Ch 11

A relevant cost is a cost that is a(n) ________. A) future cost B) past cost C) sunk cost D) non-cash expense

A

) Springer Products manufactures three different product lines, Model X, Model Y, and Model Z. Considerable market demand exists for all models. The following per unit data apply: Model X Model Y Model Z Selling price $54 $62 $73 Direct materials 7 7 7 Direct labor ($17 per hour) 17 17 34 Variable support costs ($7 per machine-hour) 7 14 14 Fixed support costs 13 13 13 Which model has the greatest contribution margin per machine-hour? A) Model X B) Model Y C) Model Z D) Both Model X and Model Y have the highest and same contribution margin per machine-hour

A

A study by a consultant shows that a company that had $2,000,000 of inventory was holding excess inventory of $320,000 that could be eliminated with a few process improvements. It also has $620,000 in marketable securities that yield 5% per year. What is the estimated annual opportunity cost of holding the excess inventory? A) $16,000 B) $100,000 C) $31,000 D) $47,000

A

A supplier offers to make Part A for $30. Altec Services Corporation has relevant costs of $47 a unit to manufacture 1,020 units of Part A. If there is excess capacity, the opportunity cost of buying Part A from the supplier is ________. A) $0 B) $47,940 C) $30,600 D) $78,540

A

An example of a qualitative factor for the decision-making process is ________ A) customer satisfaction as determined by written responses given by customers to survey questions B) employee wages paid this week C) number of clicks on a web site during a month D) manufacturing overhead allocated to WIP

A

An incremental cost is A) an additional total cost for an activity B) a cost that has already been incurred C) the difference in total costs between two alternatives D) always related to fixed costs

A

Colonial North Manufacturing, Inc. is considering eliminating one of its product lines. The fixed costs currently allocated to the product line will be allocated to other product lines upon discontinuance. What financial effects occur if the product line is discontinued? A) net income will decrease by the amount of the contribution margin of the product line being discontinued B) the company's total fixed costs will increase by the amount of the contribution margin of the product line being discontinued C) the company's total fixed costs will decrease by the amount of the product line's fixed costs D) net income will decrease by the amount of the product line's fixed costs

A

Computer Products produces two keyboards, Regular and Special. Regular keyboards have a unit contribution margin of $128, and Special keyboards have a unit contribution margin of $720. The demand for Regulars exceeds Computer Product's production capacity, which is limited by available machine-hours and direct manufacturing labor-hours. The maximum demand for Special keyboards is 80 per month. Management desires a product mix that will maximize the contribution toward fixed costs and profits. Direct manufacturing labor is limited to 1,600 hours a month and machine-hours are limited to 1,200 a month. The Regular keyboards require 20 hours of labor and 8 machine-hours. Special keyboards require 34 labor-hours and 20 machine-hours. Let R represent Regular keyboards and S represent Special keyboards. The correct set of equations for the keyboard production process is ________. A) Maximize: $128R + $720S Constraints: Labor-hours: 20R + 34S ≤ 1,600 Machine-hours: 8R + 20S ≤ 1,200 Special: S ≤ 80 S ≥ 0 Regular: R ≥ 0 B) Maximize: $128R + $720S Constraints: Labor-hours: 20R + 34S ≥ 1,600 Machine-hours: 8R + 20S ≥≤ 1,200 Special: S ≥ 80 S ≥ 0 Regular: R ≥ 0 C) Maximize: $720S + $128R Constraints: Labor-hours: 20R + 8S ≤ 1,600 Machine-hours: 34R + 20S ≤ 1,200 Special: S ≤ 80 S ≥ 0 Regular: R ≥ 0 D) Maximize: $128R + $720S Constraints: Labor-hours: 20R + 34S ≤ 1,600 Machine-hours: 8R + 20S ≤ 1,200 Special: S ≥ 80 S ≤ 0 Regular: R ≤ 0

A

Crandle Manufacturers Inc. is approached by a potential customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers. The company has excess capacity. The following per unit data apply for sales to regular customers: Variable costs: Direct materials $130 Direct labor 60 Manufacturing support 105 Marketing costs 95 Fixed costs: Manufacturing support 175 Marketing costs 65 Total costs 630 Markup (50%) 315 Targeted selling price $945 What is the change in operating profits if the one-time-only special order for 1,030 units is accepted for $550 a unit by Crandle? A) $164,800 increase in operating profits B) $164,170 increase in operating profits C) $164,170 decrease in operating profits D) $164,800 decrease in operating profits

A

Crandle Manufacturers Inc. is approached by a potential customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers. The company has excess capacity. The following per unit data apply for sales to regular customers: Variable costs: Direct materials $140 Direct labor 100 Manufacturing support 105 Marketing costs 55 Fixed costs: Manufacturing support 175 Marketing costs 65 Total costs 640 Markup (50%) 320 Targeted selling price $960 For Crandle Manufacturers Inc., what is the minimum acceptable price of this special order? A) $400 B) $320 C) $480 D) $640

A

Discontinuing unprofitable products will ________. A) increase profitability if the resources no longer required by the discontinued product can be eliminated B) increase profitability if capacity constraints are adjusted C) decrease profitability if the fixed costs does not change after discontinuing the particular business segment D) increase profitability when a large portion of the fixed costs are unavoidable

A

Employee morale at Dos Santos, Inc., is very high. This type of information is an example of ________. A) qualitative factors B) quantitative factors C) irrelevant factors D) financial factors

A

Flash City Inc. manufactures small flash drives and is considering raising the price by 75 cents a unit for the coming year. With a 75-cent price increase, demand is expected to fall by 7,000 units. Current Projected Demand 79,000 units 72,000 units Selling price $8.50 $9.25 Incremental cost per unit $5.80 $5.80 If the price increase is implemented, operating profit is projected to ________. A) increase by $35,100 B) decrease by $5,250 C) increase by $5,250 D) decrease by $7,000

A

For make-or-buy decisions, a supplier's ability to maintain secrecy of intellectual property is considered a(n) ________. A) qualitative factor B) irrelevant cost C) differential factor D) opportunity cost

