Chapter 11 Cost Acc.

Direct materials are $600, direct labor is $450, variable overhead costs are $650, and fixed overhead costs are $400. The cost of one unit is ________.

$2,100

A decision model is an informal method for making a choice, using simpler methods like surveying.

FALSE

Bid prices and costs that are relevant for regular orders are the same costs that are relevant for one- time-only special orders.

FALSE

Business function costs are the sum of all variable and fixed costs in all business functions of the value chain.

FALSE

For one-time-only special orders, fixed costs may be relevant but NOT variable costs.

FALSE

Full costs of a product include variable and fixed costs in a particular business function in the value chain.

FALSE

Feedback from previous decisions uses historical information and, therefore, is irrelevant for making future predictions.

FALSE Explanation: Historical costs may be helpful in making future predictions, but are not relevant costs for decision making.

An incremental product cost is generally a fixed cost.

FALSE Explanation: An incremental product cost is generally a variable cost.

Equal weight must be given to qualitative factors and quantitative nonfinancial factors while making decisions.

FALSE Explanation: Appropriate, not equal, weight must be given to qualitative factors and quantitative nonfinancial factors while making decisions.

Qualitative factors are outcomes that can be easily measured in numerical terms, such as the costs of direct labor.

FALSE Explanation: Qualitative factors are outcomes that are difficult to measure accurately in numerical terms. Employee morale is an example.

Revenues that remain the same for two alternatives being examined are relevant revenues.

FALSE Explanation: Revenues that remain the same between two alternatives are irrelevant for that decision since they do not differ between alternatives.

A sunk cost is a relevant cost in a decision making.

FALSE Explanation: Sunk costs are irrelevant to decision making because a decision cannot change something that has already happened.

Which of the following is true of relevant information?

Future

Relevant data in a make-or-buy decision of a part include which of the following?

Some portion of fixed costs that would be saved if the product is outsourced

A cost may be relevant for one decision, but NOT relevant for a different decision.

TRUE

In a one-time special order situation, if the price offered by the buyer is less than the absorption cost per unit, the special order may still be profitable since absorption costs include allocated fixed manufacturing overhead.

TRUE

In relevant-cost analysis, managers should not consider all variable as relevant and all fixed costs as irrelevant.

TRUE

In the decision making of a one-time-only special order, it is assumed that accepting the special order is not expected to affect the selling price to other customers.

TRUE

Marketing costs will be an irrelevant cost in the decision making of a one-time-only special order.

TRUE

Option 1 costs $120 and Option 2 costs $90, then the differential cost is $30.

TRUE

Past costs are also called sunk costs because they are unavoidable and cannot be changed no matter what action is taken.

TRUE

Past costs themselves are always irrelevant when making decisions.

TRUE

Qualitative factors are important in the decision-making process even though they cannot be measured numerically.

TRUE

Qualitative factors, as well as relevant revenues and relevant costs need to be considered when selecting among alternatives.

TRUE

Quantitative factors, such as direct material costs, are outcomes that are measured in numerical terms.

TRUE

Sunk costs are irrelevant to decision making.

TRUE

The rent paid for an already existing facility is an example of a sunk cost.

TRUE

Variable cost per unit is the best product cost to use for one-time-only special order decisions.

TRUE

Kitchens Sales inc. has excess capacity. Mr. Cifer wants the cabinets in cherry rather than oak, so direct material costs will increase by $65 per unit. The average marketing cost of Kitchens Sales product is $175 per order. Which of the following costs is NOT considered to calculate the minimum acceptable price of a one-time-only special order?

marketing costs

Sunk costs are ________.

costs that are unavoidable and cannot be changed no matter what action is taken

An example of a qualitative factor for the decision-making process is ________

customer satisfaction as determined by written responses given by customers to survey questions

The formal process of choosing between alternatives is known as a(n) ________.

decision model

When deciding to accept a one-time-only special order from a wholesaler, management should ________.

determine whether excess capacity is available

The cost to produce Part A was $20 per unit in 2013 and in 2014 it has increased to $22 per unit. In 2014, Supplier ABC has offered to supply Part A for $18 per unit. For the make-or-buy decision

differential costs are $4 per unit

All of the following are examples of quantitative factors except:

employee morale

When using the five-step decision process, which one of the following steps should be done last?

evaluation and feedback

Which of the following would be a consideration in a make-or-buy decision?

excess capacity

Relevant costs are ________.

expected future costs

The best way to avoid misidentification of relevant costs is to focus on ________.

expected future costs that differ among the alternatives

Unit cost data can most mislead decisions by ________.

not computing unit costs at the same output level

Which of the following costs is irrelevant in the decision making of a special order when there is idle production capacity - enough excess capacity to accept the order?

