Act 3100

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Whether a given type of information is relevant or irrelevant depends on

Its relation to the decision to be made

Which of the following is the amount by which sales could drop before profits reach the breakeven point?

Margin of safety

Qualitative factors can be difficult to identify because

No set formula assures managers they have considered the important issues

Why are qualitative factors often difficult to identify?

No set formula provides assurance that managers have considered the correct issues

Alaska Airlines flies several non-stop flights daily between Los Angeles and Vancouver. Which of the following is a business risk associated with this operation?

The average number of empty seats for flights next month

A limiting assumption in CVP analysis is that

The behavior of both revenues and costs is linear throughout the entire relevant range

In a regression analysis for estimating a cost function, t-statistics and their p-values do not provide information about

The amount of variation in cost that is explained by variation in the cost driver

In a regression analysis for estimating a cost function, the adjusted R-Square statistic provides information about

The amount of variation in cost that is explained by variation in the cost driver

In a decision to lease or borrow money and build office space, which of the following is relevant?

The architect s fee for drawing the building

In CVP analysis, managers usually assume that the cost function is linear. Which of the following equations best represents a linear function for total cost if the cost is a mixed cost?

y = $200 + $60x

In CVP analysis, managers usually assume that the revenue function is linear. Which of the following equations best represents a linear revenue function if the cost is a variable cost?

y = $60x

How is the relevant range of activity related to CVP analysis?

In CVP analysis, operations are assumed to be within the relevant range

Which of the following is true? a. In a product emphasis/constrained resource decision with 2 products and 2 constraints, it will always be optimal to make both products b. In a product emphasis/constrained resource decision with 2 products and 1 constraint, it will always be optimal to make only one product c. Product emphasis/constrained resource decisions with more than 2 products and more than 2 constraints cannot be solved without software d. All of the above are true

In a product emphasis/constrained resource decision with 2 products and 1 constraint, it will always be optimal to make only one product

Quantitative factors in a nonroutine operating decision

Include nonfinancial information

Information for decision making

Includes estimates and predictions

Wolff Co. sells product P at a price of $38 a unit. The per-unit cost data are: direct materials $8, direct labor $10, and overhead $12 (25% fixed and 75% variable). Wolff has sufficient capacity to accept a special order for 40,000 units just received. Selling costs associated with this order would be $3 per unit. At a selling price of $33 per unit, the operating income will

Increase by $120,000

PRO Shops has a capacity of 45,000 units, and is currently producing and selling 40,000 at $25 a unit. The present cost structure, on a per unit basis, is: Direct material $10; Direct labor 5; Variable overhead 3; Fixed overhead 4. An order for 7,000 units has been received from a Japanese company at a price of $20 per unit. If the order is accepted, profit will

Increase by $4,000

If the selling price per unit and the variable cost per unit both increase by 5%, what is the effect on the contribution margin per unit and on the contribution margin ratio (Contribution margin per unit;Contribution margin ratio)?

Increase;No effect

Higher operating leverage

Increases risk of loss if operations are near the breakeven point

Relevant cash flows are

Incremental cash flows

The following information is always relevant for short-term decisions:

Incremental costs

In making a special order decision, which of the following is a relevant fixed cost?

Incremental fixed costs associated with the order

Which of the following is an alternative name for a cost driver in a regression analysis?

Independent variable

In most accounting information systems, costs are often recorded and coded so they can be summarized based on different

Independent variables

When the cost object is a unit produced, lubricating oil for production machines would be a(n

Indirect cost

Biases

Inhibit anticipating all future conditions

Which of the following is not true about information in an organization s databases?

Intellectual capital is usually captured in database information

In a regression equation, fixed costs are represented by the

Intercept

All of the following data can be used to develop CVP analysis except

Irrelevant costs

Managers can make higher-quality decisions by relying on all of the following except

Irrelevant information

Managers go through a series of questions to decide whether to use past costs to estimate future costs. Which of the following questions is least likely to be one of them?

Is the cost an engineered estimate?

Uncertainties are

Issues about which we have doubt

Ruben, Inc. is a management consulting firm specializing in pension plans. Its billing rate to clients is $120 per hour, and variable costs average $80 per hour. Fixed costs are $24,000 per month. The income tax rate is 20%.If fixed costs increase by 10% and management increases its billing rate by 10%, what is the effect on the breakeven point, in billable hours?

It decreases the breakeven point

Ruben, Inc. is a management consulting firm specializing in pension plans. Its billing rate to clients is $120 per hour, and variable costs average $80 per hour. Fixed costs are $24,000 per month. The income tax rate is 20%.If variable costs increase by 10% and management increases its billing rate by 10%, what is the effect on the breakeven point, in billable hours?

It decreases the breakeven point

Ruben, Inc. is a management consulting firm specializing in pension plans. Its billing rate to clients is $120 per hour, and variable costs average $80 per hour. Fixed costs are $24,000 per month. The income tax rate is 20%.If variable costs increase by 10% and management increases its billing rate by 8%, what is the effect on the breakeven point, in billable hours?

It decreases the breakeven point

All of the following are true about analysis at the account level except a. It is a method for separating fixed and variable costs b. It uses information from the general ledger c. It is a qualitative method for separating costs d. It requires very little judgment to determine cost behavior

It requires very little judgment to determine cost behavior

The major disadvantage of the high-low method is that

It uses the two most extreme data points in determining a cost function

Regression analysis works best when the relationship between costs and cost drivers is

Positive and linear

CVP analysis is most likely to be used for

Predicting profits across a range of operations

Cost accounting is all of the following except a. A process of gathering and summarizing information b. Preparing employee evaluation reports c. Preparing information for internal reporting and decision making d. Preparing information used in financial statements

Preparing employee evaluation reports

Financial accounting is all of the following except a. A process of gathering and summarizing information primarily for external reports b. Preparing financial statements according to Generally Accepted Accounting Principles c. Information used by shareholders, creditors, and regulators for decision making d. Preparing information for internal reporting and decision making

Preparing information for internal reporting and decision making

Pet Snacks Company has 500 pounds of liver-flavored dog biscuits that are not selling well. The selling price of the biscuits could be reduced from $3.00 to $2.50 per pound. Or, they could be cheese-coated and sold for $4.00 per pound; the additional processing cost would be $0.50 per pound. Cheese-coated biscuits sell very well. Which alternative probably has less uncertainty concerning volume of sales?

Proceed with the cheese coating

Because many management decisions are unique, managers address them using a (an)

Process

Lisa would like to start a new business selling pet toys to local pet shops. To reduce her uncertainty about the volume of toys she can sell in a month, she should do all of the following except a. Ask pet store managers how many pet toys they sell every month b. Determine the average price of the pet toys sold each month at local pet stores c. Take a sample of toys to local stores and ask how many of each item the managers would be willing to buy d. Produce as many toys as possible the first month to be certain she has enough

Produce as many toys as possible the first month to be certain she has enough

Effect on brand name recognition is a qualitative factor that managers should consider in

Special order decisions

Uncertainties affect

Special order decisions, outsourcing decisions and product emphasis decisions

To ensure high quality in outsourcing decisions, organizations typically negotiate contracts with

Specific performance criteria

The total cost of materials, where the supplier charges $9/lb if 0-1000 pounds are purchased, $8/lb if 1001-2000 pounds are purchased and $7 if 2001 or more pounds are purchased, is a

Stepwise linear cost

How are organizational strategies related to core competencies?