A

Granfield Corporation manufactures two products, Product A and Product B. The following information was available: Product A Product B Selling price per unit $41 $29 Variable cost per unit 32 19 Total fixed costs $23,000 If Granfield Corporation could produce and sell either 10,400 units of Product A or 5,900 units of Product B at full capacity, it should produce and sell ________. A) 10,400 units of A and none of B B) 2,556 units of B and 2,300 units of A C) 5,900 units of B and none of A D) 6,556 units of A and 5,900 units of b

A

Which of the following is an example of sunk costs? A) wages to security staffs B) cost of purchasing raw materials C) cost of an alternative investment D) wages payable to skilled laborers to make a product

A

Hartley's Meat Pies is considering replacing its existing delivery van with a new one. The new van can offer considerable savings in operating costs. Information about the existing van and the new van follow: Existing van New van Original cost $59,000 $91,000 Annual operating cost $19,500 $11,000 Accumulated depreciation $33,000 — Current salvage value of the existing van $26,500 — Remaining life 9 years 9 years Salvage value in 9 years $ 0 $ 0 Annual depreciation $2,889 $10,111 Sunk costs include ________. A) the accumulated depreciation of the existing van B) the original cost of the new van C) the current salvage value of the existing van D) the annual operating cost of the new van

A

If a company has excess capacity, the most it would pay for buying a product that it currently makes would be the ________. A) total variable cost of producing the product B) full cost of producing the product C) total cost of producing the product D) business function cost of the product

A

John's 8-year-old Chevrolet Trail Blazer requires repairs estimated at $10,000 to make it road worthy again. His wife, Sherry, suggested that he should buy a 5-year-old used Jeep Grand Cherokee instead for $10,000 cash. Sherry estimated the following costs for the two cars: Trail Blazer Grand Cherokee Acquisition cost $25,000 $10,000 Repairs $10,000 — Annual operating costs (Gas, maintenance, insurance) $2,780 $1,800 The cost NOT relevant for this decision is the ________. A) acquisition cost of the Trail Blazer B) acquisition cost of the Grand Cherokee C) repairs to the Trail Blazer D) annual operating costs of the Grand Cherokee

A

Kinnane's Fine Furniture manufactures two models, Standard and Premium. Weekly demand is estimated to be 106 units of the Standard Model and 74 units of the Premium Model. The following per unit data apply: Standard Premium Contribution margin per unit $21 $24 Number of machine-hours required 3 6 If there are 495 machine-hours available per week, how many rockers of each model should Kinnane produce to maximize profits? A) 106 units of Standard and 29 units of Premium B) 17 units of Standard and 74 units of Premium C) 106 units of Standard and 74 units of Premium D) 83 units of Standard and 41 units of Premium

A

Kitchens Sales Inc. is approached by Mr. Louis Cifer, a new customer, to fulfill a large one-time-only special order for a product similar to one offered to regular customers. The following per unit data apply for sales to regular customers: Direct materials $546 Direct labor 360 Variable manufacturing support 64 Fixed manufacturing support 122 Total manufacturing costs 1,092 Markup (50%) 546 Targeted selling price $1,638 Kitchens Sales inc. has excess capacity. Mr. Cifer wants the cabinets in cherry rather than oak, so direct material costs will increase by $65 per unit. The average marketing cost of Kitchens Sales product is $175 per order. Which of the following costs is NOT considered to calculate the minimum acceptable price of a one-time-only special order? A) marketing costs B) direct material costs C) indirect material costs D) special design costs

A

One-time-only special orders should only be accepted if ________. A) incremental revenues exceed incremental costs B) differential revenues exceed variable costs C) incremental revenues exceed fixed costs D) total revenues exceed total costs

A

Springer Products manufactures three different product lines, Model X, Model Y, and Model Z. Considerable market demand exists for all models. The following per unit data apply: Model X Model Y Model Z Selling price $55 $69 $78 Direct materials 10 10 10 Direct labor ($15 per hour) 15 15 30 Variable support costs ($7 per machine-hour) 7 14 14 Fixed support costs 11 11 11 If there is a machine breakdown, which model is the most profitable to produce? A) Model X B) Model Y C) Model Z D) Both Model X and Model Y have same and highest profitability

A

The best way to avoid misidentification of relevant costs is to focus on ________. A) expected future costs that differ among the alternatives B) historical costs C) unit fixed costs D) total unit costs

A

W.T. Ginsburg Engine Company manufactures part ACT30107 used in several of its engine models. Monthly production costs for 1,090 units are as follows: Direct materials $46,000 Direct labor 10,500 Variable overhead costs 32,500 Fixed overhead costs 22,000 Total costs $111,000 It is estimated that 6% of the fixed overhead costs assigned to ACT30107 will no longer be incurred if the company purchases ACT30107 from the outside supplier. W.T Ginsburg Engine Company has the option of purchasing the part from an outside supplier at $94.75 per unit. If the company accepts the offer from the outside supplier, the monthly avoidable costs (costs that will no longer be incurred) total ________. A) $90,320 B) $89,000 C) $111,000 D) $112,320

A

When deciding to lease a new cutting machine or continue using the old machine, the irrelevant cost is ________. A) $50,000, cost of the old machine B) $20,000, cost of the new machine C) $10,000, selling price of the old machine D) $3,000, annual savings in operating costs if the new machine is purchased

A

When evaluating a make-or-buy decision, which of the following needs to be considered? A) alternative uses of the production capacity B) the original cost of the production equipment C) pension costs to the current employees D) material-handling costs that cannot be eliminated

A

When there is an excess capacity, it makes sense to accept a one-time-only special order for less than the current selling price if ________. A) incremental revenues exceed incremental costs B) additional fixed costs is incurred to accommodate the order C) the company placing the order is in the same market segment as your current customers D) incremental revenue equals incremental operating income

A

When using the five-step decision process, which one of the following steps should be done first? A) obtain information B) choose an alternative C) evaluation and feedback D) implementing the decision

A

Which of the following costs is irrelevant in the decision making of a special order when there is idle production capacity - enough excess capacity to accept the order? A) fixed manufacturing costs B) units sold C) material cost D) labor hours incurred

A

Which of the following is a relevant cost to be included in a make-or-buy decision? A) fixed salaries that will not be incurred if the part is outsourced B) pension costs to the current employees C) increase in the cost of repairing of all equipment of the firm D) material-handling costs that cannot be eliminated even if the product is outsourced

A

Which of the following is not true about one-time-only special orders? A) special orders would be accepted if they result in an increase in the contribution margin regardless of capacity and long-term implications B) along with other criteria, there must be excess capacity to accept an order C) along with other criteria, there must not be significant long-term negative implications of accepting a special order D) the impact on operating income of the acceptance of a special-order must be analyzed by management before making a final decision

A

Which of the following is not true with regards to relevant costs and relevant revenues? A) They are sunk costs and historical revenues B) They are expected costs and expected revenues C) They occur in the future D) The differ among alternative courses of action

A

Which of the following is true of an opportunity cost? A) It is the income foregone by not using a resource in an alternative way. B) The higher the opportunity costs, the lower is the relevant cost. C) It is recorded as an expense in the accounting records. D) It is an unavoidable cost that cannot be changed no matter what action is taken.

