Managerial Ch 12

When a company has a production constraint, the product with the highest contribution margin per unit of the constrained resource should be given highest priority

True

The opportunity cost of making a component part in a factory with no excess capacity is the A. variable manufacturing cost of the component B. fixed manufacturing cost of the component C. total manufacturing cost of the component D. net benefit foregone from the best alternative use of the capacity required

D

Sunk costs are considered to be avoidable costs

False

The book value of a machine, as shown on the balance sheet, is relevant in a decision concerning the replacement of that machine by another machine

False

If by dropping a product a firm can avoid more in fixed costs than it loses in contribution margin, then the firm is better off economically if the product is dropped

True

Joint costs are not relevant to the decision to sell a product at the split-off point or to process the product further

True

Which of the following are valid reasons for eliminating a product line 1. The product lines contribution margin is negative 2. The product lines traceable fixed costs plus its allocated common corporate costs are less than its contribution margin

1

In a sell or process further decision, which of the following costs are relevant? 1. a variable production cost incurred prior to the split-off point 2. an avoidable fixed production cost incurred after the split-off point

2

Costs which are always relevant in decision making are those costs which are: A. variable B. avoidable C. sunk D. fixed

B

Freestone company is considering renting machine y to replace machine x. It is expected that y will waste less direct materials than does x. If y is rented, x will be sold on the open market. For this decision which of the following factors are relevant 1. Cost of direct materials used 2. Resale value of machine x

Both

A general rule in relevant cost analysis is A. variable costs are always relevant B. fixed costs are always irrelevant C. differential future costs and revenues are always relevant D. depreciation is always irrelevant

C

When there is a production constraint, a company should emphasize the products with A. highest unit CM (contribution margin) B. highest CM ratios C. highest CM per unit of the constrained resource D. highest CM and CM ratios

C

Depreciation expense on existing factory equipment is generally relevant to a decision of whether to accept or reject a special offer for a companys product

False

Fixed costs are irrelevant in a decision

False

Generally, a product line should be dropped when the fixed costs that can be avoided by dropping the product line are less than the contribution margin that will be lost

False

Joint production costs are relevant costs in decisions about what to do with a product from the split off point onward in the production process

False

Managers should not authorize working overtime at a work station that contains a bottleneck

False

The cost of a resource that has no alternative use in a make or buy decision problem has an opportunity cost of zero

True

Vertical integration is the involvement by a company in more than one of the steps from securing basic raw materials to the production and distribution of a finished product

True

A sunk cost is a cost that has already been incurred and that cannot be avoided regardless of what action is chosen

True

An avoidable cost is a cost that can be eliminated (in whole or in part) as a result of choosing on alternative over another

True

Avoidable costs are also called relevant costs

True

Future costs that do not differ among the alternatives are not relevant in a decision.

True