fixed manufacturing costs

Which of the following is a relevant cost to be included in a make-or-buy decision?

fixed salaries that will not be incurred if the part is outsourced

A decision model involves a(n) ________.

formal method of making a choice that often involves both quantitative and qualitative analyses

A relevant cost is a cost that is a(n) ________.

future cost

A relevant revenue is revenue that is a(n) ________.

future revenue and differs among alternative courses of action

Quantitative factors ________.

include both financial and nonfinancial information

Which of the following are potential problems managers face in relevant-cost analysis?

incorrect assumptions such as all variable costs are relevant and all fixed costs are not

For make-or-buy decisions, relevant costs include ________.

incremental costs plus opportunity costs

One-time-only special orders should only be accepted if ________.

incremental revenues exceed incremental costs

When there is an excess capacity, it makes sense to accept a one-time-only special order for less than the current selling price if ________.

incremental revenues exceed incremental costs

Which of the following is true of an opportunity cost?

it is the income foregone by not using a resource in an alternative way.

Which of following is a firms risk of outsourcing the production of a part?

leakage of intellectual property

Producing on schedule, quality of supplier products or services, reliability, along with costs are all important considerations when____

making outsourcing decisions

When using the five-step decision process, which one of the following steps should be done first?

obtain information

Feedback regarding previous actions may affect ________.

A) future predictions B) implementation of the decision C) the decision model D) All of these answers are correct. Answer: D

Place the following steps from the five-step decision process in order: A = Obtain information including historical costs B = Evaluate performance to provide feedback C = Make decisions choosing among alternatives D = Make predictions about the future E = Identify the problem and uncertainties

C) E, A, D, C, B

Management is considering two alternatives. Alternative A has projected revenue per year of $100,000 and costs of $70,000 while Alternative B has revenue of $100,000 and costs of $60,000. Both projects require an initial investment of $250,000 of which $75,000 has already been set aside and will be used as a down payment on the project that is chosen. There are also other qualitative factors that management must consider before making a final choice. Which of the following statements is correct about relevant costs and relevant revenues.

The only relevant item are the costs as they differ between alternatives

Which of the following is not true with regards to relevant costs and relevant revenues?

They are sunk costs and historical revenues

Which of the following is true of historical costs?

They are useful for making future predictions.

John's 8-year-old Chevrolet Trail Blazer requires repairs estimated at $10,000 to make it road worthy 6 Copyright © 2018 Pearson Education, Inc. again. His wife, Sherry, suggested that he should buy a 5-year-old used Jeep Grand Cherokee instead for $10,000 cash. Sherry estimated the following costs for the two cars: Trail Blazer Grand Cherokee Acquisition cost $25,000 $10,000 Repairs $10,000 — Annual operating costs (Gas, maintenance, insurance) $2,780 $1,800 The cost NOT relevant for this decision is the ________.

acquisition cost of the Trail Blazer

When evaluating a make-or-buy decision, which of the following needs to be considered?

alternative uses of the production capacity

An incremental cost is

an additional total cost for an activity

When making decisions ________.

appropriate weight must be given to both quantitative and qualitative factors

Sunk costs ________.

are ignored when evaluating alternatives

Sunk costs ________.

are irrelevant for decision making

Which of the following minimizes the risks of outsourcing?

building close partnerships with the supplier

If a company does not use one of its limited resources in the best possible way, the lost contribution to income could be called a(n) ________.

opportunity cost

Viens Fashion Company retains the services of Kennywood Textiles to perform stain control treatments on its womens dresses. This is practice is known as ________.

outsourcing

Which of the following would be considered in a make-or-buy decision?

potential rental income from space occupied by the production area

In a make-or-buy decision, which of the following would not be relevant?

property taxes on the plant that will still be necessary even if the product is outsourced

For make-or-buy decisions, a suppliers ability to maintain secrecy of intellectual property is considered a(n) ________.

qualitative factor

Employee morale at Dos Santos, Inc., is very high. This type of information is an example of ________.

qualitative factors

In evaluating different alternatives, it is useful to concentrate on ________.

relevant costs

Which of the following costs always differ among future alternatives?

relevant costs

Which of the following is an appropriate step when identifying relevant costs to make a business decision?

separating total costs into variable and fixed components

Each of the following are true of relevant information except:

significant past investment amounts are relevant to decision making

Which of the following is not true about one-time-only special orders?

special orders would be accepted if they result in an increase in the contribution margin regardless of capacity and long-term implications

Opportunity costs is defined as ________.

the contribution to operating income that is forgone by not using a limited resource in its next-best alternative use

a company has excess capacity, the most it would pay for buying a product that it currently makes would be the ________.

total variable cost of producing the product

Which of the following is an example of sunk costs?

wages to security staffs