover:

Accepted Answer

A)  only 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 the contribution margin usually earned on regular units.

Question 12

The Buchanan Company has gathered the following information for a unit of its most popular product:  The above cost information is based on 10,000 units.A distributor has offered to buy 2,000 units at a price of $32 per unit.This special order would not disturb regular sales.Special packaging and other selling expenses would be an additional -$0.50 per unit for the special order.If the special order is accepted,Buchanan's operating profits will increase by:

Accepted Answer

A)  $4,000.
B)  $6,400.
C)  $8,000.
D)  $19,000.

Question 13

When deciding whether or not to accept a special order,a decision-maker should focus on differential costs instead of full costs.Full costs will include some costs that do not differ and should be excluded.

Accepted Answer

A) True 
 B)False

Question 14

The relevance of a particular cost to a decision is determined by the: (CMA adapted)

Accepted Answer

A)  riskiness of the decision.
B)  number of decision variables.
C)  amount of the cost.
D)  potential effect on the decision.

Question 15

If there is only one alternative course of action and the status quo is unacceptable,then there really is no decision to make.A decision needs at least two alternatives.

Accepted Answer

A) True 
 B)False

Question 16

The Speedy Delivery Service is considering the expansion of its business into afternoon retail delivery service.This would require an additional $25,000 in labor costs per month.Company-owned vehicles now used to make morning deliveries to local manufacturers could be used in the afternoons to make retail deliveries.However,it is estimated that an additional $10,000 would be required per month for gas,oil,and maintenance.It is further estimated that the retail delivery use of the trucks would be allocated 45% of the existing $13,000 fixed vehicle costs.What is the differential delivery cost per month for expanding into the retail delivery market?

Accepted Answer

A)  $25,000.
B)  $35,000.
C)  $39,500.
D)  $40,850.

Question 17

The price based on customers' perceived value for the product and the price that competitors charge:

Accepted Answer

A)  predatory price.
B)  target price.
C)  target cost.
D)  dumping price.

Question 18

The operations of Gadwell Corporation are divided into the Blink Division and the Blur Division.Projections for the next year are as follows:  If the Blur Division were dropped,Blink Division's sales would increase by 30%.If this happened,the operating income for Gadwell Corporation as a whole would be:

Accepted Answer

A)  $72,800.
B)  $56,000.
C)  $79,100.
D)  $59,150.

Question 19

The period of time over which capacity will be unchanged is:

Accepted Answer

A)  long run.
B)  sunk cost.
C)  short run.
D)  product life cycle.

Question 20

In a decision analysis situation,which one of the following costs is not likely to contain a variable cost component? (CMA adapted)

Accepted Answer

A)  Labor.
B)  Overhead.
C)  Straight-line Depreciation.
D)  Selling.

Exam 4: Fundamentals of Cost Analysis for Decision Making

Lerner Inc has 6,600 machine hours available each month.The following information on the company's three products is available: If market demand exceeds the available capacity,in what sequence should orders be filled to maximize the company's profits?

Differential costs are: (CMA adapted)

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

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

Target costs equal the difference between the target selling price and the desired profit margin.Target cost focuses on what level of costs would be allowed.

The practice of setting prices highest when the quantity demanded for the product approaches capacity:

If there is excess capacity,the minimum acceptable price for a special order must cover:

When deciding whether or not to accept a special order,a decision-maker should focus on differential costs instead of full costs.Full costs will include some costs that do not differ and should be excluded.

The relevance of a particular cost to a decision is determined by the: (CMA adapted)

If there is only one alternative course of action and the status quo is unacceptable,then there really is no decision to make.A decision needs at least two alternatives.

The price based on customers' perceived value for the product and the price that competitors charge:

The period of time over which capacity will be unchanged is:

In a decision analysis situation,which one of the following costs is not likely to contain a variable cost component? (CMA adapted)