Deck 17: Activity Resource Usage Model and Tactical Decision Making

Question 1

A sunk cost is irrelevant because it has no influence over future decisions, so it is depreciated.

Answer 1

True

Question 2

Outsourcing refers to the move of a business function to another company, either in or out of the U.S.

Answer 2

True

Question 3

The first of the six steps of the tactical decision model is to recognize and define the problem.

Answer 3

True

Question 4

Tactical decision making includes decisions to make or buy a component.

Question 5

A special-order decision focuses on whether a specially priced order should be accepted or rejected.

Question 6

Changes in cost of an activity can occur if the demand for the resource exceeds the supply or if the demand for the resource drops.

Question 7

An irrelevant cost is one that is the same for more than one alternative and has no bearing on future decisions.

Question 8

A tariff is a tax on exports levied by the federal government.

Question 9

Sound tactical decision making is limited to achieve small objectives.

Question 10

Choosing to make or buy may reduce the cost of producing the main product and increase the quality.

Question 11

A keep-or-drop decision uses irrelevant cost analysis to determine whether to continue or discontinue a segment or line of business.

Question 12

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

Question 13

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

Question 14

Tactical decision making consists of choosing among alternatives with an immediate or limited end in view.

Question 15

Committed resources are acquired in advance of usage, through implicit contracting.

Question 16

Tactical cost analysis uses cost data to identify the choice that will bring the organization the most benefit.

Question 17

For flexible resources, if the demand for an activity changes across alternatives, then resource spending will remain the same and costs are relevant.

Question 18

Flexible resources are acquired way ahead of time.

Question 19

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

Question 20

Foreign trade zones are set up by the U.S. government to facilitate warehousing and/or manufacturing for companies.

Question 21

An important qualitative factor to consider regarding a special order is the

A) variable costs associated with the special order.
B) avoidable fixed costs associated with the special order.
C) effect the sale of special-order units will have on existing customers.
D) incremental revenue from the special order.

Question 22

Leasing or buying a building are examples of resources.

Question 23

Which of the following statement is true concerning the nature of tactical decisions?

A) Tactical decisions are often small-scale actions.
B) Tactical decisions often have an immediate or limited end in view.
C) Tactical decisions should support alternatives that result in long-term competitive advantage.
D) all of the above statements are true.

Question 24

A model is a set of procedures that, if followed, will lead to a decision.

Question 25

The use of relevant cost data to identify the alternative that provides the greatest benefit to the organization describes

A) target cost analysis.
B) functional cost analysis.
C) activity cost analysis.
D) tactical cost analysis.

Question 26

Decisions consisting of selecting among alternatives with immediate ends in views are called decisions.

Question 27

Tactical decision making relies

A) only on relevant cost information.
B) only on qualitative factors.
C) on relevant costs as well as other qualitative factors.
D) on neither relevant costs nor qualitative decisions.

Question 28

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

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

Question 29

The cost of acquiring activity capacity is called spending.

Question 30

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

Question 31

A decision to accept or reject a specially priced order is an example of a decision.

Question 32

Future costs which differ across alternatives are called costs.

Question 33

The steps in the tactical decision making process are: I. Comparing relevant costs and relating to strategic goals
II) Identifying feasible alternatives
III) Identifying costs and benefits and eliminating irrelevant costs
IV) Selecting best alternative
V) Defining the problem
What is the proper sequence of steps?

A) I, II, V, III, IV
B) II, I, V, III, IV
C) V, II, III, I, IV
D) V, III, II, IV, I

Question 34

In a keep-or-drop decision, the income or loss determines whether a segment is kept or dropped.

Question 35

Qualitative factors that should be considered when evaluating a make-or-buy decision are

A) the quality of the outside supplier's product.
B) whether the outside supplier can provide the needed quantities.
C) whether the outside supplier can provide the product when it is needed.
D) all of the above.

Question 36

A doctor choosing between buying laboratory tests externally or performing the tests in house is an example of a
decision.

