CH 17

Noreaster Company produces a product that has a regular selling price of $360 per unit. At a typical monthly production volume of 2,000 units, the product's average unit cost of goods sold amounts to $270. Included in this average is $120,000 of fixed manufacturing costs. All selling and administrative costs are fixed and amount to $30,000 per month. Noreaster Company has just received a special order for 1,000 units at $240 per unit. The buyer will pay transportation, and the regular selling price will not be affected if Noreaster accepts the order. Assuming Noreaster Company has excess capacity, the effect on profits of accepting the order would be a A. $30,000 increase. B. $30,000 decrease C. $60,000 increase. D. $60,000 decrease..

A. $30,000 increase.

In order for costs or benefits to be relevant, what must be true? A. All decisions must relate to future. B. Identifying relevant costs and benefits is an easy process. C. Relevancy will relate both to the future and the past. D. All of these are true statements.

A. All decisions must relate to future.

Which of the following is NOT a step in the tactical decision-making process? A. Compare full costs and benefits for alternatives. B. Identify feasible alternatives. C. Select the best alternative. D. Recognize and define the problem

A. Compare full costs and benefits for alternatives.

. ______________ are future costs that differ across alternatives. A. Relevant costs B. Irrelevant costs C. Sunk costs D. Past costs

A. Relevant costs

Salda Industries employs 500 workers in the factory. These workers produced 85,000 units in 2009. Due to a special order, the units produced in 2010 increased to 95,000 units. However, Salda produced these units without adding workers. How is that possible? A. The plant had some unused activity capacity. B. The employees were a flexible resource in this situation. C. The labor cost associated with the additional units sold will be a relevant cost. D. None of these

A. The plant had some unused activity capacity.

Which of the following statements is TRUE when making a decision between two alternatives? A. Variable costs may not be relevant when the decision alternatives have the same activity levels. B. Variable costs are not relevant when the decision alternatives have different activity levels. C. Sunk costs are always relevant. D. Fixed costs are never relevant.

A. Variable costs may not be relevant when the decision alternatives have the same activity levels.

The U.S. government has set up foreign trade zones (FTZ) that A. are located on U.S. soil but are considered to be outside of U.S. commerce for tariff purposes. B. are located in foreign countries and designed to export to the United States. C. are located in foreign countries and are designed to import from the United States. D. are located in the United States and are considered part of the United States for tariff purposes

A. are located on U.S. soil but are considered to be outside of U.S. commerce for tariff purposes.

A purchasing agent has two potential firms from which to buy materials for production. If both firms charge the same price, the material cost is a(n) A. irrelevant cost. B. relevant cost. C. sunk cost. D. opportunity cost.

A. irrelevant cost.

Which of the following costs is NOT relevant to a decision to sell a product at split-off or process the product further and then sell the product? A. joint costs allocated to the product B. the selling price of the product at split-off C. the additional processing costs after split-off D. the selling price of the product after further processing

A. joint costs allocated to the product

Which item is NOT an example of a sunk cost? A. materials needed for production B. purchase cost of machinery C. depreciation D. all are sunk costs

A. materials needed for production

Future costs that differ across alternatives describe A. relevant costs. B. target cost. C. full costs. D. activity-based costs.

A. relevant costs.

Which of the following items would be classified as committed resources (short-term)? A. salaried employees B. depreciation on building C. fuel to generate electricity internally D. lease on machinery

A. salaried employees

A decision that focuses on whether a specially priced order should be accepted or rejected is a A. special-order decision. B. keep-or-drop a product-line decision. C. make-or-buy decision. D. both a and c.

A. special-order decision.

Which of the following costs is NOT relevant to a make-or-buy decision? A. $10,000 of direct labor used to manufacture the parts B. $30,000 of depreciation on the plant used to manufacture the parts C. the supervisor's salary of $25,000 that will be avoided if the part is purchased from an outside supplier D. $15,000 in rent from leasing the production space to another company if the part is purchased from an outside supplier

B. $30,000 of depreciation on the plant used to manufacture the parts

. _______________ is(are) the cost of acquiring activity capacity. A. Joint costs B. Resource spending C. Absorption costing D. Variable costing

B. Resource spending

_______________ consists of choosing among alternatives with an immediate or limited end in view. A. Long-run decision making B. Tactical decision making C. Universal decision making D. All of these

B. Tactical decision making

. Firms may be asked to accept a special order of their product for a reduced price if A. it can be concealed from the government. B. excess capacity exists. C. the order is small. D. the plant is producing at maximum capacity.

B. excess capacity exists.

Relevant costs are A. past costs. B. future costs. C. full costs. D. cost drivers.

B. future costs.

A decision to make or eliminate an unprofitable product is a A. special-order decision. B. keep-or-drop a product-line decision. C. make-or-buy decision. D. both b and c.

B. keep-or-drop a product-line decision.

In the activity resource model, flexible resources are A. resources acquired in advance of usage. B. resources acquired as used and needed. C. usually acquired in lumpy amounts. D. are normally fixed or mixed costs.

B. resources acquired as used and needed.

The Titanic hit an iceberg and sank. In deciding whether or not to salvage the ship, its book value is a(n) A. relevant cost. B. sunk cost. C. opportunity cost. D. discretionary cost.

