Question 1

The incremental cost of a special order does not include incremental fixed costs.

Accepted Answer

A) True 
 B)False

Question 2

Collage Ltd is closing one of its divisions. Operating data on this division follows:
 $\begin{array} { l l } 
\text { Sales } & \$ 120,000 \
\text { Variable costs } & 46,000 \
\text { Overhead } & 60,000
\end{array}$ 
Overhead consists of $50,000 in salary and $10,000 for rent and insurance. The salary is for the production manager, who will continue to work for Collage even if the division is closed.
Assuming all overhead costs continue to be incurred even if the division closes, what will be the effect on overall company profits of closing the division?

Accepted Answer

A)  $60,000 decrease 
B)  $74,000 decrease 
C)  $74,000 increase 
D)  $46,000 increase 
A)  $60,000 decrease 
B)  $74,000 decrease 
C)  $74,000 increase 
D)  $46,000 increase

Question 3

The general rule for make or buy decisions is to choose the option with the lowest relevant cost.

Accepted Answer

A) True 
 B)False

Question 4

Joint costs are relevant in decisions about whether to process a product beyond the split off point

Accepted Answer

A) True 
 B)False

Question 5

Joint costs are excluded from inventory and costs of sales in the financial statements.

Accepted Answer

A) True 
 B)False

Question 6

The number of babysitters available could be a constraint for a nanny service.

Accepted Answer

A) True 
 B)False

Question 7

In an outsourcing decision, fixed costs are:

Accepted Answer

A)  Not allocated 
B)  Relevant if they are greater than associated opportunity costs 
C)  Relevant if the company is operating outside the relevant range 
D)  Relevant if they can be avoided through outsourcing 
A)  Not allocated 
B)  Relevant if they are greater than associated opportunity costs 
C)  Relevant if the company is operating outside the relevant range 
D)  Relevant if they can be avoided through outsourcing

Question 8

A shortage of raw material to manufacture a product would be a capacity constraint.

Accepted Answer

A) True 
 B)False

Question 9

When a product emerges as a result of making another product these are called joint products.

Accepted Answer

A) True 
 B)False

Question 10

When idle capacity exists the minimum acceptable price for the special order is equal to the incremental cost of the order.

Accepted Answer

A) True 
 B)False

Question 11

Fixed costs should be considered in non-routine operating decisions when:

Accepted Answer

A)  They are material 
B)  They are incremental 
C)  They are relevant 
D)  They are step costs 
A)  They are material 
B)  They are incremental 
C)  They are relevant 
D)  They are step costs

Question 12

Vident Ltd has 1,000 commercial frozen ice machines in inventory produced at a cost of $4,000 each (60% variable and 40% fixed). The machines were to have been sold for $10,000 each. However, the machines currently contain a minor malfunction, reducing their selling price to $1,500 each. The company could correct the malfunction at a variable cost of $2,500 each, and then sell the machines for $5,500 each. If the games are reworked, what will be the contribution per unit from doing so?

Accepted Answer

A)  $3,500 
B)  $3,000 
C)  $1,500 
D)  $1,000 
A)  $3,500 
B)  $3,000 
C)  $1,500 
D)  $1,000

Question 13

Non-routine operating decisions differ from routine operating decisions in that non-routine decisions:

Accepted Answer

A)  Ignore cash flows 
B)  Consider cash flows 
C)  Involve major infrastructure spending 
D)  Do not happen on a regular basis 
A)  Ignore cash flows 
B)  Consider cash flows 
C)  Involve major infrastructure spending 
D)  Do not happen on a regular basis

Question 14

Access to timely information is not important in manufacturing firms because their infrastructure is fixed.

Accepted Answer

A) True 
 B)False

Question 15

Over time, by-products may become main products when new technologies or markets emerge.

Accepted Answer

A) True 
 B)False

Question 16

The number of customers willing to purchase the product is an example of a capacity constraint.

Accepted Answer

A) True 
 B)False

Question 17

In an outsourcing decision, the general rule managers should follow is to:

Accepted Answer

A)  Choose the option with the lowest total cost 
B)  Outsource if the price is greater than the sum of variable costs and fixed costs 
C)  Do not outsource if the cost is less than the sum of relevant fixed costs and opportunity costs 
D)  None of the above 
A)  Choose the option with the lowest total cost 
B)  Outsource if the price is greater than the sum of variable costs and fixed costs 
C)  Do not outsource if the cost is less than the sum of relevant fixed costs and opportunity costs 
D)  None of the above

Question 18

Managers should generally consider opportunity costs in both "keep or drop" and "make or buy" decisions. Which of the following is an opportunity cost they should consider in both situations?

