CH 7 ACCT

A _______ is one that can be attributed to a specific segment of the business. A. Common fixed cost B. Direct fixed cost C. Variable fixed cost D. Fixed variable cost

B. Direct fixed cost

Which of the following is true of a firm that has reached the limit on its resources? A. It has idle capacity B. Opportunity costs are now relevant C. It has no relevant costs D. It has excess capacity

B. Opportunity costs are now relevant

Which of the following is NOT a step in the managerial decision-making process? A. Identify the activity cost drivers B. Review the results of the decision-making process C. Determine the alternatives D. Evaluate the costs and benefits of the alternatives

A. Identify the activity cost drivers

The foregone benefit of choosing one alternative over another is measured by A. Opportunity costs B. Activity-based costs C. Differential costs D. Capital costs

A. Opportunity costs

It costs Glenwood, Inc. $70 per unit to manufacture 1,000 per unit of a product that it can sell for $100 each. Alternatively, Glenwood could process the units further into a more complex product, which would cost an additional $40 per unit. Glenwood could sell the more complex product for $145 each. How would processing the product further affect Glenwood's profit? A. Profit would increase by $5,000 B. Profit would increase by $45,000 C. Profit would decrease by $5,000 D. Profit would decrease by $45,000

A. Profit would increase by $5,000

It costs Elmwood, Inc. $78 per unit to manufacture 1,000 units per month of a product it can sell for $90 each. Alternatively, Elmwood could sell the units at an earlier stage of processing, which would save $36 per unit. Elmwood could sell the simpler product for $60 each. How could selling the simpler product affect Elmwood's profit? A. Profit would increase by $6,000 B. Profit would increase by $30,000 C. Profit would decrease by $6,000 D. Profit would decrease by $30,000

A. Profit would increase by $6,000

Which of the following types of decisions involves deciding whether to accept or reject an order that is outside the scope of normal sales? A. Special-order B. Make-or-buy C. Continue or discontinue D. Sell-or-process further

A. Special-order

Which of the following is NOT relevant to a sell-or-process further decision? A. The cost of processing the product "as is" B. The cost of processing the product further C. The opportunity cost of spending resources processing the product further D. The incremental revenue from processing the product further

A. The cost of processing the product "as is"

Which of the following costs is NOT relevant in a special-order decision? A. Direct labor B. Direct materials C. Variable overhead D. Fixed overhead

D. Fixed overhead

A relevant cost is... A. The foregone benefit of choosing to do one thing instead of another B. A cost that differs across decision alternatives C. A cost that has already been incurred D. A cost that is the same regardless of the alternative the manager chooses

B. A cost that differs across decision alternatives

Which of the following is not a step in the managerial decision-making process? A. Identify the decision problem B. Calculate the payback period C. Determine the decision alternatives D. Evaluate the costs and benefits of alternatives

B. Calculate the payback period

Maple Inc. manufactures a product that costs $45 per unit plus $50,000 in fixed costs each month. Maple currently sells 5,000 of these units per month for $60 each. If Maple leased a machine for $30,000 a month, it could add features to the product that would allow it to sell for $75 each. It would cost an additional $10 per unit to add these features. How much would Maple's profit be affected if it leased the machine and added features to its product? A. Increase $5,000 B. Decrease $5,000 C. Increase $295,000 D. Decrease $295,000

B. Decrease $5,000

Which of the following is NOT a step in the managerial decision-making process? A. Identify the decision problem B. Review the results of the decision-making process C. Choose the appropriate hurdle rate D. Evaluate the costs and benefits of the alternatives

C. Choose the appropriate hurdle rate

Which of the following is irrelevant to the decision to eliminate an unprofitable segment? A. The segment margin B. Direct fixed costs C. Common fixed costs D. Segment revenue

C. Common fixed costs

Which of the following types of decisions involves deciding whether to eliminate a particular division or segment of the business? A. Special-order B. Make-or-buy C. Continue-or-discontinue D. Sell-or-process further

C. Continue-or-discontinue

The accounting firm of Pie & Lowell is examining its client base to determine how profitable its regular clients are. Its analysis indicates that Chico, Inc. paid $116,000 in fees last year, but cost the firm $124,000 ($106,000 in billable labor, supplies, and copying, and $18,000 in allocated common fixed costs). If Pie & Lowell dropped Chico, Inc. as a client, and all fixed costs are avoidable, how would profit be affected? A. $0 B. Increase $8,000 C. Decrease $10,000 D. Decrease $116,000

C. Decrease $10,000

The law firm of Regal and Porter is examining its client base to determine how profitable its regular clients are. Its analysis indicates that Hawthorne, Inc. paid $179,200 in fees last year, but cost the firm $208,600 ($168,000 in billable labor, supplies, and copying, and $40,600 in allocated common fixed costs). If Regal & Porter dropped Hawthorne, Inc. as a client, and all fixed costs are unavoidable, how much would profit be affected? A. $0 B. Increase $29,400 C. Decrease $11,200 D. Decrease $179,200