A

Which of the following is true of depreciation cost? A) Depreciation cost on equipment is irrelevant in decision making because depreciation on equipment that has already been purchased is a past cost. B) Depreciation cost on equipment is relevant in decision making because depreciation on equipment that has already been purchased is an opportunity cost. C) Depreciation cost on equipment is irrelevant in decision making because there is no cash transaction. D) Depreciation cost on equipment is irrelevant in decision making because depreciation on equipment that has already been purchased is an opportunity cost.

A

Which of the following is true of historical costs? A) They are useful for making future predictions. B) They are relevant for decision making. C) They are always accounted as opportunity costs. D) They cannot be fixed costs.

A

Which of the following would be a consideration in a make-or-buy decision? A) excess capacity B) wages to CEO C) marketing costs D) audit expenses

A

Zephram Corporation has a plant capacity of 200,000 units per month. Unit costs at capacity are: Direct materials $6.00 Direct labor 5.00 Variable overhead 4.00 Fixed overhead 2.00 Marketing—fixed 6.00 Marketing/distribution—variable 4.60 Current monthly sales are 190,000 units at $30.00 each. Q, Inc., has contacted Zephram Corporation about purchasing 2,500 units at $24.00 each. Current sales would not be affected by the one-time-only special order. What is Zephram's change in operating profits if the one-time-only special order is accepted? A) $11,000 increase B) $31,500 increase C) $22,500 increase D) $49,000 increase

A

) A mathematical inequality or equality that must be appeased is known as a(n) ________. A) objective function B) constraint C) operating policy D) business function

B

) A. C .Tech Manufacturing Appliances manufactures three sizes of kitchen appliances: small, medium, and large. Product information is provided below. Small Medium Large Unit selling price $430 $550 $1,230 Unit costs: Variable manufacturing (200) (320) (700) Fixed manufacturing (50) (140) (240) Fixed selling and administrative (90) (25) (130) Unit profit $90 $65 $160 Demand in units 170 130 170 Machine-hours per unit 70 40 170 The maximum machine-hours available are 6,200 per week. How many of each product should be produced per month using the short-run profit maximizing strategy? A) 0 130 7 B) 14 130 0 C) 170 170 0 D) 170 70 40

B

) Springer Products manufactures three different product lines, Model X, Model Y, and Model Z. Considerable market demand exists for all models. The following per unit data apply: Model X Model Y Model Z Selling price $52 $60 $74 Direct materials 8 8 8 Direct labor ($16 per hour) 16 16 32 Variable support costs ($5 per machine-hour) 5 10 10 Fixed support costs 12 12 12 If there is excess capacity, which model is the most profitable to produce? A) Model X B) Model Y C) Model Z D) Both Model X and Model Y have same and highest profitability

B

4) The formal process of choosing between alternatives is known as a(n) ________. A) relevant model B) decision model C) alternative model D) prediction model

B

A decision model involves a(n) ________. A) informal method of making a choice at the lower level management using sensitivity analysis B) formal method of making a choice that often involves both quantitative and qualitative analyses C) informal method of making a choice which is discussed in detailed in the financial reports D) formal method of making a choice at the lower level management using advanced management techniques such as balance scorecard

B

A recent college graduate has the choice of buying a new car for $33,500 or investing the money for four years with an 11% expected annual rate of return. He has an investment of $41,000 in equities and bonds which yields 8% expected annual rate of return. If the graduate decides to purchase the car, the best estimate of the opportunity cost of that decision is ________. A) $3,280 B) $14,740 C) $41,000 D) $18,040

B

A relevant revenue is revenue that is a(n) ________. A) past revenue and differs among alternative courses of action B) future revenue and differs among alternative courses of action C) in-hand revenue D) earned revenue

B

A.C. Tech Manufacturing Appliances manufactures three sizes of kitchen appliances: small, medium, and large. Product information is provided below. Small Medium Large Unit selling price $430 $610 $1,210 Unit costs: Variable manufacturing (270) (280) (530) Fixed manufacturing (40) (170) (270) Fixed selling and administrative (70) (75) (140) Unit profit $50 $85 $270 Demand in units 150 170 150 Machine-hours per unit 60 60 150 The maximum machine-hours available are 6,500 per week. Which of the three product models should be produced first if management incorporates a short-run profit maximizing strategy? A) small appliance B) medium appliance C) large appliance D) both medium and large appliance

B

Based on the theory of constraints, investments equal ________. A) the sum of material costs in direct and indirect materials, work-in-process, and finished goods inventories; R&D costs; and business function costs B) the sum of material costs in direct materials, work-in-process, and finished goods inventories; R&D costs; and capital costs of equipment and buildings C) the sum of material costs in direct and indirect materials, work-in-process, and finished goods inventories; R&D costs; and full costs D) the sum of material costs in direct materials, work-in-process, and finished goods inventories; R&D costs; sunk costs, full costs, and business function costs

B

Capacity constraints include ________. A) increased demand of warranty services for a pharmaceutical product B) increased need of display space for a retailer C) decreased demand for a pharmaceutical product D) increased fuel efficiency of cars

B

Which of the following is true of relevant information? A) All fixed costs are relevant. B) All Future revenues and expenses are relevant. C) Future D) All fixed costs are not relevant.