Strategies help managers exploit competencies

A scatter plot is especially useful when managers wish to

Study the relationship between a cost and a potential cost driver

A cost that has been incurred in the past and cannot be changed is a (an)

Sunk cost

Which of the following statements is true?

Sunk costs are never relevant for decision making

Simple regression analysis output produces a variety of information and statistics. Which of the following statistics provides information for fixed costs?

T-statistic and p-value for the alpha coefficient

Simple regression analysis output produces a variety of statistics. Which of the following statistics provides information for variable costs?

T-statistic and p-value for the beta coefficient

The general rule is to keep any product or service in the short term

That covers variable costs plus any fixed costs that can be avoided if the product or service is dropped

A company should always promote the product

That results in the highest total contribution margin

When estimating future costs, information quality is higher when

The accounting system can trace relevant costs to a cost object

Suppose a manager decides to sell a special order at the breakeven price. However, he is concerned that the organization could lose money if there are any errors in the analysis. About which factor should the manager be concerned?

The accuracy of the cost function

Frank is considering transportation modes to a client s office. He can drive his own car, at an incremental cost of $0.55 per mile, or take a company car. If he takes his own car, he can be reimbursed $0.45 per mile. If Frank makes his decision strictly from his personal economic point of view, what is the relevant net cost associated with driving his own car?

$0.10

Liva Company wants to develop a cost function for its maintenance costs to estimate such costs for the coming year. The following data are available: Direct Labor Hours Maintenance Costs January 4,000 $ 900 February 6,500 1,325 March 7,000 1,500 April 5,500 1,150 Using the high-low method, what is the variable maintenance cost per direct labor hour?

$0.20

A manufacturer operating with excess capacity has been asked to fill a special order at $7.25 per unit. No other use of the currently idle capacity can be found. The manufacturer s usual variable costs per unit are $3.50 for direct materials, $1.50 for direct labor, $1.50 for variable overhead, and $0.50 for sales commission. No sales commission would be paid on this special order. The average overhead per unit is $0.25.The expected contribution margin per unit for the special order is

$0.75

N.G., Inc. currently buys 9,000 subcomponents from an outside supplier at $10 each. The company has excess capacity, which it sublets to another company for $20,000 per year. If the company were to use the idle capacity to produce the subcomponent internally, it would incur variable production costs of $6 per unit, and it would hire a new supervisor for $15,000 per year. Other fixed overhead costs would not change, but the average overhead cost per subcomponent unit would be $2. What is the advantage or disadvantage (in dollars) if N.G. makes the subcomponent instead of continuing to buy outside and subletting the excess capacity?

$1,000 advantage

When sales are $1,000, the contribution margin is $600 and a pretax loss of $60 occurs. What is the breakeven point in dollars?

$1,100

Cosby Company is attempting to develop the cost function for repair costs. The following past data are available: Machine Hours Repair Costs 4,800 $6,385 3,400 4,585 4,000 5,285 5,900 7,085 Using the high-low method, what is the fixed repair cost?

$1,185

Bultena Enterprises projects the following for next year: Sales $300,000 Fixed costs $100,000 After-tax profit $12,000 Tax rate 40% What is the firm s margin of safety in revenue?

$50,000

MacDonald Oil Co. expects sales of $1,000,000 and total variable costs of $600,000 for 2005. Total budgeted fixed costs are $200,000. What is the dollar amount of sales necessary to achieve pretax profits of $400,000?

$1,500,000

The cost function for Liao Company is: TC = $800 + 0.375 × Revenue. If Liao expects after-tax income of $600 and the tax rate is 40%, what is the firm s margin of safety?

$1,600

Harvey Enterprises expects sales of $1,000,000 and total variable costs of $250,000 for 2005. Total budgeted fixed costs are $200,000. What is the dollar amount of sales necessary to achieve after-tax profits of $700,000 if the tax rate is 30%?

$1,600,000

At a breakeven point of 200 units, the variable costs were $400 and the fixed costs were $200. What will the next (i.e., 401st) unit sold contribute to profit before income taxes?

$1.00

$100

$100 + $0.20 per direct labor hour

The managers of Adamson Apple Co. are considering dropping one of their product lines. The product line typically has the following revenue and costs: Sales $100,000; Variable costs 80,000; Contribution margin 20,000; Fixed cost 25,000; Operating loss $(5,000). If the product line is discontinued, $4,000 of the fixed costs would be avoided. Also, the freed-up capacity would generate $4,000 of additional contribution margin from the expansion of other product lines. If Adamson discontinues the product line, the effect on overall income will be

$12,000 decrease

A firm has the capacity to produce 3,100 units per week. At 80% capacity, the average total cost per unit is $12.50 and the average variable cost per unit is $7.50. What is the total fixed cost per week, assuming the firm is still operating within its relevant range?

$12,400

Milano Company has an average overhead cost per hour of $10.50 at 3,500 machine hours, and at 3,000 hours it is $11.25. The company managers wish to estimate the overhead cost function. What is the fixed overhead cost?

$15,750

Vicade has 1,000 commercial video game machines in inventory produced at a cost of $400 each (60% variable and 40% fixed). The machines were to have been sold for $1,000 each. However, the machines currently contain a minor malfunction, reducing their selling price to $150 each. The company could correct the malfunction at a variable cost of $250 each, and then sell the machines for $550 each. For purposes of determining whether the machines should be reworked, what is the opportunity cost per unit?

$150

Del Co. has fixed costs of $100,000 and breakeven sales of $800,000. What is its projected profit at $1,200,000 in sales?

$150,000

Each year Wright s Widgets buys 10,000 subcomponents that it needs in the production of its widgets from an outside supplier for $15 each. If Wright instead used its existing idle capacity to produce it in-house, the variable production costs would be $8 per unit and $3 of fixed production overhead would be allocated to each unit. Additionally, Wright would need to hire one quality control technician for $28,000 per year. The excess capacity that would be required is currently leased to another company for $25,000 per year. What is the advantage or disadvantage if Wright continues to buy the subcomponent from the outside supplier?

$17,000 disadvantage

Assume the following cost data: Direct material $6; Direct labor $4; Variable overhead $2; Variable selling $4; Fixed overhead $300; Fixed selling $400. A special order for 100 units is received. The buyer wants his name stamped on each unit. This will increase labor costs by $0.25 per unit and cost $300 for the stamping machine. What price must be charged to earn $300 on the special order?

$2,225

Johnston Co. has total variable costs equal to 40% of sales. Fixed costs are $120,000. What is the breakeven point in revenues?

$200,000

Harmel, Inc. incurs the following costs each period: Variable manufacturing costs per unit $10 Variable selling costs per unit $2 Total fixed manufacturing costs $ 18,530 Total fixed selling costs $41,370 If the company sells 6,000 units, what price must be charged to earn a pretax profit of $25,000?

