Question 1

The time from initial research and development to the time that support to the customer ends is the:

Accepted Answer

A) product life cycle. 
B) short run. 
C) target time. 
D) predatory price.

Question 2

In the short-run,plant capacity is fixed and product choices have to be made that optimize the use of available capacity.In the short run,capacity is set and cannot be expanded.

Accepted Answer

A) True 
 B)False

Question 3

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.The distributor claims this special order would not disturb regular sales at $42.Special packaging and other selling expenses would be an additional $0.50 per unit for the special order.How many units of regular sales could be lost before this contract is not profitable?

Accepted Answer

A) 0 units. 
B) 950 units. 
C) 1,000 units. 
D) 2,000 units.

Question 4

Differential analysis involves the comparison of one or more alternative courses of action with the status quo.This is a definition of differential analysis.

Accepted Answer

A) True 
 B)False

Question 5

A target cost is computed as:

Accepted Answer

A) cost to manufacture plus a desired markup. 
B) cost to manufacture plus designated selling expenses. 
C) market willingness to pay-cost to manufacture. 
D) market willingness to pay-desired profit.

Question 6

Roswell Inc has 5,400 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 1 first,product 2 second,and product 3 third. 
B) Product 2 first,product 3 second,and product 1 third. 
C) Product 3 first,product 2 second,and product 1 third. 
D) Product 3 first,product 1 second,and product 2 thirD.P1 CM/hr = 15/3 = $5;P2: 18/2 = $9;P3: 7.50/1 = $7.50

Question 7

The theory of constraints focuses on determining the optimal product mix when one or more resources restrict the attainment of a goal or objective.This is the core idea of the theory of constraints.

Accepted Answer

A) True 
 B)False

Question 8

The Blade Division of Axe Company produces hardened steel blades.One-third of Blade's 30,000 unit 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 purchase price would be $1.25.If the Blade Division is now operating at full capacity and can sell all its units to outside customers at the present selling price,what is the differential cost to Axe of requiring that the blades be made internally and sold to the Forestry Division?

Accepted Answer

A) $2,500. 
B) $5,000. 
C) $7,500. 
D) $10,000.

Question 9

Differential analysis cannot be used for long-run decisions because it cannot incorporate the timing of revenues and costs (i.e. ,the time-value of money).The time value of money can be incorporated into the analysis.

Accepted Answer

A) True 
 B)False

Question 10

Financial statements prepared in accordance with generally accepted accounting principles (GAAP)provide differential cost information.GAAP has a focus of comparability,not decision relevance.

Accepted Answer

A) True 
 B)False

Question 11

Exporting a product to another country at a price below domestic cost:

Accepted Answer

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

Question 12

Price discrimination is the practice of selling identical goods or services to different customers at different prices.This is the definition of price discrimination.

Accepted Answer

A) True 
 B)False

Question 13

The alternative courses of action in a make-or-buy decision are (a)manufacture needed items internally or (b)purchase needed items externally.Make = internal;buy = external

Accepted Answer

A) True 
 B)False

Question 14

Short-run decisions often have long-run implications.Most decisions have long-run implications.

Accepted Answer

A) True 
 B)False

Question 15

Peak load pricing is the practice of setting prices lowest when the quantity demanded for the product approaches the physical capacity to produce it.Prices are set highest when capacity is being approached.

Accepted Answer

A) True 
 B)False

Question 16

The opportunity cost of making a component part in a factory with no excess capacity is the: (CMA adapted)

Accepted Answer

A) variable manufacturing cost of the component. 
B) fixed manufacturing cost of the component. 
C) total manufacturing cost of the component. 
D) net benefit foregone from the best alternative use of the capacity requireD.Opportunity costs and benefits are all about amounts foregone.

Question 17

The MNK Company has gathered the following information for a unit of its most popular product:  The above cost information is based on 4,000 units.A foreign distributor has offered to buy 1,000 units at a price of $16 per unit.This special order would not disturb regular sales.Variable shipping and other selling expenses would be an additional $1 per unit for the special order.If the special order is accepted,MNK's operating profits will increase by:

Accepted Answer

A) $1,000. 
B) $1,600. 
C) $2,000. 
D) $4,000.

Question 18

The reason opportunity costs are not included in the accounting system is because they involve estimates.They are not included in the system because they are not the result of a transaction.Many items included in the accounting system involve estimates (such as depreciation).

Accepted Answer

A) True 
 B)False

Question 19

The following information relates to the Jax Company for the upcoming year.  The cost of goods sold includes $2,400,000 of fixed manufacturing overhead;the operating expenses include $200,000 of fixed marketing expenses.A special order offering to buy 50,000 units for $15.00 per unit has been made to Jax.Fortunately,there will be no additional operating expenses associated with the order;however,Jax is operating at full capacity.How much will operating profits increase if Jax accepts the special order?

Accepted Answer

A) $50,000. 
B) $125,000. 
C) $200,000. 
D) $250,000. 
E) Operating profits will not increase as a result of accepting the special order.

Question 20

Schemm Inc.regularly uses material F04E and currently has in stock 460 liters of the material for which it paid $2,622 several weeks ago.If this were to be sold as is on the open market as surplus material,it would fetch $5.25 per liter.New stocks of the material can be purchased on the open market for $5.85 per liter,but it must be purchased in lots of 1,000 liters.You have been asked to determine the relevant cost of 800 liters of the material to be used in a job for a customer.The relevant cost of the 800 liters of material F04E is: (CIMA adapted)

Accepted Answer

A) $5,850. 
B) $4,200. 
C) $4,404. 
D) $4,680.

Exam 4: Fundamentals of Cost Analysis for Decision Making

The time from initial research and development to the time that support to the customer ends is the:

In the short-run,plant capacity is fixed and product choices have to be made that optimize the use of available capacity.In the short run,capacity is set and cannot be expanded.

Differential analysis involves the comparison of one or more alternative courses of action with the status quo.This is a definition of differential analysis.

A target cost is computed as:

Roswell Inc has 5,400 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?

The theory of constraints focuses on determining the optimal product mix when one or more resources restrict the attainment of a goal or objective.This is the core idea of the theory of constraints.

Differential analysis cannot be used for long-run decisions because it cannot incorporate the timing of revenues and costs (i.e. ,the time-value of money).The time value of money can be incorporated into the analysis.

Financial statements prepared in accordance with generally accepted accounting principles (GAAP)provide differential cost information.GAAP has a focus of comparability,not decision relevance.

Exporting a product to another country at a price below domestic cost:

Price discrimination is the practice of selling identical goods or services to different customers at different prices.This is the definition of price discrimination.

The alternative courses of action in a make-or-buy decision are (a)manufacture needed items internally or (b)purchase needed items externally.Make = internal;buy = external

Short-run decisions often have long-run implications.Most decisions have long-run implications.

Peak load pricing is the practice of setting prices lowest when the quantity demanded for the product approaches the physical capacity to produce it.Prices are set highest when capacity is being approached.

The opportunity cost of making a component part in a factory with no excess capacity is the: (CMA adapted)

The reason opportunity costs are not included in the accounting system is because they involve estimates.They are not included in the system because they are not the result of a transaction.Many items included in the accounting system involve estimates (such as depreciation).