C

Dantley's Furniture manufactures rustic furniture. The cost accounting system estimates manufacturing costs to be $190 per table, consisting of 80% variable costs and 20% fixed costs. The company has surplus capacity available. It is Back Forrest's policy to add a 45% markup to full costs. Dantley's Furniture is invited to bid on a one-time-only special order to supply 180 rustic tables. What is the lowest price Dantley's Furniture should bid on this special order? A) $22,230 B) $27,360 C) $34,200 D) $42,750

B

For make-or-buy decisions, relevant costs include ________. A) incremental costs plus sunk costs B) incremental costs plus opportunity costs C) differential costs plus fixed costs D) incremental costs plus differential costs

B

Hartley's Meat Pies is considering replacing its existing delivery van with a new one. The new van can offer considerable savings in operating costs. Information about the existing van and the new van follow: Existing van New van Original cost $56,000 $95,000 Annual operating cost $22,500 $15,000 Accumulated depreciation $33,000 — Current salvage value of the existing van $27,500 — Remaining life 10 years 10 years Salvage value in 10 years $ 0 $ 0 Annual depreciation $2,300 $9,500 If Hartley's Meat Pies replaces the existing delivery van with the new one, over the next 10 years operating income will ________. A) decrease by $95,000 B) increase by $75,000 C) decrease by $75,000 D) increase by $95,000

B

If management takes a multiple-year view in the decision model and judges success according to the current year's results, a problem will occur in the ________. A) decision model B) performance evaluation model C) production evaluation model D) quantitative model

B

Kitchens Sales Inc. is approached by Mr. Louis Cifer, a new customer, to fulfill a large one-time-only special order for a product similar to one offered to regular customers. The following per unit data apply for sales to regular customers: Direct materials $554 Direct labor 364 Variable manufacturing support 56 Fixed manufacturing support 120 Total manufacturing costs 1,094 Markup (50%) 547 Targeted selling price $1,641 Kitchens Sales inc. has excess capacity. Mr. Cifer wants the cabinets in cherry rather than oak, so direct material costs will increase by $66 per unit. The average marketing cost of Kitchens Sales product is $173 per order. Other than price, what other items should Kitchens Sales consider before accepting this one-time-only special order? A) reaction of shareholders B) reaction of existing customers to the lower price offered to Mr. Louis Cifer C) demand for cherry cabinets D) price is the only consideration

B

Kitchens Sales Inc. is approached by Mr. Louis Cifer, a new customer, to fulfill a large one-time-only special order for a product similar to one offered to regular customers. The following per unit data apply for sales to regular customers: Direct materials $556 Direct labor 362 Variable manufacturing support 60 Fixed manufacturing support 126 Total manufacturing costs 1,104 Markup (50%) 552 Targeted selling price $1,656 Kitchens Sales Inc. has excess capacity. Mr. Cifer wants the cabinets in cherry rather than oak, so direct material costs will increase by $70 per unit. The average marketing cost of Kitchens Sales product is $173 per order. For Kitchens, what is the full cost of the one-time-only special order?

B

Opportunity costs is defined as ________. A) the cost of manufacturing a one-time-only special order when a firm has excess capacity to make more products B) the contribution to operating income that is forgone by not using a limited resource in its next-best alternative use C) the sum of variable and fixed costs in a particular business function of the value chain, such as manufacturing costs or marketing costs D) the sum of variable and fixed costs in all business functions of the value chain, such as manufacturing costs or marketing costs

B

Planet Design Services, Inc., is considering replacing a machine. The following data are available: Replacement Old Machine Machine Original cost $640,000 $520,000 Useful life in years 12 6 Current age in years 6 0 Book value $400,000 — Disposal value now $162,000 — Disposal value in 6 years 0 0 Annual cash operating costs $107,000 $61,000 For the decision to keep the old machine, the relevant costs of keeping the old machine is ________. A) $492,000 B) $642,000 C) $804,000 D) $107,000

B

Planet Design Services, Inc., is considering replacing a machine. The following data are available: Replacement Old Machine Machine Original cost $650,000 $510,000 Useful life in years 10 5 Current age in years 5 0 Book value $400,000 — Disposal value now $142,000 — Disposal value in 5 years 0 0 Annual cash operating costs $100,000 $66,000 The difference between keeping the old machine and replacing the old machine is ________. A) $910,000 in favor of keeping the old machine B) $198,000 in favor of keeping the old machine C) $910,000 in favor of replacing the old machine D) $198,000 in favor of replacing the old machine

B

Producing on schedule, quality of supplier products or services, reliability, along with costs are all important considerations when____ A) when deciding to insource B) making outsourcing decisions C) when executing right-shoring D) making decisions based on quantitative factors

B

Product mix decisions ________. A) have a long-run focus B) help determine how to maximize operating profits C) focus on selling price per unit D) help maximizing opportunity costs

B

Quantitative factors ________. A) include financial information, but not nonfinancial information B) include both financial and nonfinancial information C) are always relevant when making decisions D) include employee morale

B

Relevant costs are ________. A) sunk costs B) expected future costs C) actual present costs D) historical costs

B

Relevant data in a make-or-buy decision of a part include which of the following? A) The portion of fixed costs that would be incurred whether the product is made or purchased B) Some portion of fixed costs that would be saved if the product is outsourced C) Annual plant insurance costs D) Management consultant fees to restructure the organization framework of the company and improve overall strategic planning

B

Springer Products manufactures three different product lines, Model X, Model Y, and Model Z. Considerable market demand exists for all models. The following per unit data apply: Model X Model Y Model Z Selling price $50 $66 $80 Direct materials 10 10 10 Direct labor ($15 per hour) 15 15 30 Variable support costs ($5 per machine-hour) 5 10 10 Fixed support costs 12 12 12 Which model has the greatest contribution margin per unit? A) Model X B) Model Y C) Model Z D) Both Model X and Model Y have the highest and same contribution margin per unit

B

State Road Fabricators Inc. is considering eliminating Model A02777 because of losses over the past quarter. The past three months of information for Model A02777 are summarized below: Sales (1,100 units) $470,000 Manufacturing costs: Direct materials 160,000 Direct labor ($15 per hour) 80,000 Overhead 150,000 Operating loss ($80,000) Overhead costs are 75% variable and the remaining 25% is depreciation of special equipment for model A02777 that has no resale value. If Model A02777 is dropped from the product line, operating income will ________. A) increase by $80,000 B) decrease by $117,500 C) increase by $37,500 D) decrease by $80,000