$26.15

An organization's accountant is estimating next period's total overhead costs. She performed two regression analyses, one based on direct labor hours and the other based upon machine hours. The results were: Total overhead = $150,000 + $4 x direct labor hours Adjusted R-square = 0.65 Total overhead = $130,000 + $5 x machine hours Adjusted R-square = 0.77 For the next period the accountant anticipates using 28,000 direct labor hours and 26,000 machine hours. Based upon this information, what is the best estimate for overhead for the next period?

$260,000

$30

Taylor Enterprises sells its product for $40 per unit. Taylor recently received a special order from a customer for 20,000 units. Production costs per unit for regular sales are: Direct materials $6; Direct labor $14; Manufacturing overhead (2/3 variable) $12. Suppose that Taylor would like to earn $50,000 on this order and assume that there is sufficient capacity to fill the special order. What price per unit should Taylor charge for the special order?

$30.50

Vicade has 1,000 commercial video game machines in inventory produced at a cost of $400 each (60% variable and 40% fixed). The machines were to have been sold for $1,000 each. However, the machines currently contain a minor malfunction, reducing their selling price to $150 each. The company could correct the malfunction at a variable cost of $250 each, and then sell the machines for $550 each. If the games are reworked, what will be the contribution per unit from doing so?

$300

The Jean Company expects sales of $500,000 and total variable costs of $200,000 in 2005. Total budgeted fixed costs are $180,000. What is the breakeven volume in sales dollars?

$300,000

Baldwin s Bagel Shop had the following activity for December: Total bagels sold 17,000 Total revenues $595,000 Total fixed costs 99,000 Total variable costs 357,000 What was Baldwin s margin of safety, in dollars?

$347,500

Redmond Corporation is closing one of its divisions. Operating data on this division follows: Sales $80,000; Variable costs 40,000; Overhead 40,000. Overhead consists of $30,000 in salary and $10,000 for rent and insurance. The salary is for the chief engineer, who will continue to work for Redmond even if the division is closed. Assuming all overhead costs continue to be incurred even if the division closes, what will be the effect on overall company profits of closing the division?

$40,000 decrease

Howe Hinges Co. manufactures and sells a single product. This product has the following operational data: Unit sales price $ 30 Variable manufacturing cost per unit 17 Fixed manufacturing costs 72,000 Variable selling cost per unit 1 Fixed selling costs 27,000 Marginal tax rate 40% What amount of total revenue would be needed to meet an after-tax profit target of $48,000?

$447,500

Smith Co. has a contribution margin ratio of 40% and a breakeven point of $200,000 in sales. If the firm reports net income of $50,000 after taxes of 50%, what were total sales for the year?

$450,000

Old MacDonald had a farm with expected fixed costs for next year of $91,000. The projected selling price per bushel is $12, with variable costs of $5 per bushel.How much revenue past the breakeven point does MacDonald have to earn to realize a pretax profit of $36,000 if variable costs drop to $3 per bushel?

$48,000

Hillary Corporation has its own cafeteria with the following annual costs: Food $200,000; Labor 150,000; Overhead 220,000; Total $575,000; The overhead is 40% fixed. Of the fixed overhead, $50,000 is the salary of the cafeteria supervisor. The remainder of the fixed overhead has been allocated from total company overhead. Assuming the cafeteria supervisor will remain and that Hillary will continue to pay her salary, the maximum cost Hillary is willing to pay an outside firm to replace the cafeteria services is

$482,000

$5,685

The Martinez Game Co. produces and sells parlor games. In 2005 sales were $400,000, total variable costs were $200,000, and total fixed costs were $150,000. What is the total revenue required to increase pretax profits by $40,000 and to cover an expected increase of $20,000 in fixed costs?

$520,000

$6.00

A manufacturer operating with excess capacity has been asked to fill a special order at $7.25 per unit. No other use of the currently idle capacity can be found. The manufacturer s usual variable costs per unit are $3.50 for direct materials, $1.50 for direct labor, $1.50 for variable overhead, and $0.50 for sales commission. No sales commission would be paid on this special order. The average overhead per unit is $0.25.Under the general decision rule, the minimum price per unit for this special order is

$6.50

A manufacturer operating with excess capacity has been asked to fill a special order at $7.25 per unit. The regular price is $10 per unit. No other use of the currently idle capacity can be found. The manufacturer s usual variable costs per unit are $3.50 for direct materials, $2.00 for direct labor, $1.00 for variable overhead, and $0.50 for sales commission. No sales commission would be paid on this special order. The average fixed overhead cost per unit is $0.25. Under the general decision rule, the minimum price per unit for this special order is

$6.50

The contribution margin ratio of Yoshi enterprises is 60%. If total fixed costs are $200,000, then what is the cost of producing and selling $1,000,000 of Yoshi s product?

$600,000

The Patterson Company is subject to income taxes of 20% on income through $25,000 and 40% on income in excess of $25,000. Projected information for next year follows: Selling price per unit $40 Variable costs per unit $15 Fixed costs $400,000 Sales in units 20,000 What is Patterson s projected after-tax profit?

$65,000

A manufacturer operating with excess capacity has been asked to fill a special order at $7.25 per unit. The regular price is $10 per unit. No other use of the currently idle capacity can be found. The manufacturer s usual variable costs per unit are $3.50 for direct materials, $2.00 for direct labor, $1.00 for variable overhead, and $0.50 for sales commission. No sales commission would be paid on this special order. The average fixed overhead cost per unit is $0.25. Assume there is no excess capacity (i.e., the company can sell every unit that it produces to regular customers). Under the general decision rule, the minimum price per unit for this special order would be

$7.25

Callow Company has considerable excess manufacturing capacity. A special job order s cost sheet includes the following allocated manufacturing overhead costs: Fixed costs $42,000 Variable costs 66,000. The fixed costs include a normal $7,400 allocation for in-house design costs, although no in-house design will be done. Instead, the job will require the use of external designers costing $15,500. What is the total amount to be included in the calculation to determine the minimum acceptable price for the job?

$81,500

Flox Hill Consulting has its own printing department with the following annual costs: Supplies $400,000; Labor 300,000; Overhead 200,000; Total $900,000. The managers would like to outsource the printing function because it is not considered a core competency. The overhead is 60% fixed. Of the fixed overhead, $60,000 is the salary of the printing department director. The remaining overhead is an allocation of overhead costs for the entire consulting firm. The department director would still oversee the printing activities and coordinate all of the printing activities for the organization with the outside printing vendor. The maximum amount that Flox Hill is willing to pay an outside firm to replace the printing services is

$840,000

Past cost information, although accurate in predicting future costs, may be: I. Unavailable; II. Irrelevant; III. Outdated.

. II and III only

The Harris Co. sells three products in a ratio of 3:2:6. The contribution margins for the units are $10, $25, and $30, respectively. Total fixed costs are $119,600.How many of each product must be sold to realize a pretax profit of $39,000?

1,830; 1,220; 3,660

Dane Co. sells three products and incurs $18,000 per period in fixed costs. The three products have the following characteristics: Product Price Variable Cost Sales Mix P $40 $20 3 units Q 20 10 9 units R 49 24 12 units How many units of Product P will be sold at the breakeven point?

120

Wierschem, Inc. projects the following for next year: Selling price per unit $30 Variable manufacturing costs per unit $16 Fixed manufacturing costs $74,000 Variable selling costs per unit $2 Fixed administrative costs $24,480 After-tax profit $48,000 Tax rate 40% How many units will Wierschem have to sell to realize the projected after-tax profit?