Question 37

Future costs that differ across alternatives describe

A) relevant costs.
B) target cost.
C) full costs.
D) activity-based costs.

Question 38

Past cost represents an allocation of a cost already incurred.

Question 39

Sound tactical decision making

A) only concerns the short run.
B) consists of large scale actions that serve a broad purpose.
C) consists of supporting the strategic objectives of the firm.
D) only concerns the long run.

Question 40

The choosing among alternatives with an immediate or limited end in view consists of:

A) Tactical decision making
B) Long-run decision making
C) Universal decision making
D) all of the above

Question 41

Which item is NOT an example of a sunk cost?

A) materials needed for production
B) purchase cost of machinery
C) depreciation
D) all are sunk costs

Question 42

Which of the following costs is NOT relevant to a make-or-buy decision?

A) $20,000 of direct labor used to manufacture the parts
B) $25,000 in rent from leasing the production space to another company if the part is purchased from an outside supplier
C) the supervisor's salary of $35,000 that will be avoided if the part is purchased from an outside supplier
D) $40,000 of depreciation on the plant used to manufacture the parts

Question 43

Which of the following costs is relevant to a make-or-buy decision?

A) original cost of the production equipment
B) annual depreciation of the equipment
C) the amount that would be received if the production equipment were sold
D) the cost of direct materials purchased last month and used to manufacture the component

Question 44

Which of the following statements is TRUE when making a decision between two alternatives?

A) Variable costs may not be relevant when the decision alternatives have the same activity levels.
B) Variable costs are not relevant when the decision alternatives have different activity levels.
C) Sunk costs are always relevant.
D) Fixed costs are never relevant.

Question 45

Which of the following costs is NOT relevant to a decision to sell a product at split-off or process the product further and then sell the product?

A) joint costs allocated to the product
B) the selling price of the product at split-off
C) the additional processing costs after split-off
D) the selling price of the product after further processing

Question 46

Which of the following would be TRUE?

Question 47

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)

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

Question 48

The cost of acquiring activity capacity is(are)

A) Joint costs
B) Variable costing
C) Absorption costing
D) Resource spending

Question 49

In order for costs or benefits to be relevant, what must be true?

A) All decisions must relate to future.
B) Identifying relevant costs and benefits is an easy process.
C) Relevancy will relate both to the future and the past.
D) all of the above are true statements.

Question 50

For flexible resources, which of the following statements is true?

A) A change in resource spending will only occur if the demand for a resource drops permanently and exceeds demand enough so the activity capacity will be reduced.
B) Often, resources are acquired in advance for multiple periods and are therefore irrelevant.
C) Decisions often affect multi-period capabilities.
D) If the demand for an activity changes across alternatives, then resource spending will change and the cost of the activity will be relevant to the decision.

Question 51

Relevant costs are

A) past costs.
B) future costs.
C) full costs.
D) cost drivers.

Question 52

Which of the following costs is NOT relevant to a special-order decision?

A) the direct labor costs to manufacture the special-order units
B) the variable manufacturing overhead incurred to manufacture the special-order units
C) the portion of the cost of leasing the factory that is allocated to the special order
D) all of the above costs are relevant

Question 53

Which of the following is NOT a way that companies might reduce tariffs?

A) Alter materials to increase the domestic content.
B) Restrict the amount of imported materials.
C) Increase the amount of imported materials.
D) Utilize foreign trade zones.

Question 54

One of Maersk cargo ships hit an iceberg and sank. In deciding whether or not to salvage the ship, its book value is a(n)

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

Question 55

The U.S. government has set up foreign trade zones (FTZ) that

A) are located on U.S. soil but are considered to be outside of U.S. commerce for tariff purposes.
B) are located in foreign countries and designed to export to the United States.
C) are located in foreign countries and are designed to import from the United States.
D) are located in the United States and are considered part of the United States for tariff purposes.

Question 56

Santa Lucia Industries employs 500 workers in the factory. These workers produced 85,000 units in 2016. Due to a special order, the units produced in 2017 increased to 95,000 units. However, Santa Lucia produced these units without adding workers. How is that possible?