B

Vien's Fashion Company retains the services of Kennywood Textiles to perform stain control treatments on its women's dresses. This is practice is known as ________. A) insourcing B) outsourcing C) fragmentation D) in-housing

B

W.T. Ginsburg Engine Company manufactures part ACT31107 used in several of its engine models. Monthly production costs for 1,010 units are as follows: Direct materials $41,000 Direct labor 7,500 Variable overhead costs 34,500 Fixed overhead costs 18,000 Total costs $101,000 It is estimated that 7% of the fixed overhead costs assigned to ACT31107 will no longer be incurred if the company purchases ACT31107 from the outside supplier. W.T. Ginsburg Engine Company has the option of purchasing the part from an outside supplier at $94.75 per unit. The maximum price that W.T. Ginsburg Engine Company should be willing to pay the outside supplier is ________. A) $82 per ACT31107 part B) $83.43 per ACT31107 part C) $100 per ACT31107 part D) $101.25 per ACT31107 part

B

Which of following is a firm's risk of outsourcing the production of a part? A) fluctuation in the manufacturing costs B) leakage of intellectual property C) increased need of skilled workers D) scarcity of indirect labor

B

Which of the following are potential problems managers face in relevant-cost analysis? A) Including only relevant costs and relevant revenues in an analysis B) incorrect assumptions such as all variable costs are relevant and all fixed costs are not C) considering past historical costs when making predictions about future costs D) examining differences in expected total future revenues and expected total future costs among alternatives

B

Which of the following is true in a decision to keep or replace existing equipment? A) The book value of the old equipment is relevant. B) The disposal value of the old equipment is relevant. C) Property taxes is relevant. D) Depreciation on the new equipment is relevant.

B

) Which of the following would be considered in a make-or-buy decision? A) fixed costs that will still be incurred B) prepaid rent expense for warehousing finished goods and inventories C) potential rental income from space occupied by the production area D) unchanged supervisory costs

C

10) John's 8-year-old Chevrolet Trail Blazer requires repairs estimated at $7,000 to make it road worthy again. His wife, Sherry, suggested that he should buy a 5-year-old used Jeep Grand Cherokee instead for $7,000 cash. Sherry estimated the following costs for the two cars: Trail Blazer Grand Cherokee Acquisition cost $30,000 $7,000 Repairs $7,000 — Annual operating costs (Gas, maintenance, insurance) $2,580 $1,700 What should John do? What are his savings in the first year? A) Buy the Grand Cherokee; $8,700 B) Fix the Trail Blazer; $4,380 C) Buy the Grand Cherokee; $880 D) Fix the Trail Blazer; $7,247

C

A product cost is composed of the following: Direct materials $11 Direct labor $3 Manufacturing overhead $8 The product sells for $40 and a 15% commission is paid to a salesperson for every unit sold. Management accountants also estimate that storage cost per unit averages $0.75 per unit. What is the full cost of the product?

C

A segment has the following data: Sales $650,000 Variable costs 386,000 Fixed costs 365,500 What will be the incremental effect on net income if this segment is eliminated, assuming the fixed costs will be allocated to profitable segments? A) $284,500 increase B) $386,000 decrease C) $264,000 decrease D) $365,500 decrease

C

A.C. Tech Manufacturing Appliances manufactures three sizes of kitchen appliances: small, medium, and large. Product information is provided below. Small Medium Large Unit selling price $450 $620 $1,240 Unit costs: Variable manufacturing (240) (280) (530) Fixed manufacturing (80) (140) (250) Fixed selling and administrative (110) (125) (130) Unit profit $20 $75 $330 Demand in units 110 140 110 Machine-hours per unit 40 70 110 The maximum machine-hours available are 6,500 per week. What is the contribution margin per machine-hour for a medium appliance? A) $0.54 B) $1.07 C) $4.86 D) $7.79

C

Book value is defined as the ________. A) sum of the original cost of an asset and the accumulated depreciation B) difference between the market value of an asset and the accumulated depreciation C) difference between the original cost of an asset and the accumulated depreciation D) sum of the market value of an asset and the accumulated depreciation

C

Crandle Manufacturers Inc. is approached by a potential customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers. The company has excess capacity. The following per unit data apply for sales to regular customers: Variable costs: Direct materials $130 Direct labor 110 Manufacturing support 125 Marketing costs 65 Fixed costs: Manufacturing support 175 Marketing costs 85 Total costs 690 Markup (50%) 345 Targeted selling price $1,035 What is the full cost of the product per unit? A) $430 B) $1,035 C) $690 D) $345

C

Crandle Manufacturers Inc. is approached by a potential new customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers. The company has excess capacity. The following per unit data apply for sales to regular customers: Variable costs: Direct materials $170 Direct labor 90 Manufacturing support 135 Marketing costs 85 Fixed costs: Manufacturing support 145 Marketing costs 75 Total costs 700 Markup (40%) 280 Targeted selling price $980 What is the contribution margin per unit? A) $220 B) $280 C) $500 D) $700

C

Determining which products should be produced when the plant is operating at full capacity is referred to as a(n) ________. A) outsourcing analysis B) total alternative approach C) product-mix decision D) short-run focus decision Answer:

C

Each of the following are true of relevant information except: A) Past costs are helpful when making predictions but not relevant when making decisions B) Different alternatives can be compared by examining differences in expected future revenues and expected total future costs C) significant past investment amounts are relevant to decision making D) Not all future revenues and expenses are relevant

C

Excellent Manufacturers Inc. has a current production level of 20,000 units per month. Unit costs at this level are: Direct materials $0.26 Direct labor 0.40 Variable overhead 0.16 Fixed overhead 0.21 Marketing - fixed 0.25 Marketing/distribution - variable 0.42 Current monthly sales are 18,000 units. Jax Company has contacted Excellent about purchasing 1,550 units at $2.00 each. Current sales would NOT be affected by the one-time-only special order, and variable marketing/distribution costs would NOT be incurred on the special order. What is Ratzlaff Company's change in operating profits if the special order is accepted? A) $4,929.00 increase in operating profits B) $4,929.00 decrease in operating profits C) $1,829.00 increase in operating profits D) $1,829.00 decrease in operating profits