14,873

Stuart, Inc. produces one item which sells for $2.40 and costs $1.40 per unit to make. All manufacturing costs are variable. If fixed selling and administrative costs total $140,000, how many units must be sold in order to break even?

140,000

A firm s production is expected to show an 85% learning rate. The first unit took 200 hours to produce. The second unit will take

170 hours

Tilker Manufacturing sells its product for $40 per unit. Last year variable costs per unit were $15, and fixed costs were $400,000. How many units must be sold this year to earn a pretax profit of $45,000 if variable costs increase by 10%?

18,936

Blackmon Co. is deciding between two compensation plans. In Plan A, salaries are $100,000 and the commission is $2 per unit. In Plan B, salaries are $40,000 and the commission is $4 per unit.At what level of sales, in units, is Blackmon indifferent between the two compensation plans?

30,000

If sales are $80,000, variable costs are $50,000, and fixed costs are $20,000, the contribution margin ratio is

37.5%

Tieton Co. has two departments, Fabrication and Assembly. They produce 2 products. Product T needs 6 hours in fabrication and 6 hours in assembly. Product S needs 2 hours in fabrication and 4 hours in assembly. Fabrication has 24 hours available and Assembly 18. Total variable costs are $ 20 and $15 for T and S respectively. T sells for $22 and S for $16. The constraints for Tieton s 2 departments are

6T + 2S <= 24 AND 6T + 4S <= 18

The Harris Co. sells three products in a ratio of 3:2:6. The contribution margins for the units are $10, $25, and $30, respectively. Total fixed costs are $119,600.What is the breakeven point in total number of units?

5,060

Old MacDonald had a farm with expected fixed costs for next year of $91,000. The projected selling price per bushel is $12, with variable costs of $5 per bushel.How many bushels past the breakeven point does MacDonald have to sell to realize a pretax profit of $37,100?

5,300

Grady, Inc. produces a single product and projects the following costs for a normal month in which 100 units are produced and sold: Manufacturing Nonmanufacturing Fixed costs $8,000 $5,000 Total variable costs 7,700 6,050 The selling price per unit is $300. What volume, in units, must Grady sell to break even?

Past cost information might be too unreliable for future cost estimation because

A company has added a new product line

If we are determining costs for a particular case at a law office, the cost of rent for the office would be

A direct cost

A constraint is

A limited resource that restricts an organization s ability to provide enough products or services to satisfy demand

When an organization faces multiple constraints for multiple products, what kind of quantitative analysis needs to be performed?

A linear programming analysis that optimizes the contribution margin per constrained resource

Simple regression minimizes the distance from each data point to

A trend line

Cost drivers are

Activities that cause costs to increase as the activity increases

Which of the following is not an assumption in CVP analysis?

Actual costs will be exactly the amount that we predict in the analysis

Simple regression analysis output produces a variety of statistics. Which of the following statistics best summarizes how well the cost driver explains the behavior of the cost?

Adjusted R-square

CVP analysis can be used to make decisions about discretionary expenditures, such as

Advertising

In making a decision to drop a product line, variable costs are

Always relevant

The margin of safety is the

Amount by which volume of units or sales can drop before an organization reaches the breakeven point

Reviewing cost behavior patterns over time from the accounting records and using that review to predict future costs best describes

Analysis at the account level

This method of estimating future costs can be used when only one period of data is available.

Analysis at the account level

When resources are constrained, managers are most likely to use the following method to develop decision making information

Analysis at the account level

Which of the following is least likely to be an external report?

Analysis of supplier quality

The incremental cash flow approach

Analyzes the additional cash inflows and outflows for a specific decision

Business Risks

Are issues about which managers have doubts

Biases

Are preconceived notions developed without careful thought

Organizational strategies

Are reconsidered periodically in response to changes in the organization or environment

If financial statement data are used to evaluate a decision to discontinue a business

Average costs are often mistakenly included as relevant information

All of the following are true about average cost per unit exceptAll of the following are true about average cost per unit except

Average costs are usually good estimates of future costs

Redmond Corporation is closing one of its divisions. Operating data on this division follows: Sales $80,000; Variable costs 40,000; Overhead 40,000. Overhead consists of $30,000 in salary and $10,000 for rent and insurance. The salary is for the chief engineer, who will continue to work for Redmond even if the division is closed. Rent and insurance that will cease if the division is closed is an

Avoidable and relevant cost

In the decision to drop a product line, fixed costs are often classified as

Avoidable or sunk

Bauer Company s sales increased, but its pretax profits did not change. If the increase was within the relevant range, which of the following statements is true?

Bauer s contribution margin is zero throughout the relevant range

The process for making nonroutine operating decisions

Begins with identifying the type of decision

Opportunity costs are

Benefits foregone from one project because another project is chosen

Managers should generally consider opportunity costs in both keep or drop and make or buy decisions. Which of the following is an opportunity cost they should consider in both situations?

Benefits from alternate uses of released capacity

Which of the following is an opportunity cost that should be considered in an outsourcing decision?

Benefits from alternate uses of released capacity

Bhuyan Company s budgeted profit for next year is lower than this year s actual profit. The selling price, variable cost per unit, and total fixed costs did not change. Which of the following is false?

Bhuyan s contribution margin ratio this year will be lower than last year

Higher quality decision making processes are less

Biased

Which of the following statement about biases is true?

Biases reduce the quality of decisions

Cost accounting information is used for

Both financial and management reporting

Biases may be

Both intentional and unintentional

Ramser Co. has total variable costs equal to 40% of sales. Fixed costs are $120,000. What is the breakeven point in units?

Cannot be determined

In an outsourcing decision, the general rule managers should follow is to

Choose the option with the lowest relevant cost

The code of conduct of a firm would likely be considered

Boundary system

In nonroutine situations, managers must identify the type of decision to be made. Which of the following is not an example of a nonroutine operating decision?

Budgeting

All of the following are examples of external reports except: a. Tax returns b. Credit reports c. Financial statements d. Budgets

Budgets

In a special order decision, which of the following is most likely a qualitative factor that managers should consider?

Can we deliver without disrupting current schedules?

Ethical decision making

Considers the well-being of those affected by the decision

Mixed costs

Consist of fixed and variable costs

Managers should discontinue a business if which of the following is less than the sum of relevant fixed costs and opportunity costs?

Contribution margin

Once a firm reaches the breakeven point, the next unit sold will increase profit by an amount equal to the

Contribution margin per unit

Decision quality can best be increased by

Controlling for bias and uncertainties

Consider the following cost data for the cost object, number of machine setups. Each set of costs (A, B, and C) is from a different type of manufacturing operation and represents the cost behavior for the cost of that company's machine setups. Number of Employees Cost A Cost B Cost C 0 $ 0 $120 $118 25 50 118 180 50 100 123 245 75 125 124 296 100 200 119 360 Which cost is best described as variable?

Cost A

Which of the following is the most valid criticism of the high-low method?

