Question 1

The CJP Company produces 10,000 units of item S10 annually at a total cost of $190,000.  The XYZ Company has offered to supply 10,000 units of S10 per year for $18 per unit.If CJP accepts the offer,$4 per unit of the fixed overhead would be saved.In addition,some of CJP's facilities could be rented to a third party for $15,000 per year.What are the relevant costs for the "make" alternative?

Accepted Answer

A) $160,000. 
B) $165,000. 
C) $175,000. 
D) $185,000.

Question 2

With constrained resources,the important measure of profitability is the contribution margin per unit of scarce resource.You are concerned with the best use of the resource,so you want to maximize the profit.

Accepted Answer

A) True 
 B)False

Question 3

The following information relates to a product produced by Ashland Company:  Fixed selling costs are $1,000,000 per year.Although production capacity is 500,000 units per year,Ashland expects to produce only 400,000 units next year.The product normally sells for $80 each.A customer has offered to buy 60,000 units for $60 each.The customer will pay the transportation charge on the units purchased.If Ashland accepts the special order,the effect on income would be a:

Accepted Answer

A) $120,000 increase. 
B) $360,000 increase. 
C) $840,000 increase. 
D) $1,200,000 decrease.

Question 4

Scherer Corporation is preparing a bid for a special order that would require 720 liters of material U48N.The company already has 560 liters of this raw material in stock that originally cost $6.30 per liter.Material U48N is used in the company's main product and is replenished on a periodic basis.The resale value of the existing stock of the material is $5.80 per liter.New stocks of the material can be readily purchased for $6.65 per liter.What is the relevant cost of the 720 liters of the raw material when deciding how much to bid on the special order? (CIMA adapted)

Accepted Answer

A) $4,592. 
B) $4,788. 
C) $4,456. 
D) $4,176.

Question 5

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.What is the minimum selling price that Axle should accept from the internal division?

Accepted Answer

A) $10.00. 
B) $13.00. 
C) $15.00. 
D) $50.00.

Question 6

Winton Inc has 12,000 machine hours available each month.The following information on the company's four 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 W first,product X second,product Z third,and product Y last. 
B) Product Z first,product W second,product X third,and product Y last. 
C) Product X first,product W second,product Y third,and product Z last. 
D) Product X first,product Z second,product Y third,and product W last.

Question 7

Which of the following costs are not considered in a differential analysis for a make-or-buy decision?

Accepted Answer

A) Indirect materials and indirect labor if the item is manufactured internally. 
B) Direct materials and direct labor if the item is purchased. 
C) Variable overhead if the item is manufactured internally. 
D) Fixed overhead that can be avoided if the item is purchaseD. 
E) Fixed overhead that will continue if the item is purchased.

Question 8

The Bremmer Company produces 5,000 units of item ZQ98 annually at a total cost of $200,000.  The Daisy Company has offered to supply all 5,000 units of ZQ98 per year for $35 per unit.If Bremmer accepts the offer,$8 per unit of the fixed overhead would be saved.In addition,some of Bremmer's leased facilities could be vacated,reducing lease payments by $30,000 per year.What are the relevant costs for the "make" alternative?

Accepted Answer

A) $120,000. 
B) $175,000. 
C) $190,000. 
D) $200,000.

Question 9

Which of the following costs are irrelevant for a special order that will allow an organization to utilize some of its present idle capacity?

Accepted Answer

A) Direct materials. 
B) Indirect materials. 
C) Variable overhead. 
D) Unavoidable fixed overheaD.

Question 10

The full cost fallacy occurs when a decision-maker fails to include fixed manufacturing overhead in the product's cost.The fallacy occurs when fixed costs are included.

Accepted Answer

A) True 
 B)False

Question 11

When there is a production constraint,a company should emphasize the products with:

Accepted Answer

A) the highest unit contribution margins. 
B) the highest contribution margin ratios. 
C) the highest contribution margin per unit of the constrained resource. 
D) the highest contribution margins and contribution margin ratios.

