COST ACCOUNTING EXAM 4 (Ch 9 & 11)

In order to determine whether a special order should be accepted at full​ capacity, the sales price of the special order must be compared to the per​ unit: A. Variable cost of current production and the contribution margin of the next best alternative. B. Contribution margin of the special order. C. Variable cost and contribution margin of the special order. D. Variable cost and contribution margin of the next best alternative.

A. Variable cost of current production and the contribution margin of the next best alternative.

Chade Corp. is considering a special order brought to it by a new client. If Chade determines the variable cost to be​ $9 per​ unit, and the contribution margin of the next best alternative of the facility to be​ $5 per​ unit, then if Chade​ has: A. Full​ capacity, the selling price must be greater than​ $5 per unit. B. Excess​ capacity, the selling price must be greater than $9 per unit. C. Full​ capacity, the company will be profitable at​ $4 per unit. D. Excess​ capacity, the company will be profitable at​ $6 per unit.

B. Excess​ capacity, the selling price must be greater than $9 per unit.

Which of the following​ is not a qualitative factor that Atlas Manufacturing should consider when deciding whether to buy or make a part used in manufacturing their​ product? A. Quality of the outside​ producer's product. B. Manufacturing deadlines and special orders. C. Variable cost per unit of the product. D. Potential loss of trade secrets.

C. Variable cost per unit of the product.

In comparing the absorption and variable cost​ methods, each of the following statements is true​ except: A. SG&A fixed expenses are not included in inventory in either method. B. Variable costing charges fixed overhead costs to the period they are incurred. C. When inventory increases over the​ period, variable net income will exceed absorption net income. D. Only the absorption method may be used for external financial reporting.

C. When inventory increases over the​ period, variable net income will exceed absorption net income.

Which of the following statements is not true regarding the use of variable and absorption costing for performance​ measurement? A. The net income reported under the absorption method is less reliable for use in performance evaluations because the cost of the product includes fixed​ costs, which means the level of inventory affects net income. B. The net income reported under the contribution income statement is more reliable for use in performance evaluations because the product cost does not include fixed costs. C. Variable costing isolates contribution margins to aid in decision making. D. The Internal Revenue Service allows either absorption or variable costing as long as the method is not changed from year to​ year, while U.S. GAAP only allows absorption costing.

D. The Internal Revenue Service allows either absorption or variable costing as long as the method is not changed from year to​ year, while U.S. GAAP only allows absorption costing.

Lees Corp. is deciding whether to keep or drop a small segment of its business. Key information regarding the segment​ includes: Contribution​ margin: ​35,000 Avoidable fixed​ costs: ​30,000 Unavoidable fixed​ costs: ​25,000 Given the information​ above, Lees​ should:

Keep the segment because the contribution margin exceeds avoidable fixed costs

​Ace Cleaning Service is considering expanding into one or more new market areas. Which costs are relevant to Ace's decision on​ whether to expand?

Variable and Opportunity Costs. Sunk costs are irrelevant.