Data points might be outside the normal range of activity

Discretionary costs reflect

Decisions about the maximum amount that will be spent next period for activities such as travel and marketing

Consider the following cost data for the cost object, number of machine setups. Each set of costs (A, B, and C) is from a different type of manufacturing operation and represents the cost behavior for the cost of that company's machine setups. Three different divisions of a toy manufacturing company are estimating costs for their human resources departments. Each division has a cost structure that is different from the other divisions' and those structures are represented by the following cost behavior patterns (A, B, and C). Number of Employees Cost A Cost B Cost C 0 $ 0 $120 $118 25 50 118 180 50 100 123 245 75 125 124 296 100 200 119 360 Which cost is best described as fixed?

Cost B

Consider the following cost data for the cost object, number of machine setups. Each set of costs (A, B, and C) is from a different type of manufacturing operation and represents the cost behavior for the cost of that company's machine setups. Number of Employees Cost A Cost B Cost C 0 $ 0 $120 $118 25 50 118 180 50 100 123 245 75 125 124 296 100 200 119 360 Which cost is best described as mixed?

Cost C

Which of the following statements is true?

Cost accounting information is used for both management and financial accounting

Which of the following statements is false? a. Strategic cost management focuses on reducing costs as well as strengthening an organization s strategic position b. The balanced scorecard is a formalized approach to strategic cost management c. The balanced scorecard may include both financial and nonfinancial measures d. Cost accounting information used for strategic cost management includes only measures of costs

Cost accounting information used for strategic cost management includes only measures of costs

Simple regression analysis differs from multiple regression analysis based on the number of

Cost drivers used

Janice s Kennel and Pet Spa is located in a small town in central California. The company employs three pet attendants, four pet groomers and two front office staff who book appointments and keep records. The spa provides a range of services for dogs and cats including boarding, grooming, and obedience training. The grooming area includes a small retail section that carries dog and cat food, pet supplies, and toys. Which of the following is a sunk cost for any cost object related to Janice s Kennel and Pet Spa?

Cost of existing computer equipment used to keep company records

The relevant range in cost accounting is the range over which

Cost relationships are valid

Which of the following techniques examine changes in profits in response to changes in volume, costs, and prices?

Cost-volume-profit analysis

Direct costs are

Costs that can easily be traced to cost objects

Indirect costs are

Costs that need to be assigned but cannot easily be traced to cost objects

A company will only incur an opportunity cost for a special order when

Current capacity is constrained

Information gathered outside the organization includes

Customer preferences

Depreciation is irrelevant in decision making

If it is different for each alternative

If the total contribution margin decreases and fixed costs do not change, pretax income

Decreases by an equal amount

The ratio of contribution margin ? profit is used to compute a company s

Degree of operating leverage

Which of the following is an alternative name for the cost being predicted in a regression analysis?

Dependent variable

Nonroutine operating decisions differ from routine operating decisions in that nonroutine decisions

Do not happen on a regular basis

Fixed costs

Do not vary in total within the relevant range

Variable costs

Do not vary on a per-unit basis within the relevant range

Managers analyze production activities and assign costs based on the estimated amount of resources used when they use this method.

Engineered estimate of cost

How are constrained resources and relevant ranges related?

If production is beyond the capacity limit, resources are probably constrained, and production is outside of the relevant range

Sunk costs are

Expenditures made in the past

Financial statements are

External reports produced from an organization s information system

Which of the following is the best definition of a qualitative factor?

Factors that are not valued in monetary terms

If firm A has a learning curve with 90% learning and firm B has a learning curve with 80% learning, then

Firm B will be more cost efficient over time

Which of the following statements is false?

If the cost object is a batch of 1000 units of production, then factory property taxes could be a direct cost if the bookkeeping system is detailed enough

Consider the following cost data for the cost object, number of machine setups. Each set of costs (A, B, and C) is from a different type of manufacturing operation and represents the cost behavior for the cost of that company's machine setups. Setups Cost A Cost B Cost C 0 $ 0 $80 $ 5 10 20 79 37 20 40 82 66 30 60 78 91 40 80 81 123 50 100 79 154 Cost B is best described as

Fixed

The relevant range is important because

Fixed and variable costs may change outside the relevant range

The depreciation on a factory machine is a

Fixed cost

The total cost of salaries of production supervisors, where 2 supervisors are needed for each 8-hour shift, where the relevant range is 0 units to the number of units that can be produced at full capacity using 2 8-hour shifts is a

Fixed cost

At the breakeven point, the contribution margin equals total

Fixed costs

In deciding whether to manufacture a part or buy it from an outside supplier, which of the following is an irrelevant cost?

Fixed overhead that will continue even if the part is purchased from an outside supplier

Janice s Kennel and Pet Spa is located in a small town in central California. The company employs three pet attendants, four pet groomers and two front office staff who book appointments and keep records. The spa provides a range of services for dogs and cats including boarding, grooming, and obedience training. The grooming area includes a small retail section that carries dog and cat food, pet supplies, and toys. If the cost object is the total cost of the grooming product line, which of the following is an indirect cost?

Front office staff salaries

Ryan Company manufactures a single product. The product sells for $10. The variable manufacturing cost per unit is $2 and the variable selling cost is $2 per unit. Ryan incurs monthly fixed costs of $100,000 for manufacturing and $140,000 for administration and selling. Ryan is considering changes to its production and distribution procedures. If the changes are made, total variable costs (manufacturing and selling) will be $3 and total fixed costs (manufacturing, administration, and selling) will be $350,000 per month. The selling price will remain at $10. If the changes are made, the number of units required to break even will be

Greater than before

A bottleneck

Has an opportunity cost of lost revenue from unmet demand

If all other factors remain unchanged, a 10% decrease in both the selling price and variable costs for a product will

Have no effect on the breakeven point in dollars

The breakeven sales volume of the Patin Co. is $800,000. If the variable cost per unit increases next year, then the new breakeven point will be

Higher

Compared to organizations with low operating leverage, organizations with high operating leverage have

Higher risk of loss if they are close to the breakeven point

Which of the following is a relevant qualitative factor in a special order decision?

How easily customers might share price information

Financial institutions often consider outsourcing their information technology functions internationally. Which of the following are qualitative factors that should managers consider in the decision? I. Potential language barriers; II. Political stability; III. The tax cash flows.

I and II only

Managers relax constraints by: I. Using constrained resources more effectively; II. Increasing available resources; III. Emphasizing the product with the highest contribution margin per unit:

I and II only

The assumption of cost function linearity means I. Fixed costs remain fixed; II. Sales mix remains constant; III. The average cost per unit remains constant:

I and II only

Which of the following is an uncertainty faced by managers in CVP analysis? I. Unexpected changes in costs; II. How quickly demand for new products will change; III. The amount of budgeted advertising costs:

I and II only

Accounting information I. Can be used to guide organizational vision II. Is a core competency for most companies III. Can be used to motivate performance

I and III only

After estimating a past cost function, managers: I.May need to update it for future changes; II. Have all of the information they need to predict future costs; III.May or may not use it to estimate future costs.