A) The labor cost associated with the additional units sold will be a relevant cost.
B) The employees were a flexible resource in this situation.
C) The plant had some unused activity capacity.
D) none of the above

Question 57

The future costs that differ across alternatives are called

A) Sunk costs
B) Irrelevant costs
C) Relevant costs
D) Past costs

Question 58

Which of the following costs is NOT relevant for special decisions?

A) incremental costs
B) sunk costs
C) avoidable costs
D) all of the above costs are relevant for special decisions

Question 59

Maldovar Company is considering purchasing a new machine to replace a machine purchased one year ago that is not achieving the expected results. The following information is available: Expected maintenance costs of new machine $12,000 per year
Purchas price of existing machine $150,000
Expected cost savings of new machine $20,000 per year
Expected maintenance costs of existing machine $8,000 per year
Resale value of existing machine $35,000
Which of these items is IRRELEVANT?

A) Expected maintenance costs of new machine
B) Expected maintenance costs of existing machine
C) Purchase cost of existing machine
D) Expected resale value of existing machine

Question 60

Sunk costs are

A) future costs that have no benefit.
B) relevant costs that have only short-run benefits.
C) target costs.
D) always irrelevant.

Question 61

Yankton Industries manufactures 20,000 components per year. The manufacturing cost of the components was determined as follows: An outside supplier has offered to sell the component for $23.50.
Yankton Industries can rent its unused manufacturing facilities for $45,000 if it purchases the component from the outside supplier.
What is the effect on income if Yankton purchases the component from the outside supplier?

A) $25,000 increase
B) $45,000 increase
C) $75,000 decrease
D) $105,000 increase

Question 62

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

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

Question 63

Yankton Industries manufactures 20,000 components per year. The manufacturing cost of the components was determined as follows: An outside supplier has offered to sell the component for $23.50.
What is the effect on income if Yankton Industries purchases the component from the outside supplier?

A) $20,000 increase
B) $20,000 decrease
C) $80,000 decrease
D) $80,000 increase

Question 64

Which of the following items would be classified as flexible resources?

A) salaried employees
B) depreciation on building
C) fuel to generate electricity internally
D) lease on machinery

Question 65

Hobart Company produces speakers for PA systems. The speakers are sold to retail music stores for $30. Manufacturing and other costs are as follows: The variable distribution costs are for transportation to the retail music stores. The current production and sales
Volume is 20,000 per year. Capacity is 25,000 units per year.
A Memphis manufacturing firm has offered a one-year contract to supply speaker parts at a cost of $6.00 per unit. If Hobart Company accepts the offer, it will be able to reduce variable costs by 30 percent and rent unused space to an outside firm for $18,000 per year. All other information remains the same as the original data. What is the effect on profits if Hobart Company buys from the Memphis firm?

A) decrease of $19,000
B) increase of $19,000
C) increase of $6,000
D) increase of $13,000

Question 66

Which of the following items would be classified as committed resources (short-term)?

A) salaried employees
B) depreciation on building
C) fuel to generate electricity internally
D) lease on machinery

Question 67

San Antonio Corporation manufacturers a part for its production cycle. The costs per unit for 5,000 units of this part are as follows: Amarillo Company has offered to sell San Antonio Corporation 5,000 units of the part for $112 per unit. If San
Antonio Corporation accepts Amarillo Company's offer, total fixed costs will be reduced to $60,000. What alternative is more desirable and by what amount is it more desirable?
Alternative Amount

A) Buy $100,000
B) Buy $40,000
C) Make $20,000
D) Make $120,000

Question 68

Composite Company uses 5,000 units of part AA1 each year. The cost of manufacturing one unit of part AA1 at this volume is as follows: An outside supplier has offered to sell Composite Company unlimited quantities of part AA1 at a unit cost of
$32)00. If Composite Company accepts this offer, it can eliminate 50 percent of the fixed costs assigned to part AA1. Furthermore, the space devoted to the manufacture of part AA1 would be rented to another company for $24,000 per year. If Composite Company accepts the offer of the outside supplier, annual profits will

A) increase by $17,000.
B) increase by $24,000.
C) increase by $34,000.
D) increase by $3,500.