Accepted Answer

A)  Avoidable fixed costs 
B)  Product diversity 
C)  Depreciation on new machinery 
D)  Benefits from alternate uses of released capacity 
A)  Avoidable fixed costs 
B)  Product diversity 
C)  Depreciation on new machinery 
D)  Benefits from alternate uses of released capacity

Question 19

When faced with capacity constraints, managers should:

Accepted Answer

A)  maximise contribution margin per unit 
B)  maximise profit per unit 
C)  maximise contribution margin per unit of constrained resource 
D)  reduce the number of products available 
A)  maximise contribution margin per unit 
B)  maximise profit per unit 
C)  maximise contribution margin per unit of constrained resource 
D)  reduce the number of products available

Question 20

Which of the following is an opportunity cost that should be considered in an outsourcing decision?

Accepted Answer

A)  Staff morale 
B)  Benefits from alternate uses of released capacity 
C)  Unavoidable fixed costs 
D)  Taxation implications of the decision 
A)  Staff morale 
B)  Benefits from alternate uses of released capacity 
C)  Unavoidable fixed costs 
D)  Taxation implications of the decision

The incremental cost of a special order does not include incremental fixed costs.

The general rule for make or buy decisions is to choose the option with the lowest relevant cost.

Joint costs are relevant in decisions about whether to process a product beyond the split off point

Joint costs are excluded from inventory and costs of sales in the financial statements.

The number of babysitters available could be a constraint for a nanny service.

In an outsourcing decision, fixed costs are:

A shortage of raw material to manufacture a product would be a capacity constraint.

When a product emerges as a result of making another product these are called joint products.

When idle capacity exists the minimum acceptable price for the special order is equal to the incremental cost of the order.

Fixed costs should be considered in non-routine operating decisions when:

Non-routine operating decisions differ from routine operating decisions in that non-routine decisions:

Access to timely information is not important in manufacturing firms because their infrastructure is fixed.

Over time, by-products may become main products when new technologies or markets emerge.

The number of customers willing to purchase the product is an example of a capacity constraint.

In an outsourcing decision, the general rule managers should follow is to:

Managers should generally consider opportunity costs in both "keep or drop" and "make or buy" decisions. Which of the following is an opportunity cost they should consider in both situations?

When faced with capacity constraints, managers should:

Which of the following is an opportunity cost that should be considered in an outsourcing decision?

The Role of Accounting Information in Management Decision Making

Cost Concepts, Behaviour and Estimation

A Costing Framework and Cost Allocation

Costvolumeprofit Cvp Analysis

Planning Budgeting and Behaviour

Operational Budgets

Job and Process Costing Systems

Flexible Budgets, Standard Costs and Variance Analysis

Variance Analysis: Revenue and Cost

Activity Analysis: Costing and Management

Strategy and Control

Capital Budgeting and Strategic Investment Decisions

The Strategic Management of Costs and Revenues

Strategic Management Control: a Lean Perspective

Responsibility Accounting, Performance Evaluation and Transfer Pricing

The Balanced Scorecard and Strategy Maps

Rewards, Incentives and Risk Management

Sustainability Management Accounting

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Exam 11: Relevant Costs for Decision Making

The incremental cost of a special order does not include incremental fixed costs.

The general rule for make or buy decisions is to choose the option with the lowest relevant cost.

Joint costs are relevant in decisions about whether to process a product beyond the split off point

Joint costs are excluded from inventory and costs of sales in the financial statements.

The number of babysitters available could be a constraint for a nanny service.

In an outsourcing decision, fixed costs are:

A shortage of raw material to manufacture a product would be a capacity constraint.

When a product emerges as a result of making another product these are called joint products.

When idle capacity exists the minimum acceptable price for the special order is equal to the incremental cost of the order.

Fixed costs should be considered in non-routine operating decisions when:

Non-routine operating decisions differ from routine operating decisions in that non-routine decisions:

Access to timely information is not important in manufacturing firms because their infrastructure is fixed.

Over time, by-products may become main products when new technologies or markets emerge.

The number of customers willing to purchase the product is an example of a capacity constraint.

In an outsourcing decision, the general rule managers should follow is to:

Managers should generally consider opportunity costs in both "keep or drop" and "make or buy" decisions. Which of the following is an opportunity cost they should consider in both situations?

When faced with capacity constraints, managers should:

Which of the following is an opportunity cost that should be considered in an outsourcing decision?

The Role of Accounting Information in Management Decision Making

Cost Concepts, Behaviour and Estimation

A Costing Framework and Cost Allocation

Costvolumeprofit Cvp Analysis

Planning Budgeting and Behaviour

Operational Budgets

Job and Process Costing Systems

Flexible Budgets, Standard Costs and Variance Analysis

Variance Analysis: Revenue and Cost

Activity Analysis: Costing and Management

Strategy and Control

Capital Budgeting and Strategic Investment Decisions

The Strategic Management of Costs and Revenues

Strategic Management Control: a Lean Perspective

Responsibility Accounting, Performance Evaluation and Transfer Pricing

The Balanced Scorecard and Strategy Maps

Rewards, Incentives and Risk Management

Sustainability Management Accounting

Filters