I and III only

Which of the following adjectives describes higher quality information? I. Complete II. Costly to develop III. Relevant

I and III only

Which of the following statements about outsourcing is true? I. Outsourcing is the process of finding external suppliers; II. Outsourcing is not very common in today s business world; III. Outsourcing is used for manufactured goods, but not for services:

I only

Accuracy of cost estimates is one of the uncertainties in this type of decision: I. Special order; II. Make or buy; III. Product emphasis:

I, II, and III

Biases can affect I. Organizational vision II. Core competencies III. Operating plans

I, II, and III

CVP analysis can be used in the following type(s) of organization I. Manufacturing; II. Service; III. Not-for-profit:

I, II, and III

Higher quality reports are more I. Relevant II. Understandable III. Available

I, II, and III

Managers can use cost-volume-profit analysis to I. Plan operating activity levels; II. Achieve targeted profits; III. Monitor organizational performance:

I, II, and III

Managers should consider which of the following in CVP analysis I. Assumptions; II. Uncertainties; III. Biases:

I, II, and III

Variable costs are important for which type of relevant cost decisions? I Special order; II Outsourcing; III Keep or drop a product.

I, II, and III

Which of the following business conditions may violate an assumption of CVP analysis? I. Supplier volume discounts; II. Learning curves; III. Customer discounts:

I, II, and III

Which of the following cost estimation techniques makes assumptions about the data being analyzed? I. Analysis at the account level; II. Two-point method; III. Regression analysis.

I, II, and III

Factors that affect information quality in nonroutine operating decisions include: I. Uncertainties; II. Timeliness; III. Analysis technique assumptions; IV. Overall cost structure.

I, II, and III only

Future revenues and costs are often a source of uncertainty for nonroutine operating decisions. Future revenues and costs can be affected by: I. Economic environment changes; II. Customer demand; III. Government regulation; IV. Forecasting techniques

I, II, and III only

Irrelevant information may be I.Useful in decision making II. Internally-generated III. Accurate

II and III only

Biases are

Ideas that are adopted without careful thought

In applying a relevant quantitative analysis technique to a nonroutine operating decision, managers must

Identify input variables

Which of the following is not one of the steps in ethical decision making?

Identify the ways you might get caught doing something unethical

The process for addressing a nonroutine operating decision begins with

Identifying the type of decision involved

In a linear programming problem, slack resources are the same as

Idle capacity

If expected sales are lower than the indifference point, Blackmon would prefer Plan A

In general, a company should outsource if the cost to buy is

Less than or equal to (variable costs + relevant fixed costs opportunity costs)

Belief systems are an important part of what framework?

Levers of control

The breakeven sales volume of the Tuck Co. is 800,000 units. If the variable cost per unit increases by $1.50 and the selling price per unit increases by $2.00 next year, then the new breakeven point will be

Lower

When resources are constrained, managers should emphasize the product with the

Lowest average cost

MAX$2T + $1S

Wong Company utilizes both strategic planning and operational budgeting. Which one of the following items would normally be considered in a strategic plan?

Maintaining the image of the company as the industry leader

For manufacturers, outsourcing decisions are often known as

Make or buy

Marriott Corporation operates hotels all over the world. Which of the following is the best example of a potential bias associated with its operations?

Managers assume that most travelers are interested in conducting business, rather than vacationing

How does the use of sophisticated information systems affect strategic management?

Managers may overlook potential uncertainties and bias in their information

A company manufactures chips used in the production of computers. The chips can be purchased for $50 each from an outside vendor. It costs the manufacturer $60 a chip to produce them, of which 25% is fixed overhead cost. What are the relevant costs for this decision? Based on these costs, which option should the company choose?

Manufacture and Purchase: $50 and $45 Decision: Manufacture

Janice s Kennel and Pet Spa is located in a small town in central California. The company employs three pet attendants, four pet groomers and two front office staff who book appointments and keep records. The spa provides a range of services for dogs and cats including boarding, grooming, and obedience training. The grooming area includes a small retail section that carries dog and cat food, pet supplies, and toys. Assume Janice s Kennel and Pet Spa is currently boarding ten pets. The cost of food to board one more pet is best described as a

Marginal cost

Maude is considering opening her own business, now that she has retired from her regular job. Her business idea is a reminder and shopping service, in which clients submit lists of birthdays, anniversaries and other important dates. Maude sends her clients reminders for those dates, and shops for special gifts at the client s request. She plans to do all of the work herself rather than hiring and managing additional employees. Which of the following statements is true for Maude s business regarding measuring and monitoring performance?

Maude can track cash flows on a monthly basis

General decision rules associated with outsourcing decisions assume the organization s goal is to

Maximize short-term profits

Consider the following cost data for the cost object, number of machine setups. Each set of costs (A, B, and C) is from a different type of manufacturing operation and represents the cost behavior for the cost of that company's machine setups. Setups Cost A Cost B Cost C 0 $ 0 $80 $ 5 10 20 79 37 20 40 82 66 30 60 78 91 40 80 81 123 50 100 79 154 Cost C is best described as

Mixed

The rent on a store, where the landlord charges $1,200 per month plus a percentage of sales revenue, is a

Mixed cost

Lori is deciding whether to go to school full-time at the local community college or get a full time job. Which of the following is not relevant to her decision?

Monthly rent on her apartment

A product emphasis decision may involve

Multiple products and qualitative factors

Sunk costs should be considered in

Neither routine or nonroutine operating decisions

Which of the following is a type of external report produced by an organization s information system?

News release

Melissa Manager expects next year s degree of operating leverage to increase. Which of the following statements is consistent with Melissa s expectations?

Next year s activity level is budgeted to be lower than this year s

Which cost estimation technique is useful in all situations?

No one method is useful in all situations

Taylor Enterprises sells its product for $40 per unit. Taylor recently received a special order from a customer for 20,000 units. Production costs per unit for regular sales are: Direct materials $6; Direct labor $14; Manufacturing overhead (2/3 variable) $12. Suppose that the special order price is $600,000 for all 20,000 units, but there is not sufficient capacity to fill the order; 8,000 units of regular business will be replaced by the special order if it is accepted. Should Taylor accept the special order and why?

No, because profits will decrease by $56,000

When the cost object is a unit produced, straight-line depreciation on manufacturing equipment would be (Variable Cost,Fixed Cost,Direct Cost):

No,Yes,No

Qualitative information used in a make or buy decision is least likely to include

None of the above (all are good examples of qualitative information)

If we want to estimate the cost of lumber for manufacturing chairs, the cost function most likely reflects

Only a variable cost

Which of the following is the best example of an internal report that might come from an organization s information system?

Operating budget

Maude is considering opening her own business, now that she has retired from her regular job. Her business idea is a reminder and shopping service, in which clients submit lists of birthdays, anniversaries and other important dates. Maude sends her clients reminders for those dates, and shops for special gifts at the client s request. She plans to do all of the work herself rather than hiring and managing additional employees. Maude s organizational strategy is most likely to include

Operating her business from her home to keep costs low

Which of the following statements is false?

Operating plans are long-term in nature

When comparing strategic planning with operational planning, which one of the following statements is most appropriate?

Operational planning results in budget data

Mr. Bigletter is employed at an annual salary of $25,000. He plans to start his own business and estimates that he can gross $30,000 annually. If he chooses to open the new business, his foregone salary is a (an)

Opportunity cost

Which of the following influences organizational strategies?

Organizational vision

If a manager is deciding whether to repair equipment or replace it, which of the following is irrelevant to the decision?