Question 69

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

A) $40,000.
B) $22,500.
C) $50,000.
D) $60,000.

Question 70

The following information pertains to Dallas Churning Company's three products: Assume that product F is discontinued and the space is used to produce E. Product E's production is increased to 2,200 units per month, but E's selling price of all units of E is reduced to $10.20. Monthly profits will

A) decrease by $2,070.
B) increase by $1,200.
C) increase by $2,640.
D) decrease by $270.

Question 71

Hobart Company produces speakers for PA systems. The speakers are sold to retail music stores for $30. Manufacturing and other costs are as follows: The variable distribution costs are for transportation to the retail music stores. The current production and sales
Volume is 20,000 per year. Capacity is 25,000 units per year.
The speakers are currently unpackaged. Packaging them individually would increase costs by $1.20 per unit. However, the units could then be sold for $33.00. All other information remains the same as the original data. What is the effect on profits if Hobart Company packages the speakers?

A) no change
B) decrease of $24,000
C) decrease of $36,000
D) increase of $36,000

Question 72

The following information pertains to Dallas Churning Company's three products: Assume that product F is discontinued and the space used to produce product F is rented for $600 per month.
Monthly profits will

A) increase by $360.
B) increase by $840.
C) increase by $600.
D) decrease by $5,400.

Question 73

In the activity resource model, flexible resources are

A) resources acquired in advance of usage.
B) resources acquired as used and needed.
C) usually acquired in lumpy amounts.
D) are normally fixed or mixed costs.

Question 74

Which of the following items would be classified as committed resources (long-term)?

A) salaried employees
B) depreciation on building
C) lease on machinery
D) both b and c

Question 75

Concierge Industries manufactures 40,000 components per year. The manufacturing cost of the components was determined as follows: An outside supplier has offered to sell the component for $12.75.
What is the effect on income if Concierge Industries purchases the component from the outside supplier?

A) $30,000 increase
B) $30,000 decrease
C) $270,000 increase
D) $270,000 decrease

Question 76

Hobart Company produces speakers for home stereo units. The speakers are sold to retail music stores for $30. Manufacturing and other costs are as follows: The variable distribution costs are for transportation to the retail music stores. The current production and sales
Volume is 20,000 per year. Capacity is 25,000 units per year.
A Memphis manufacturing firm has offered a one-year contract to supply speaker parts at a cost of $17.00 per unit. If Hobart Company accepts the offer, it will be able to rent unused space to an outside firm for $18,000 per year. All other information remains the same as the original data. What is the effect on profits if Hobart Company buys from the Memphis firm?

A) decrease of $19,000
B) increase of $38,000
C) increase of $19,000
D) decrease of $6,000

Question 77

The following information pertains to the Dallas Churning Company's three products: Assume that the selling price of product F is increased to $8.25 with a reduction in monthly sales to 400 units. Monthly profits will

A) increase by $420.
B) decrease by $60.
C) increase by $180.
D) increase by $2,070.

Question 78

A decision to make a component internally versus purchasing from a supplier is a

A) special-order decision.
B) keep-or-drop a product-line decision.
C)
C) make-or-buy decision.
D) both a and

Question 79

Concierge Industries manufactures 40,000 components per year. The manufacturing cost of the components was determined as follows: An outside supplier has offered to sell the component for $12.75.
Concierge Industries can rent its unused manufacturing facilities for $45,000 if it purchases the component from the outside supplier.
What is the effect on income if Concierge purchases the component from the outside supplier?

A) $195,000 increase
B) $165,000 decrease
C) $225,000 decrease
D) $135,000 increase

Question 80

Upfront resource spending

A) is always relevant because it relates to the future.
B) is always relevant because it could reduce future costs.
C) is a sunk cost and therefore never relevant.
D) is always relevant because upfront resource spending will generate future revenues or benefits.