C. Decrease $11,200

Costs that change across decision alternatives are... A. Accounting costs B. Activity-based costs C. Differential costs D. Capital costs

C. Differential costs

Which of the following steps in the managerial decision-making process involves differential analysis? A. Identify the decision problem B. Determine the decision alternatives C. Evaluate the costs and benefits of the alternatives D. Make the decision

C. Evaluate the costs and benefits of the alternatives

Spencer, Inc. manufactures a product that costs $36 per unit plus $32,000 in fixed costs each month. Spencer currently sells 1,000 of these units per month for $80 each. If Spencer leased a machine for $8,000 a month, it could add features to the product that would allow it to sell for $120 each. It would cost an additional $12 per unit to add these features. How much would Spencer's profit be affected if it leased the machine and added features to its product? A. Increase $32,000 B. Decrease $32,000 C. Increase $20,000 D. Decrease $20,000

C. Increase $20,000

Which of the following is NOT another term for relevant costs? A. Differential costs B. Incremental costs C. Opportunity costs D. Avoidable costs

C. Opportunity costs

It costs Hickory, Inc. $220 per unit to manufacture 1,000 units per month of a product that it can sell for $290 each. Alternatively, Hickory could sell the units at an earlier stage of processing, which would save $80 per unit. Hickory could sell the simpler product for $200 each. How would selling the simpler product affect Hickory's profit? A. Profit would increase by $10,000 B. Profit would increase by $50,000 C. Profit would decrease by $10,000 D. Profit would decrease by $50,000

C. Profit would decrease by $10,000

It costs Camp, Inc. $35 per unit to manufacture 1,000 units per month of a product that can sell for $50 each. Alternatively, Camp could process the units further into a more complex product, which would cost an additional $30 per unit. Camp could sell the more complex product for $75 each. How would processing the product further affect Camp's product? A. Profit would increase by $5,000 B. Profit would increase by $25,000 C. Profit would decrease by $5,000 D. Profit would decrease by $25,000

C. Profit would decrease by $5,000

Henry Sweet currently makes 6" candy sticks that it sells for $.20 each. Henry can make 12" sticks out of two 6" sticks by melting them together, which costs an additional $.03 per 12" stick. Henry can sell the 12" sticks for $.45. Henry has enough capacity to make 10,000 6" sticks per month & enough demand to sell all the candy sticks it manufactures, whether 6" or 12". Should Henry sell 6" or 12" candy sticks, and how much additional profit will their decision bring in per month? A. Sell 6" sticks, additional $100 B. Sell 6" sticks, additional $250 C. Sell 12" sticks, additional $100 D. Sell 12" sticks, additional $250

C. Sell 12" sticks, additional $100

When a firm has a limited direct labor hours, it should prioritize the product with A. the highest selling price per unit B. the highest contribution margin per unit C. the highest contribution margin per direct labor hour D. the lowest direct labor hours per unit

C. The highest contribution margin per direct labor hour

What are the decision alternatives in a special-order decision? A. To make or buy the product B. To continue or discontinue the product C. To accept or reject the offer D. To sell-or-process further

C. To accept or reject the offer

Which of the following statements is false? A. Sunk costs are never relevant B. Sunk costs are costs that occurred in the past C. To be relevant, a cost must be an opportunity cost D. To be relevant, a cost must occur in the future

C. To be relevant, a cost must be an opportunity cost

Spencer, Inc. manufactures a product that costs $36 per unit plus $32,000 in fixed costs each month. Spencer currently sells 1,000 of these units per month for $80 each. If Spencer leased a machine for $8,000 a month, it could add features to the product that would allow it to sell for $120 each. It would cost an additional $12 per unit to add these features. How much would Spencer have to charge for the product with additional features to make it worthwhile to lease the machine? A. $48 B. $76 C. $88 D. $100

D. $100

Maple Inc. manufactures a product that costs $45 per unit plus $50,000 in fixed costs each month. Maple currently sells 5,000 of these units per month for $60 each. If Maple leased a machine for $30,000 a month, it could add features to the product that would allow it to sell for $75 each. It would cost an additional $10 per unit to add these features. How much would Maple have to charge for the product with additional features to make it worthwhile to lease the machine? A. $55 B. $60 C. $71 D. $76

D. $76

Which of the following is NOT a step in the managerial decision-making process? A. Identify the decision problem B. Review the results of the decision-making process C. Determine the decision alternatives D. Forecast the potential sales

D. Forecast the potential sales

Which of the following types of decisions involves deciding whether to sell a product as is or continue to refine it so that it can be sold at a higher price? A. Special-order B. Make-or-buy C. Continue-or-discontinue D. Sell-or-process further

D. Sell-or-process further

The manager of Hampton, Inc. is trying to decide whether to make or buy a component of the product is sells. Which of the following costs and benefits is NOT relevant to the decision? A. Direct labor cost involved in making the component B. The purchase price of the component if it is bought C. Variable manufacturing overhead involved in making the component D. The selling price of the product

D. The selling price of the product

What is the term for the most constrained resource? A. the contribution margin B. the constraint C. the opportunity cost D. the bottleneck

D. the bottleneck