Original cost of the equipment

For which of the following decisions is vendor reliability a major uncertainty?

Outsourcing

Which of the following statements is true? a. Past costs are always relevant for decisions and are often useful in estimating future cost behavior b. Past costs are always relevant for decisions, but are rarely useful in estimating future cost behavior c. Past costs are never relevant for decisions, nor are they useful in estimating future cost behavior d. Past costs are never relevant for decisions, but are often useful in estimating future cost behavior

Past costs are never relevant for decisions, but are often useful in estimating future cost behavior

Estimating a cost function using past cost data to help determine future costs is useful if

Past costs are relevant and not discretionary

Organizational core competencies can include

Patents, copyrights and special legal protections

Janice s Kennel and Pet Spa is located in a small town in central California. The company employs three pet attendants, four pet groomers and two front office staff who book appointments and keep records. The spa provides a range of services for dogs and cats including boarding, grooming, and obedience training. The grooming area includes a small retail section that carries dog and cat food, pet supplies, and toys. If the cost object is cost per day of boarding, which of the following is a direct cost?

Pet food

Strategic cost management focuses on all of the following except a. Strengthening an organization s strategic position. b. Reducing costs c. Both financial and non-financial measures d. Producing financial statements

Producing financial statements

Janice s Kennel and Pet Spa is located in a small town in central California. The company employs three pet attendants, four pet groomers and two front office staff who book appointments and keep records. The spa provides a range of services for dogs and cats including boarding, grooming, and obedience training. The grooming area includes a small retail section that carries dog and cat food, pet supplies, and toys. Which of the following is the best example of a discretionary cost for Janice s Kennel and Pet Spa?

Professional travel for Janice

If an organization cannot deliver goods or services quickly because of a constraint, managers might relax that constraint to

Protect customer loyalty

Purchasing advertisements in local media

Whether delivery timeliness is an important factor is an example of a

Qualitative factor

The assumption that organizations seek to maximize short-term profits ignores

Qualitative factors

Assuming that a cost is mixed and linear, and that past cost behavior is expected to continue into the future, which of the following is mostly likely the best technique for estimating future costs?

Regression analysis

Managers should discontinue a business if its contribution margin is less than the sum of

Relevant fixed costs and opportunity costs

In an outsourcing decision, fixed costs are

Relevant if they can be avoided through outsourcing

Cost accounting differs from financial accounting in that cost accounting is

Relied on for analyzing and implementing internal decisions

CVP analysis is most likely to be used for which of the following decisions?

The amount of discretionary expenditures for the next period

The Wasson Widget Co. has 1,000 obsolete widgets on hand. These units were produced a year ago at a cost of $10,000. The units could be scrapped for $1,000 or reworked for $2,000 and sold for $5,000. Which alternative is desirable and why?

Rework, income of $3,000 is higher than the other option

At the breakeven point

Sales will be equal to variable costs plus fixed costs

A manager might use this method to create a graph of cost behavior without any statistical techniques

Scatter plot

Which of the following techniques relies on visual analysis?

Scatter plots

A widely used approach that is used to recognize uncertainty about individual economic variables while obtaining an immediate financial estimate of the consequences of possible prediction errors is

Sensitivity analysis

Which of the following are forms of regression analysis?

Simple and multiple

The difference between simple regression and multiple regression is that

Simple regression uses only one cost driver, whereas multiple regression uses more than one cost driver

In a regression equation, variable costs are represented by the

Slope

Southwest Log Kits makes kits for pool cabanas. Currently, the company does not advertise and has a low selling price for its kits compared to competitors. Next year, the company plans to increase the selling price and begin a wide advertising campaign. Which of the following statements is true?

Southwest s operating leverage will be higher next year if the same number of units is sold

Which of the following is an opportunity cost associated with dropping a business segment?

The benefits from using excess capacity for something else

If the sales mix changes

The change in mix affects the contribution margin ratio

Which of the following is considered a bottleneck in a product emphasis/constrained resource decision?

The company s 12 machines can only operate 18 hours per day

The best source for determining historical costs is usually

The company s accounting information system

Degree of operating leverage is

The contribution margin divided by profit

When performing CVP analysis for a single product

The contribution margin per unit can be used to solve for the breakeven point

Before a company reaches the breakeven point

The contribution margin per unit is less than the fixed costs per unit

The breakeven point for a service organization will decrease if

The contribution margin ratio increases

A high adjusted R-square for the regression of a cost against a cost driver indicates

The cost driver explains a high percentage of the variation of the cost

Tom is gathering information about buying a new car to replace his existing car. The following items are irrelevant

The cost of parking at the university

A not-for-profit organization provides meals and medicine for homeless people. Because of funding cutbacks, one of the two services must be curtailed. To make this choice, managers are likely to consider all of the following except

The cost of the building housing the program

All of the following are examples of variable costs except a. The cost of tires if the cost object is the number of automobiles produced b. Professional labor cost when the cost object is the audit of a business c. The cost for wood in a baseball bat manufacturing company if the cost object is bats produced d. The cost to lease a manufacturing plant if the cost object is the product manufactured

The cost to lease a manufacturing plant if the cost object is the product manufactured

The margin of safety is

The difference between estimated sales and breakeven sales.

The contribution margin is

The dollars that contribute to fixed costs and then to profit once fixed costs are covered

When deciding whether to outsource or insource a product or service, managers consider

The reliability of the product or service supplier

The shadow price of a slack variable in a linear programming solution that maximizes the total contribution margin reflects

The increase in contribution margin that would occur if another unit of the constrained resource were available

Marginal cost is

The incremental cost of the next unit

When the assumption of linearity is applied to revenue in CVP analyses

The sales mix and all of the prices remain constant

Janice s Kennel and Pet Spa is located in a small town in central California. The company employs three pet attendants, four pet groomers and two front office staff who book appointments and keep records. The spa provides a range of services for dogs and cats including boarding, grooming, and obedience training. The grooming area includes a small retail section that carries dog and cat food, pet supplies, and toys. Janice s relevant range of activity would best be measured in terms of:

The number of pets she services

To make a decision about a special order, managers need to know whether

The order replaces regular business

The general rule for special orders is

The organization should be as well off after taking the order as it was before taking it

The breakeven point can be defined as

The point at which the total contribution margin equals the total fixed costs

Yvonne and Ken own and operate Deluxe Housecleaning Service. Which of the following is a qualitative factor associated with dropping carpet cleaning from their current line of services?

The potential effect on demand for their other services

Sebastian is a manager at DLL Restaurant. He is considering accepting a special order from a neighborhood homeless shelter for 150 Thanksgiving meals. Which of the following is a relevant qualitative factor he should consider?

The potential publicity for his restaurant

If a firm has no extra capacity and a customer asks for a special order, what price is acceptable (assuming there are no relevant qualitative factors)?

The regular price because this order replaces regular business

Which of the following is not an assumption of CVP analysis?

