ch 12 cost accounting
Which of the following statements is true of a decision model?
A decision model is a formal method of making a choice that often involves both quantitative and qualitative analyses
A(n) ________ is a formal method of making a choice that often involves both quantitative and qualitative analyses.
Decision model
Chade Corp. is considering a special order brought it to by a new client. If Chade determines the VC to be $9 per unit, and the CM of the next best alternative of the facility to be $5 per unit, then if Chade has:
Excess capacity, the selling price must be greater than $9 per unit
Arrange five steps of decsion-making process given below in the correct order.
Identify the problem and uncertainties Obtain information Make predictions about the future Make decisions by choosing among alternatives Implement the decision, evaluate performance, and learn
Which of the following is true regarding the theory of constraints?
It describes methods to maximize operating income when faced with some bottleneck and some non-bottleneck operations
Which of the following is true regarding opportunity cost?
It is the contribution to operating income that is forgone by not using a limited resource in its next-best alternative use
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.
______________ is the contribution to operating income that is forgone by not using a limited resource in its next-best alternative use.
Opportunity cost
Which of the following would NOT contribute to a conflict between the decision model a manager uses and the performance-evaluation model top management uses to evaluate managers?
Opportunity costs are relevant to outsourcing decisions, but are not used for performance-evaluation
Which of the following statements is true of relevant costs?
Relevant costs differ among the alternative courses of action
Ace cleaning service is considering expanding into one or more new market area. Which costs are relevant to Ace's decision on whether to expand?
Sunk costs: NO VC: Yes Opportunity costs: Yes
If the performance-evaluation model conflicts with the decision model, what typically happens?
The performance-evaluation model often prevails in influencing managers' decisions
___________ describes methods to maximize operating income when faced with some bottleneck and some non-bottleneck operations
The theory of constraints
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:
VC of current production and the CM of the next best alternative
Which of the following is not a qualitative factors that Atlas manufacturing should consider when deciding to buy or make a part used in manufacturing their product?
VC per unit of the product
Which of the following costs is a relevant cost for a one-time special order decision? Assume idle capacity exists to the extent of special order.
Variable manufacturing costs
Arizona Cermaics is approached by Clarion Hotels for a one-time special order of 1,000 ceramic vases at $10 per ceramic vase. Managers at Arizona have the following information relating to the cost: Variable Manufacturing costs: $6 Fixed Manufacturing costs: $4 Variable Marketing costs: $2 Fixed Marketing costs: $1 Full costs: $13 Should Arizona Ceramics accept the special order? Assume Arizona Ceramics has idle capacity of 2,000 units.
Yes, Arizona Ceramic should accept the special order as it recovers variable manufacturing costs and earns a CM of $4 per ceramic vase
Revenues 1,000,000 Cost of goods sold 500,000 Goods-handling labor 50,000 Goods-handling equipment - depreciation 175,000 Rent 125,000 Marketing support 50,000 Sales-order and delivery processing 25,000 General administration 125,000 Allocated corporate-office costs 10,000 1,060,000` Operating loss ($60,000) Cost of goods sold, goods-handling labor, marketing support, sales-order, and delivery-processing costs can be saved if the account is withdrawn. There is no alternate use for warehouse space and goods-handling equipment. Should Multi Trading Inc. continue selling to Sweet Inc.?
Yes, as dropping Sweet Inc. account will lead to a reduction in overall operating income by $375,000. Revenues lost by dropping Sweet ($1,000,000) Cost of goods sold 500,000 Goods-handling labor 50,000 Goods-handling equipment - depreciation 0 Rent 0 Marketing support 50,000 Sales-order and delivery processing 25,000 General administration 0 Total expenses saved by dropping Sweet 625,000 Operating loss resulting from dropping Sweet ($375,000)
