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.