C

Giant Company has three products, A, B, and C. The following information is available: Product A Product B Product C Sales $70,000 $97,000 $23,000 Variable costs 37,000 51,000 15,000 Contribution margin 33,000 46,000 8,000 Fixed costs: Avoidable 10,000 20,000 2,000 Unavoidable 7,000 12,000 9,400 Operating income $16,000 $14,000 $ (3,400) Giant Company is thinking of dropping Product C because it is reporting a loss. Assuming Giant drops Product C and does NOT replace it, operating income will ________. A) increase by $3,400 B) increase by $2,000 C) decrease by $6,000 D) decrease by $11,400

C

Hartley's Meat Pies is considering replacing its existing delivery van with a new one. The new van can offer considerable savings in operating costs. Information about the existing van and the new van follow: Existing van New van Original cost $50,000 $93,000 Annual operating cost $17,500 $11,000 Accumulated depreciation $32,000 — Current salvage value of the existing van $23,500 — Remaining life 10 years 10 years Salvage value in 10 years $ 0 $ 0 Annual depreciation $1,800 $9,300 Relevant costs for this decision include ________. A) the original cost of the existing van B) accumulated depreciation C) the annual operating cost D) the book value of the existing van

C

If a company does not use one of its limited resources in the best possible way, the lost contribution to income could be called a(n) ________. A) business function cost B) carrying cost C) opportunity cost D) sunk cost

C

Kinnane's Fine Furniture manufactures two models, Standard and Premium. Weekly demand is estimated to be 100 units of the Standard Model and 70 units of the Premium Model. The following per unit data apply: Standard Premium Contribution margin per unit $21 $20 Number of machine-hours required 3 4 If there are 720 machine-hours available per week, how many rockers of each model should Kinnane produce to maximize profits? A) 100 units of Standard and 48 units of Premium B) 71 units of Standard and 70 units of Premium C) 100 units of Standard and 70 units of Premium D) 82 units of Standard and 62 units of Premium

C

Managers are examining a possible replacement of a machine decision and generate the following numbers: Book value of old machine $1,00,000 Current disposal value of old machine $50,000 Loss on disposal of old machine $300,000 Cost of new machine $600,000 In performing an analysis and in attempt to answer the question, "should we replace the old machine", which of the following statements would be true A) the book value of the old machine is relevant B) the book value of the old machine and the current disposal value of the old machine are both relevant C) the cost of the new machine and the current disposal value of the old machine are relevant D) the book value of the old machine and the current disposal value of the old machine are the only relevant items

C

Place the following steps from the five-step decision process in order: A = Obtain information including historical costs B = Evaluate performance to provide feedback C = Make decisions choosing among alternatives D = Make predictions about the future E = Identify the problem and uncertainties

C

Rubium Micro Devices currently manufactures a subassembly for its main product. The costs per unit are as follows: Direct materials $51.00 Direct labor 43.00 Variable overhead 38.00 Fixed overhead 33.00 Total $165.00 Crayola Technologies Inc. has contacted Rubium with an offer to sell 10,000 of the subassemblies for $138.00 each. Rubium will eliminate $89,000 of fixed overhead if it accepts the proposal. What are the relevant costs for Rubium? A) $929,000 B) $1,029,000 C) $1,409,000 D) $1,739,000

C

Rubium Micro Devices currently manufactures a subassembly for its main product. The costs per unit are as follows: Direct materials $54.00 Direct labor 35.00 Variable overhead 40.00 Fixed overhead 34.00 Total $163.00 Crayola Technologies Inc. has contacted Rubium with an offer to sell 6,000 of the subassemblies for $144.00 each. Rubium will eliminate $89,000 of fixed overhead if it accepts the proposal. Should Rubium make or buy the subassemblies? What is the difference between the two alternatives? A) Buy; savings = $89,000 B) Buy; savings = $7,000 C) Make; savings = $1,000 D) Make; savings = $203,000

C

Springer Products manufactures three different product lines, Model X, Model Y, and Model Z. Considerable market demand exists for all models. The following per unit data apply: Model X Model Y Model Z Selling price $56 $68 $78 Direct materials 7 7 7 Direct labor ($16 per hour) 16 16 32 Variable support costs ($7 per machine-hour) 7 15 14 Fixed support costs 15 15 15 How can Lisa Dynondo encourage her salespeople to promote the more profitable model? A) Put all sales persons on fixed salary. B) Provide higher sales commissions for higher priced items. C) Provide higher sales commissions for items with the greatest contribution margin per constrained resource. D) Provide higher sales commissions for items which has the lowest cost and lower sales commissions for items with highest cost.

C

Striker 44 Corporation produces a part that is used in the manufacture of one of its products. The costs associated with the production of 12,000 units of this part are as follows: Direct materials $86,000 Direct labor 130,000 Variable factory overhead 57,000 Fixed factory overhead 135,000 Total costs $408,000 Of the fixed factory overhead costs, $58,000 is avoidable. Assuming no other use of their facilities, the highest price that McMurphy should be willing to pay for 12,000 units of the part is ________. A) $408,000 B) $273,000 C) $331,000 D) $351,000

C

Sunk costs ________. A) are future costs for decision making B) are avoidable costs C) are irrelevant for decision making D) are foregone contribution by not using a limited resource in its next-best alternative use

C

The management accountant for Giada's Book Store has prepared the following income statement for the most current year: Cookbook Travel Book Classics Total Sales $63,000 $179,000 $60,000 $302,000 Cost of goods sold 37,000 70,000 23,000 130,000 Contribution margin 26,000 109,000 37,000 172,000 Order and delivery processing 19,000 26,000 9,000 54,000 Rent (per sq. foot used) 3,000 3,000 3,000 9,000 Allocated corporate costs 10,000 10,000 10,000 30,000 Corporate profit $ (6,000) $70,000 $15,000 $79,000 If the cookbook product line had been discontinued prior to this year, the company would have reported ________. A) greater corporate profits B) the same amount of corporate profits C) less corporate profits D) resulting profits cannot be determined