Question 12

The following information relates to the Tram Company for the upcoming year.  The cost of goods sold includes $1,200,000 of fixed manufacturing overhead;the operating expenses include $100,000 of fixed marketing expenses.A special order offering to buy 50,000 units for $7.50 per unit has been made to Tram.Fortunately,there will be no additional operating expenses associated with the order and Tram has sufficient capacity to handle the order.How much will operate profits be increased if Tram accepts the special order?

Accepted Answer

A) $25,000. 
B) $62,500. 
C) $100,000. 
D) $125,000.

Question 13

The Regal Baking Company is considering the expansion of its business into door-to-door delivery service.This would require an additional $12,500 in labor costs per month.Company-owned vehicles now used to make morning deliveries to restaurants could be used in the afternoons to make the home deliveries.However,it is estimated that an additional $5,000 would be required per month for gas,oil,and maintenance.It is further estimated that the home delivery use of the trucks would be allocated 45% of the existing $6,500 fixed vehicle costs.What is the differential delivery cost per month for expanding into the home delivery market?

Accepted Answer

A) $12,500. 
B) $17,500. 
C) $19,750. 
D) $20,425.

Question 14

Agreement among business competitors to set prices at a particular level:

Accepted Answer

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

Question 15

The Axle Division of Becker Company produces axles for off-road sport vehicles.One-third of Axle's 30,000 unit output is sold to an internal division of Becker;the remainder is sold to outside customers.Axles' 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 purchase price would be $13.00.If the Axle 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 Becker of requiring that the axles be made internally and sold to the internal division?

Accepted Answer

A) $25,000. 
B) $50,000. 
C) $70,000. 
D) $100,000.

Question 16

Which of the following costs would continue to be incurred even if a segment is eliminated?

Accepted Answer

A) Direct fixed expenses 
B) Variable cost of goods sold 
C) Common fixed costs 
D) Variable selling and administrative expenses

Question 17

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 and Jax has sufficient capacity to handle the order.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.

Question 18

The Bremmer Company produces 5,000 units of item ZQ98 annually at a total cost of $200,000.  The Daisy Company has offered to supply all 5,000 units of ZQ98 per year for $35 per unit.If Bremmer accepts the offer,$8 per unit of the fixed overhead would be saved.In addition,some of Bremmer's leased facilities could be vacated,reducing lease payments by $30,000 per year.At what price would Bremmer be indifferent to Daisy's offer?

Accepted Answer

A) $40. 
B) $38. 
C) $35. 
D) $24.

Question 19

Dumping occurs when a company exports its product to consumers in another country at an export price that is below the domestic price.This is the definition of dumping.

Accepted Answer

A) True 
 B)False

Question 20

A decision must involve at least two alternative courses of action.If there is only one alternative there is no decision to make.

Accepted Answer

A) True 
 B)False

Exam 4: Fundamentals of Cost Analysis for Decision Making

With constrained resources,the important measure of profitability is the contribution margin per unit of scarce resource.You are concerned with the best use of the resource,so you want to maximize the profit.

Winton Inc has 12,000 machine hours available each month.The following information on the company's four products is available: If market demand exceeds the available capacity,in what sequence should orders be filled to maximize the company's profits?

Which of the following costs are not considered in a differential analysis for a make-or-buy decision?

Which of the following costs are irrelevant for a special order that will allow an organization to utilize some of its present idle capacity?

The full cost fallacy occurs when a decision-maker fails to include fixed manufacturing overhead in the product's cost.The fallacy occurs when fixed costs are included.

When there is a production constraint,a company should emphasize the products with:

Agreement among business competitors to set prices at a particular level:

Which of the following costs would continue to be incurred even if a segment is eliminated?

Dumping occurs when a company exports its product to consumers in another country at an export price that is below the domestic price.This is the definition of dumping.

A decision must involve at least two alternative courses of action.If there is only one alternative there is no decision to make.