The sales mix varies in proportion with changes in activity levels

After a company exceeds the breakeven point

The total contribution margin increases

The trend line from a scatter plot can be used to identify data points for

The two-point method

The breakeven point for a service organization will decrease if

The variable cost ratio decreases

The relevant range is defined as

The volume of production over which the cost assumptions hold

Sales mix reflects

The weighted average contribution margin per unit

Which of the following is not an assumption of linear regression analysis

There is a cause and effect relationship between the dependent and independent variables

When performing CVP analysis for a multi-product organization

There is no relationship between changes in sales mix and changes in total revenue

What is the relationship between the margin of safety percentage and the degree of operating leverage?

They are reciprocals

PQK Corporation produces and sells bookends. Its managers are considering whether to outsource the task of cutting the wood for the bookends to DLN Corporation. Which of the following is most likely to be a qualitative factor that managers will consider in making the decision?

Timeliness of delivery

The contribution margin ratio is

Total contribution margin divided by total revenue

The breakeven point occurs when

Total costs equal total revenue

Information from CVP analysis helps with all of the following decisions except

Whether to lay off a specific employee

A cost function is used in CVP analysis to predict

Total revenue at the breakeven point

The high-low method is a specific application of this method of cost estimation

Two-point

Irrelevant cash flows are

Unavoidable

Ryan Company manufactures a single product. The product sells for $10. The variable manufacturing cost per unit is $2 and the variable selling cost is $2 per unit. Ryan incurs monthly fixed costs of $100,000 for manufacturing and $140,000 for administration and selling. If Ryan raises its selling price by 10% in response to a 10% increase in variable costs, and income taxes are 40%, its new breakeven point in sales dollars (relative to that of the original data above) will be

Unchanged

An internal report is

Used for decision making primarily inside the organization

Avoidable cash flows are

Usually relevant to a decision

Consider the following cost data for the cost object, number of machine setups. Each set of costs (A, B, and C) is from a different type of manufacturing operation and represents the cost behavior for the cost of that company's machine setups. Setups Cost A Cost B Cost C 0 $ 0 $80 $ 5 10 20 79 37 20 40 82 66 30 60 78 91 40 80 81 123 50 100 79 154 Cost A is best described as

Variable

Which of the follow is not an assumption when estimating a cost function over the relevant range of activity?

Variable costs will be constant in total

Managers should accept a special order if its price is greater than the sum of

Variable costs, relevant fixed costs and opportunity costs

Relevant information

Varies with the action taken

Fixed costs per unit

Vary inversely with changes in volume

Mixed costs

Vary with production but not in direct proportion to volume

Which one of following is not a reason to take into account the relevant range when estimating a cost?

We cannot make assumptions about linearity within a relevant range

Under the general decision rule for relaxing a constraint, managers are willing to pay

What they pay now plus some or all of the contribution margin per constrained resource

The general decision rule for choosing products to emphasize, assuming no constraints and no relevant qualitative factors, is to emphasize products

With the highest contribution margin per unit

Taylor Enterprises sells its product for $40 per unit. Taylor recently received a special order from a customer for 20,000 units. Production costs per unit for regular sales are: Direct materials $6; Direct labor $14; Manufacturing overhead (2/3 variable) $12. Suppose the special order price is $600,000 for all 20,000 units, and assume that Taylor has sufficient capacity to fill the special order. Should it be accepted?

Yes, because profits will increase by $40,000

If you create a scatter plot of a cost against a cost driver

You gain information about whether there is a seeming relation between the cost and cost driver

What is the opportunity cost of making a component part in a factory given no alternative use of the capacity?

Zero

Wagner Corporation can manufacture 490,000 tennis rackets a year at a variable cost of $15 per racket and fixed costs of $500,000. Wagner budgeted that it can sell 400,000 at $25 each. An additional order of 100,000 was received, but at a discount of 35% from the regular price. The relevant cost to Wagner of the special order is

a. $1,500,000 b. $1,450,000 c. $1,625,000 D.SOME OTHER AMOUNT

Wagner Corporation can manufacture 490,000 tennis rackets a year at a variable cost of $15 per racket and fixed costs of $500,000. Wagner budgeted that it can sell 400,000 at $25 each. An additional order of 100,000 was received, but at a discount of 35% from the regular price. If Wagner accepts the special order, income before taxes will

a. Decrease by $100,000 b. Increase by $125,000 c. Increase by $25,000 D. SOME OTHER AMOUNT

Which of the following statements regarding organizational vision is false?

a. Organizational vision means the same as core competencies

All of the following are assumptions for developing and using a cost linear function except a. Past costs rarely need updating to be good predictors of future costs b. Operations are within the relevant range c. Variable costs remain constant within the relevant range d. Fixed costs remain fixed within the relevant range

a. Past costs rarely need updating to be good predictors of future costs

A p-value of 1% for the intercept term in a regression of a cost driver against a cost indicates

a. The true fixed costs are statistically significantly different from zero b. There is only a 1% chance the true fixed costs are zero both

A regression of total selling expenses against number of units sold yields an intercept of 178,024 and a slope of 12.3. This indicates that

a. Total fixed selling expenses are predicted to be $178,024. b. Variable selling expenses are predicted to be $12.30/unit. c. Total selling expenses are predicted to be $190,324 when 1000 units are sold d. All of the above

Mike Manager prefers alternatives that lower the degree of operating leverage. Which of the following statements about Mike is probably true?

b. Mike is a pessimist c. Mike likes to avoid risk d. Both (b) and (c) are likely to be true

All of the following are examples of internal reports except: a. Cash flow analyses b. News releases c. Analyses of supplier quality d. Product mix analyses

b. News releases

Decision quality

b. Refers to the characteristics of a decision that affects the likelihood of achieving a positive outcome c. Is reduced by uncertainty and bias d. Both (b) and (c) are correct

Maude is considering opening her own business, now that she has retired from her regular job. Her business idea is a reminder and shopping service, in which clients submit lists of birthdays, anniversaries and other important dates. Maude sends her clients reminders for those dates, and shops for special gifts at the client s request. She plans to do all of the work herself rather than hiring and managing additional employees. Providing excellent, reliable customer service at reasonable prices best describes which of the following for Maude s business?

b. Vision

Steiner Manufacturer s contribution margin is $200, after-tax income is $96, and the tax rate is 40%. What are the fixed costs?

c. $40

Which of the following could be defined as a cost object? a. A single unit of product in a manufacturing process b. A batch of products in a manufacturing process c. A business process, such as managing accounts receivable

d. All of the above

Which of the following is an element of an operating plan?

d. Budgeting employee costs

Maude is considering opening her own business, now that she has retired from her regular job. Her business idea is a reminder and shopping service, in which clients submit lists of birthdays, anniversaries and other important dates. Maude sends her clients reminders for those dates, and shops for special gifts at the client s request. She plans to do all of the work herself rather than hiring and managing additional employees. Maude s core competencies are most likely to include

d. Her knowledge of potential gifts and the local shops

A p-value of 89% for the slope coefficient in a regression of a cost driver against a cost indicates a. The true variable costs are statistically significantly different from zero b. There is only an 11% chance the true variable costs are zero c. The relationship between the cost and the cost driver is nonlinear

d. None of the above

Which of the following statements is false? a. Information for some costs cannot easily be obtained from the accounting information system. b. Useful cost information is rarely available from the accounting information system. c. The accounting system design affects the availability of useful cost information. d. The nature of cost information affects its usefulness for decision making.

Act 3100

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