B. sunk cost.

Which of the following costs is NOT relevant for special decisions? A. incremental costs B. sunk costs C. avoidable costs D. all of the above costs are relevant for special decisions

B. sunk costs

Which of the following is NOT a way that companies might reduce tariffs? A. Alter materials to increase the domestic content. B. Restrict the amount of imported materials. C. Increase the amount of imported materials. D. Utilize foreign trade zones.

C. Increase the amount of imported materials.

1. The steps in the tactical decision making process are: I. Comparing relevant costs and relating to strategic goals II. Identifying feasible alternatives III. Identifying costs and benefits and eliminating irrelevant costs IV. Selecting best alternative V. Defining the problem What is the proper sequence of steps? A. I, II, V, III, IV B. II, I, V, III, IV C. V, II, III, I, IV D. V, III, II, IV, I

C. V, II, III, I, IV

Sound tactical decision making A. only concerns the short run. B. consists of large scale actions that serve a broad purpose. C. consists of supporting the strategic objectives of the firm. D. only concerns the long run.

C. consists of supporting the strategic objectives of the firm.

An important qualitative factor to consider regarding a special order is the A. variable costs associated with the special order. B. avoidable fixed costs associated with the special order. C. effect the sale of special-order units will have on the sale of regularly priced units. D. incremental revenue from the special order.

C. effect the sale of special-order units will have on the sale of regularly priced units.

Which of the following items would be classified as flexible resources? A. salaried employees B. depreciation on building C. fuel to generate electricity internally D. lease on machinery

C. fuel to generate electricity internally

Upfront resource spending A. is always relevant because it relates to the future. B. is always relevant because it could reduce future costs. C. is a sunk cost and therefore never relevant. D. is always relevant because upfront resource spending will generate future revenues or benefits.

C. is a sunk cost and therefore never relevant.

A decision to make a component internally versus through a supplier is a A. special-order decision. B. keep-or-drop a product-line decision. C. make-or-buy decision. D. both a and c.

C. make-or-buy decision.

Tactical decision making relies A. only on relevant cost information. B. only on qualitative factors. C. on relevant costs as well as other qualitative factors. D. on neither relevant costs nor qualitative decisions.

C. on relevant costs as well as other qualitative factors.

Which of the following costs is relevant to a make-or-buy decision? A. original cost of the production equipment B. annual depreciation of the equipment C. the amount that would be received if the production equipment were sold D. the cost of direct materials purchased last month and used to manufacture the component

C. the amount that would be received if the production equipment were sold

Which of the following costs is NOT relevant to a special-order decision? A. the direct labor costs to manufacture the special-order units B. the variable manufacturing overhead incurred to manufacture the special-order units C. the portion of the cost of leasing the factory that is allocated to the special order D. all of these costs are relevant

C. the portion of the cost of leasing the factory that is allocated to the special order

If there is excess capacity, the minimum acceptable price for a special order must cover A. variable costs associated with the special order. B. variable and fixed manufacturing costs associated with the special order. C. variable and incremental fixed costs associated with the special order. D. variable costs and incremental fixed costs associated with the special order plus the contribution margin usually earned on regular units.

C. variable and incremental fixed costs associated with the special order.

Which of the following statement is true concerning the nature of tactical decisions? A. Tactical decisions are often small-scale actions. B. Tactical decisions often have an immediate or limited end in view. C. Tactical decisions should support alternatives that result in long-term competitive advantage. D. All of these statements are true.

D. All of these statements are true.

For flexible resources, which of the following statements is true? A. A change in resource spending will only occur if the demand for a resource drops permanently and exceeds demand enough so the activity capacity will be reduced. B. Often, resources are acquired in advance for multiple periods and are therefore irrelevant. C. Decisions often affect multi-period capabilities. D. If the demand for an activity changes across alternatives, then resource spending will change and the cost of the activity will be relevant to the decision.

D. If the demand for an activity changes across alternatives, then resource spending will change and the cost of the activity will be relevant to the decision.

Qualitative factors that should be considered when evaluating a make-or-buy decision are A. the quality of the outside supplier's product. B. whether the outside supplier can provide the needed quantities. C. whether the outside supplier can provide the product when it is needed. D. all of these.

D. all of these.

Sunk costs are A. future costs that have no benefit. B. relevant costs that have only short-run benefits. C. target costs. D. always irrelevant.

D. always irrelevant.

Which of the following items would be classified as committed resources (long-term)? A. salaried employees B. depreciation on building C. lease on machinery D. both b and c

D. both b and c

The use of relevant cost data to identify the alternative that provides the greatest benefit to the organization describes A. target cost analysis. B. functional cost analysis. C. activity cost analysis. D. tactical cost analysis.

D. tactical cost analysis.

If a firm is at full capacity, the minimum special order price must cover A. variable costs associated with the special order. B. variable and fixed manufacturing costs associated with the special order. C. variable and incremental fixed costs associated with the special order. D. variable costs and incremental fixed costs associated with the special order plus foregone contribution margin on regular units not produced.

D. variable costs and incremental fixed costs associated with the special order plus foregone contribution margin on regular units not produced.

Buying multiperiod activity capacity is often done by paying cash up front and is always: a. relevant because it is a variable cost. b. relevant because it could reduce future costs. c. irrelevant because it is a sunk cost. d. relevant because it generates future revenues or benefits.

c. irrelevant because it is a sunk cost.

Which of the following is an example of a producing department in a manufacturing firm? a. materials storeroom b. maintenance c. cafeteria d. assembly

d. assembly