C

The management accountant for Giada's Book Store has prepared the following income statement for the most current year: Cookbook Travel Book Classics Total Sales $65,000 $164,000 $55,000 $284,000 Cost of goods sold 37,000 67,000 20,000 124,000 Contribution margin 28,000 97,000 35,000 160,000 Order and delivery processing 21,000 25,000 11,000 57,000 Rent (per sq. foot used) 5,000 4,000 4,000 13,000 Allocated corporate costs 10,000 10,000 10,000 30,000 Corporate profit $ (8,000) $58,000 $10,000 $60,000 If the travel book line had been discontinued, corporate profits for the current year would have decreased by ________. A) $97,000 B) $72,000 C) $68,000 D) $58,000

C

The theory of constraints (TOC) defines throughput margin as ________. A) operating income minus the direct material costs of the goods sold B) operating income minus the direct labor costs of the goods sold C) revenues minus the direct material costs of the goods sold D) revenues minus the full costs of the goods sold

C

Top management faces a persistent challenge to make sure that the performance evaluation model of lower level managers is ________. A) focused on short-term performance B) based solely on quantitative factors C) consistent with the decision model D) based solely on qualitative factors

C

W.T. Ginsburg Engine Company manufactures part ACT31107 used in several of its engine models. Monthly production costs for 1,000 units are as follows: Direct materials $42,000 Direct labor 10,500 Variable overhead costs 32,500 Fixed overhead costs 18,000 Total costs $103,000 It is estimated that 6% of the fixed overhead costs assigned to ACT31107 will no longer be incurred if the company purchases ACT31107 from the outside supplier. W.T. Ginsburg Engine Company has the option of purchasing the part from an outside supplier at $94.75 per unit. If W.T. Ginsburg Engine Company purchases 1,000 ACT31107 parts from the outside supplier per month, then its monthly operating income will ________. (Round any intermediary calculations and your final answer to the nearest cent.) A) increase by $8,670 B) increase by $21,330 C) decrease by $8,670 D) decrease by $21,330

C

When deciding to accept a one-time-only special order from a wholesaler, management should ________. A) consider the sunk costs and opportunity costs B) not consider the special order's impact on future prices of their products C) determine whether excess capacity is available D) verify past design costs for the product

C

When making decisions ________. A) qualitative factors are not relevant as they can't be quantified B) more weight should be given to quantitative factors C) appropriate weight must be given to both quantitative and qualitative factors D) quantitative factors are relevant but qualitative factors are rarely relevant

C

When using the five-step decision process, which one of the following steps should be done last? A) obtain information B) choose an alternative C) evaluation and feedback D) implementing the decision

C

Which of the following costs always differ among future alternatives? A) fixed costs B) historical costs C) relevant costs D) variable costs

C

Which of the following is an irrelevant cost when considering where to drop a customer? A) cost of goods sold B) marketing support C) depreciation D) sales order and delivery processing

C

Which of the following minimizes the risks of outsourcing? A) the use of short-term contracts that specify price B) shifting the firm's responsibility for on-time delivery to the supplier C) building close partnerships with the supplier D) increasing the contract price

C

With a constraining resource, managers should choose the product with the ________. A) lowest contribution margin per unit of the constraining resource B) highest sales price C) highest contribution margin per unit of the constraining resource D) highest gross profit

C

) Which of the following is an example of sunk costs? A) wages to security staffs B) cost of purchasing raw materials C) cost of an alternative investment D) wages payable to skilled laborers to make a product

D

A company decided to replace an old machine with a new machine. Which of the following is considered a relevant cost? A) the book value of the old equipment B) the depreciation expense on the old equipment C) the loss on the disposal of the old equipment D) the setup cost of the new equipment

D

A company has three products possible products that it can produce in a machine intensive production process. Capacity is constrained by the number of hours the machines can run during a period and the products are so popular that all units produced will be sold. Here is additional information: Product A Product B Product C Contribution per unit $20 $30 $40 Machine hours per unit 2.5 3.25 4.5 Which of the following would be an accurate conclusion based on these facts? A) A balanced mix of 1/3 A, 1/3 B, and 1/3 C should be the goal when maximizing operating income in the short-run. B) Since Product C has the greatest contribution margin per unit and therefore emphasizing its production and sales will lead to the highest operating income in the short-run C) Since A takes less time to produce, maximization of operating income will occur by emphasizing production and sales of A. D) Product B should be emphasized if the goal is to maximize contribution margin.

D

All of the following are examples of quantitative factors except: A) cost of direct materials B) budget for marketing activities C) product development time D) employee morale

D

Altec Services Corporation has relevant costs of $46 per unit to manufacture 1,050 units of Part A. A current supplier offers to make Part A for $33 per unit. Alternatively, the company can rent out the capacity for $30,000. If capacity is constrained, the opportunity cost of buying Part A from the supplier is ________. A) $0 B) $13,650 C) $43,650 D) $30,000

D

Dantley's Furniture manufactures rustic furniture. The cost accounting system estimates manufacturing costs to be $240 per table, consisting of 75% variable costs and 25% fixed costs. The company has surplus capacity available. It is Back Forrest's policy to add a 45% markup to full costs. A large hotel chain is currently expanding and has decided to decorate all new hotels using the rustic style. Dantley's Furniture Incorporated is invited to submit a bid to the hotel chain. What is the lowest price per unit Dantley's Furniture should bid on this long-term order? A) $168 B) $180 C) $240 D) $348

D

Direct materials are $600, direct labor is $450, variable overhead costs are $650, and fixed overhead costs are $400. The cost of one unit is ________. A) $850 B) $1,050 C) $1,700 D) $2,100

D

Feedback regarding previous actions may affect A) future predictions B) implementation of the decision C) the decision model D) All of these answers are correct.

D

Flash City Inc. manufactures small flash drives and is considering raising the price by 75 cents a unit for the coming year. With a 75-cent price increase, demand is expected to fall by 7,000 units. Current Projected Demand 78,000 units 71,000 units Selling price $9.00 $9.75 Incremental cost per unit $6.80 $6.80 Would you recommend the 75-cent price increase? A) No, because demand decreased. B) No, because the selling price increases. C) Yes, because contribution margin per unit increases. D) Yes, because operating profits increase.

