Ch. 11 Top Hats - Cost Exam 2

Producing on schedule, quality of supplier products or services, reliability, along with costs are all important considerations when____ a) when deciding to insource b) making outsourcing decisions c) when executing right-shoring d) making decisions based on quantitative factors

b) making outsourcing decisions

Crandle Manufacturers Inc. is approached by a potential customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers. The company has excess capacity. The following per unit data apply for sales to regular customers:What is the change in operating profits if the one-time-only special order for 1,030 units is accepted for $550 a unit by Crandle? Variable Costs: Direct Materials $130 Direct Labor 60 Manu. Support 105 Marketing Costs 95 Fixed Costs: Manu. Support 175 Marketing Costs 65 = Total Costs 630 Markup (50%) 315 Targeted selling price $945 a) $164,800 increase in operating profits b) $164,170 increase in operating profits c) $164,170 decrease in operating profits d) $164,800 decrease in operating profits

a) $164,800 increase in operating profits

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? a) fixed manufacturing costs b) units sold c) material cost d) labor hours incurred

a) fixed manufacturing costs

Flash City Inc. manufactures small flash drives and is considering raising the price by 75 cents a unit for the coming year. With a 75-cent price increase, demand is expected to fall by 7,000 units.If the price increase is implemented, operating profit is projected to ________. _____________________________________ Current _________ Projected Demand: ______________________ 79,000 Units ___ 72,000 Units Selling Price: ____________________ $8.50 ___________ $9.25 Incremental Cost per unit: __ $5.80 ____________ $5.80 a) increase by $35,100 b) decrease by $5,250 c) increase by $5,250 d) decrease by $7,000

a) increase by $35,100

When using the five-step decision process, which one of the following steps should be done first? a) obtain information b) choose an alternative c) evaluation and feedback d) implementing the decision

a) obtain information

Which of the following is an example of sunk costs? a) wages to security staffs b) cost of purchasing raw materials c) cost of an alternative investment d) wages payable to skilled laborers to make a product

a) wages to security staffs

Feedback from previous decisions uses historical information and, therefore, is irrelevant for making future predictions. a) TRUE b) FALSE

b) FALSE

Outsourcing is risk free to the manufacturer because the supplier now has the responsibility of producing the part. a) TRUE b) FALSE

b) FALSE

Springer Products manufactures three different product lines, Model X, Model Y, and Model Z. Considerable market demand exists for all models. The following per unit data apply:Which model has the greatest contribution margin per unit? _____________________________ Model X ______ Model Y _____ Model Z Selling Price _______________ $50 ______________ $66 ______________$80 Direct Materials ____________ 10 ________________ 10 _________________ 10 Direct Labor ($15 / hr) ____ 15 _______________ 15 _________________ 30 Var. Supp. Costs ($5 / hr) _ 5 _______________ 10 _________________ 10 Fixed Supporting Costs __ 12 _______________ 12 _________________ 12 a) Model X b) Model Y c) Model Z d) Both Model X and Model Y have the highest and same contribution margin per unit

b) Model Y

Relevant data in a make-or-buy decision of a part include which of the following? a) The portion of fixed costs that would be incurred whether the product is made or purchased b) Some portion of fixed costs that would be saved if the product is outsourced c) Annual plant insurance costs d) Management consultant fees to restructure the organization framework of the company and improve overall strategic planning

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

A decision model involves a(n) ________. a) informal method of making a choice at the lower level management using sensitivity analysis b) formal method of making a choice that often involves both quantitative and qualitative analyses c) informal method of making a choice which is discussed in detailed in the financial reports d) formal method of making a choice at the lower level management using advanced management techniques such as balance scorecard

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

A relevant revenue is revenue that is a(n) ________. a) past revenue and differs among alternative courses of action b) future revenue and differs among alternative courses of action c) in-hand revenue d) earned revenue

b) future revenue and differs among alternative courses of action

Capacity constraints include ________. a) increased demand of warranty services for a pharmaceutical product b) increased need of display space for a retailer c) decreased demand for a pharmaceutical product d) increased fuel efficiency of cars

b) increased need of display space for a retailer

A product cost is composed of the following:The product sells for $40 and a 15% commission is paid to a salesperson for every unit sold. Management accountants also estimate that storage cost per unit averages $0.75 per unit. What is the full cost of the product? Direct Materials: $11 Direct Labor: $3 Manu. Overhead: $8 a) $14 b) $22 c) $28.75 d) $28.00

c) $28.75

Crandle Manufacturers Inc. is approached by a potential customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers. The company has excess capacity. The following per unit data apply for sales to regular customers:What is the full cost of the product per unit? Variable Costs: Direct Materials $130 Direct Labor 110 Manu. Support 125 Marketing Costs 65 Fixed Costs: Manu. Support 175 Marketing Costs 88 = Total Costs 690 Markup (50%) 345 Targeted selling price $1,035 a) $430 b) $1,035 c) $690 d) $345

c) $690

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 a) A, E, D, B, C b) E, A, D, B, C c) E, A, D, C, B d) D, C, B, A, E

c) E, A, D, C, B

Sunk costs ________. a) are future costs for decision making b) are avoidable costs c) are irrelevant for decision making d) are foregone contribution by not using a limited resource in its next-best alternative use

c) are irrelevant for decision making

W.T. Ginsburg Engine Company manufactures part ACT31107 used in several of its engine models. Monthly production costs for 1,000 units are as follows:It is estimated that 6% of the fixed overhead costs assigned to ACT31107 will no longer be incurred if the company purchases ACT31107 from the outside supplier. W.T. Ginsburg Engine Company has the option of purchasing the part from an outside supplier at $94.75 per unit.If W.T. Ginsburg Engine Company purchases 1,000 ACT31107 parts from the outside supplier per month, then its monthly operating income will ____. (Round any intermediary calculations and your final answer to the nearest cent.) Direct Materials $42,000 Direct Labor 10,500 Variable OH Costs 32,500 Fixed OH Costs 18,000 = Total Costs $103,000 a) increase by $8,670 b) increase by $21,330 c) decrease by $8,670 d) decrease by $21,330

c) decrease by $8,670

Which of the following costs always differ among future alternatives? a) fixed costs b) historical costs c) relevant costs d) variable costs

c) relevant costs

Dantley's Furniture manufactures rustic furniture. The cost accounting system estimates manufacturing costs to be $240 per table, consisting of 75% variable costs and 25% fixed costs. The company has surplus capacity available. It is Back Forrest's policy to add a 45% markup to full costs. A large hotel chain is currently expanding and has decided to decorate all new hotels using the rustic style. Dantley's Furniture Incorporated is invited to submit a bid to the hotel chain. What is the lowest price per unit Dantley's Furniture should bid on this long-term order? a) $168 b) $180 c) $240 d) $348

d) $348

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. a) The sunk cost of $75,000 is relevant b) The projected revenues are relevant to the decision c) The initial investment of $250,000, the projected revenues, and the projected costs are all relevant d) The only relevant item are the costs as they differ between alternatives

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

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 ________. a) incremental revenues are $4 per unit b) incremental costs are $2 per unit c) net relevant costs are $2 per unit d) differential costs are $4 per unit

d) differential costs are $4 per unit