Chp 12

Management is considering a one-time-only special order. There is sufficient idle capacity to fill the order without affecting any normal sales. Which one of the following is NOT relevant in making the decision? A. Absorption costing unit product costs B. Variable costs C. Incremental costs D. Differential costs

A

In a make-or-buy decision, relevant costs include: A. Unavoidable fixed costs B. Avoidable fixed costs C. Fixed factory overhead costs applied to products D. Fixed selling and administrative expenses

B

Two or more products produced from a common input are called: A. Common costs. B. Joint products. C. Joint costs. D. Sunk costs.

B

Hal currently works as the fry guy at Burger Haven but is thinking of quitting his job to attend college full time next semester. Which of the following would be considered an opportunity cost of attending college? A. The cost of the textbooks B. The cost of the cola that Hal will consume during class C. Hal's lost wages at Burger Haven D. The cost of commuting to the Burger Haven job

C

When a multi-product factory operates at full capacity, decisions must be made about which products to emphasize. In making such decisions, products should be ranked based on: A. Selling price per unit B. Contribution margin per unit C. Contribution margin per unit of the constraining resource D. Unit sales volume

C

Which of the following is not an effective way of dealing with a production constraint (i.e., bottleneck)? A. Reduce the number of defective units produced at the bottleneck. B. Pay overtime to workers assigned to the bottleneck. C. Pay overtime to workers assigned to work stations located after the bottleneck in the production process. D. Subcontract work that would otherwise require use of the bottleneck.

C

Opportunity costs are: A. Not used for decision-making. B. The same as variable costs. C. The same as historical costs. D. Relevant in decision making.

D

A cost that can be avoided by choosing one alternative over another is not relevant for decision purposes. True False

False

A disadvantage of vertical integration is that by pooling demand for parts from a number of companies, a supplier will face diseconomies of scale that result in lower quality and higher cost than if every company makes its own parts. True False

False

A fixed cost cannot be a differential cost. True False

False

A product whose revenues do not cover the sum of its variable costs, its traceable fixed costs, and its allocated share of general corporate administrative expenses should usually be dropped. True False

False

A vertically integrated company is more dependent on its suppliers than a company that is not vertically integrated. True False

False

An avoidable cost is a cost that can be completely eliminated irrespective of whether one chooses one alternative or another in a decision. True False

False

Eliminating nonproductive processing time is particularly important in work stations that do not contain bottlenecks. True False

False

Future costs that do not differ between the alternatives in a decision are avoidable costs. True False

False

In a decision to drop a segment, the opportunity cost of the space occupied by the segment is the cost of renting or building similar space nearby. True False

False

Joint costs are relevant in the decision to sell a product at the split-off point or to process the product further. True False

False

Joint products are products that are sold to customers as a set or as part of a group of products. True False

False

One of the advantages of allocating common fixed costs to a product is that such allocations more accurately reflect the product's true profitability. True False

False

One way to increase the effective utilization of a bottleneck is to put less emphasis on preventing defects and simply discard defective units at final inspection before sending them to customers. True False

False

The book value of old equipment is a relevant cost in a decision to replace that equipment. (Ignore taxes.) True False

False

The split-off point in a process that produces joint products is the point in the manufacturing process at which the joint products are sent to separate customers. True False

False

The term joint cost is used to describe the costs incurred after the split-off point in a process involving joint products. True False

False

When a company has a production constraint, total contribution margin will be maximized by emphasizing the products with the lowest contribution margin per unit of the constrained resource. True False

False

When a company is involved in only one activity in the entire value chain, it is vertically integrated. True False

False

A cost that is relevant in one decision may not be relevant in another decision. True False

True

A cost that is traceable to a segment through activity-based costing may or may not be an avoidable cost for decision-making. True False

True

Defective units should be detected and scrapped or reworked before the bottleneck operation rather than after it. True False

True

Depreciation expense on existing factory equipment is usually irrelevant in a decision of whether to accept or reject a special offer for a company's product. True False

True

Fixed costs may or may not be relevant in decisions about whether a product should be dropped. True False

True

Fixed costs may or may not be sunk costs. True False

True

In a decision to drop a product, the product should not be charged for factory rent if the space in which the product is produced has no alternative use and the rental payment is unavoidable. True False

True

In a factory operating at capacity, not every machine and person should be working at the maximum possible rate. True False

True

In a special order situation, any fixed cost that could be avoided if the special order were not accepted would be irrelevant. True False

True

Only future costs that differ between alternatives are relevant in decision-making. True False

True

Opportunity costs are not usually recorded in the accounts of a business. True False

True

The book value of a machine, as shown on the balance sheet, is not relevant in a decision concerning the replacement of that machine by another machine. (Ignore taxes.) True False

True