D

Genent's Preserves currently makes jams and jellies and a variety of decorative jars used for packaging. An outside supplier has offered to supply all of the needed decorative jars. For this make-or-buy decision, a cost analysis revealed the following avoidable unit costs for the decorative jars: Direct materials $0.52 Direct labor 0.12 Unit-related support costs 0.23 Batch-related support costs 0.30 Product-sustaining support costs 0.49 Facility-sustaining support costs 0.60 Total cost per jar $2.26 The maximum price that Genent's Preserves should be willing to pay for the decorative jars is ________. A) $0.64 per jar B) $0.87 per jar C) $0.49 per jar D) $2.26 per jar

D

Genent's Preserves currently makes jams and jellies and a variety of decorative jars used for packaging. An outside supplier has offered to supply all of the needed decorative jars. For this make-or-buy decision, a cost analysis revealed the following avoidable unit costs for the decorative jars: Direct materials $0.56 Direct labor 0.11 Unit-related support costs 0.24 Batch-related support costs 0.30 Product-sustaining support costs 0.53 Facility-sustaining support costs 0.56 Total cost per jar $2.3 The relevant cost per jar is ________. A) $0.67 per jar B) $0.91 per jar C) $1.74 per jar D) $2.30 per jar

D

In a make-or-buy decision, which of the following would not be relevant? A) the quality of the product B) the portion of fixed costs that could be eliminated by outsourcing C) a lease that could be discontinued upon accepting the "buy proposal" D) property taxes on the plant that will still be necessary even if the product is outsourced

D

In evaluating different alternatives, it is useful to concentrate on ________. A) variable costs B) fixed costs C) total costs D) relevant costs

D

Kinnane's Fine Furniture manufactures two models, Standard and Premium. Weekly demand is estimated to be 100 units of the Standard Model and 77 units of the Premium Model. The following per unit data apply: Standard Premium Contribution margin per unit $24 $24 Number of machine-hours required 6 6 The contribution per machine-hour is ________. A) $24 for Standard, $24 for Premium B) $144 for Standard, $144 for Premium C) $18 for Standard, $18 for Premium D) $4 for Standard, $4 for Premium

D

Management is considering two alternatives. Alternative A has projected revenue per year of $100,000 and costs of $70,000 while Alternative B has revenue of $100,000 and costs of $60,000. Both projects require an initial investment of $250,000 of which $75,000 has already been set aside and will be used as a down payment on the project that is chosen. There are also other qualitative factors that management must consider before making a final choice. Which of the following statements is correct about relevant costs and relevant revenues. A) The sunk cost of $75,000 is relevant B) The projected revenues are relevant to the decision C) The initial investment of $250,000, the projected revenues, and the projected costs are all relevant D) The only relevant item are the costs as they differ between alternatives

D

McMurphy Corporation produces a part that is used in the manufacture of one of its products. The costs associated with the production of 12,000 units of this part are as follows: Direct materials $86,000 Direct labor 126,000 Variable factory overhead 58,000 Fixed factory overhead 138,000 Total costs $408,000 Of the fixed factory overhead costs, $55,000 is avoidable. Conners Company has offered to sell 12,000 units of the same part to McMurphy Corporation for $41 per unit. Assuming there is no other use for the facilities, Schmidt should ________. A) make the part, as this would save $16 per unit B) buy the part, as this would save $16 per unit C) buy the part, as this would save the company $192,000 D) make the part, as this would save $14 per unit

D

Planet Design Services, Inc., is considering replacing a machine. The following data are available: Replacement Old Machine Machine Original cost $630,000 $510,000 Useful life in years 12 6 Current age in years 6 0 Book value $350,000 — Disposal value now $122,000 — Disposal value in 6 years 0 0 Annual cash operating costs $102,000 $59,000 Which of the data provided in the table is a sunk cost? A) the annual cash operating costs of the old machine B) the annual cash operating costs of the replacement machine C) the disposal value of the old machine D) the original cost of the old machine

D

Snapper Tool Company has plenty of excess capacity to accept a special order. Shown below is an "what-if" analysis of the special order. Which of the following is the correct decision and reason? Status Quo With Special Order Sales $128,000 $133,000 variable costs: Manufacturing 51,200 54,400 Selling and administrative 25,600 26,600 Contribution margin $51,200 $52,000 Fixed cost 19,200 19,200 Operating profit $32,000 $32,800 A) Yes, since the goal is to fill capacity as much as possible to keep fixed overhead variances as low as possible. B) No, the company will only break even. C) No, since only the employees will benefit from this in that they will earn more overtime. D) Yes, since operating profits will most likely increase.

D

Sunk costs ________. A) are relevant B) are differential C) have future implications D) are ignored when evaluating alternatives

D

The cost to produce Part A was $20 per unit in 2013 and in 2014 it has increased to $22 per unit. In 2014, Supplier ABC has offered to supply Part A for $18 per unit. For the make-or-buy decision ________. A) incremental revenues are $4 per unit B) incremental costs are $2 per unit C) net relevant costs are $2 per unit D) differential costs are $4 per unit

D

Unit cost data can most mislead decisions by ________. A) not computing fixed overhead costs B) computing labor and materials costs only C) computing administrative costs D) not computing unit costs at the same output level

D

What role does a trade-in allowance on old equipment play in a decision to retain or replace equipment? A) It is relevant since it increases the cost of the new equipment. B) It is irrelevant since it reduces the cost of the old equipment. C) It is irrelevant to the decision since it does not impact the cost of the new equipment. D) It is relevant since it reduces the cost of the new equipment.

D

When deciding whether to discontinue a segment of a business, relevant costs include ________. A) auditing expenses for the whole company B) fees paid to a management consultant to study the feasibility of the business segment C) annual insurance costs of the company D) future administrative costs that can be eliminated

D

Which of the following is an appropriate step when identifying relevant costs to make a business decision? A) assuming all variable costs are relevant B) assuming all fixed costs are irrelevant C) separating total costs into business function costs and full costs D) separating total costs into variable and fixed components

D

________ is relevant in a decision to replace equipment. A) Warehouse rent costs B) Book value of old equipment C) Accumulated depreciation on old equipment D) Salvage value

D