Question 1

Canosta, Inc. determined that it must expand its capacity to accept a special order. Which situation is likely?

Accepted Answer

A)  Unit variable costs will increase. 
B)  Fixed costs will not be relevant. 
C)  Both variable and fixed costs will be relevant. 
D)  The company should accept the order. 
A)  Unit variable costs will increase. 
B)  Fixed costs will not be relevant. 
C)  Both variable and fixed costs will be relevant. 
D)  The company should accept the order.

Question 2

If a company has excess capacity and present markets will not be affected, it would be profitable to accept an order at a special unit price even though the price is less than the unit variable cost to manufacture the item.

Accepted Answer

A) True 
 B)False

Question 3

The decision rule on whether to sell or process further

Accepted Answer

A)  varies from situation to situation. 
B)  is process further as long as total revenue exceeds present revenues. 
C)  is process further if incremental revenue from such processing exceeds incremental fixed costs. 
D)  is process further if incremental revenue from such processing exceeds the incremental processing costs. 
A)  varies from situation to situation. 
B)  is process further as long as total revenue exceeds present revenues. 
C)  is process further if incremental revenue from such processing exceeds incremental fixed costs. 
D)  is process further if incremental revenue from such processing exceeds the incremental processing costs.

Question 4

Which of the following stages of the management decision-making process is improperly sequenced?

Accepted Answer

A)  Evaluate possible courses of action $\rightarrow$ Make decision. 
B)  Assign responsibility for the decision $\rightarrow$ Identify the problem. 
C)  Identify the problem $\rightarrow$Determine possible courses of action. 
D)  Assign responsibility for decision $\rightarrow$ Determine possible courses of action. 
A)  Evaluate possible courses of action $\rightarrow$ Make decision. 
B)  Assign responsibility for the decision $\rightarrow$ Identify the problem. 
C)  Identify the problem $\rightarrow$Determine possible courses of action. 
D)  Assign responsibility for decision $\rightarrow$ Determine possible courses of action.

Question 5

What of the following would not be relevant in a make-or-buy decision?

Accepted Answer

A)  Unavoidable variable costs 
B)  Incremental fixed costs 
C)  Opportunity costs 
D)  Avoidable fixed cost 
A)  Unavoidable variable costs 
B)  Incremental fixed costs 
C)  Opportunity costs 
D)  Avoidable fixed cost

Question 6

Decision-making involves choosing among alternative courses of action.

Accepted Answer

A) True 
 B)False

Question 7

It costs Garner Company $12 of variable and $5 of fixed costs to produce one bathroom scale which normally sells for $35. A foreign wholesaler offers to purchase 3,000 scales at $15 each. Garner would incur special shipping costs of $1 per scale if the order were accepted. Garner has sufficient unused capacity to produce the 3,000 scales. If the special order is accepted, what will be the effect on net income?

Accepted Answer

A)  $6,000 increase 
B)  $6,000 decrease 
C)  $9,000 decrease 
D)  $45,000 increase 
A)  $6,000 increase 
B)  $6,000 decrease 
C)  $9,000 decrease 
D)  $45,000 increase

Question 8

Martin Company incurred the following costs for 70,000 units: Variable costs $420,000
Fixed costs 392,000
Martin has received a special order from a foreign company for 3,000 units. There is sufficient capacity to fill the order without jeopardizing regular sales. Filling the order will require spending an additional $6,300 for shipping.
If Martin wants to break even on the order, what should the unit sales price be?

Accepted Answer

A)  $6.00 
B)  $8.10 
C)  $11.60 
D)  $13.70 
A)  $6.00 
B)  $8.10 
C)  $11.60 
D)  $13.70

Question 9

Which of the following is an irrelevant cost?

Accepted Answer

A)  An avoidable cost 
B)  An incremental cost 
C)  A sunk cost 
D)  An opportunity cost 
A)  An avoidable cost 
B)  An incremental cost 
C)  A sunk cost 
D)  An opportunity cost

Question 10

Tex's Manufacturing Company can make 100 units of a necessary component part with the following costs: $$\begin{array} { l r } 
\text { Direct Materials } & \$ 120,000 \
\text { Direct Labor } & 25,000 \
\text { Variable Overhead } & 45,000 \
\text { Fixed Overhead } & 30,000
\end{array}$$ If Tex's Manufacturing Company purchases the component externally, $20,000 of the fixed costs can be avoided. At what external price for the 100 units is the company indifferent between making or buying?

Accepted Answer

A)  $190,000 
B)  $200,000 
C)  $210,000 
D)  $220,000 
A)  $190,000 
B)  $200,000 
C)  $210,000 
D)  $220,000

Question 11

Tex's Manufacturing Company can make 100 units of a necessary component part with the following costs: $$\begin{array} { l r } 
\text { Direct Materials } & \$ 120,000 \
\text { Direct Labor } & 25,000 \
\text { Variable Overhead } & 45,000 \
\text { Fixed Overhead } & 30,000
\end{array}$$ If Tex's Manufacturing Company can purchase the component externally for $190,000 and only $5,000 of the fixed costs can be avoided, what is the correct make-or-buy decision?

Accepted Answer

A)  Buy and save $5,000 
B)  Make and save $5,000 
C)  Make and save $15,000 
D)  Buy and save $15,000 
A)  Buy and save $5,000 
B)  Make and save $5,000 
C)  Make and save $15,000 
D)  Buy and save $15,000

Question 12

Eddy Company is starting business and is unsure of whether to sell its product assembled or unassembled. The unit cost of the unassembled product is $60 and Eddy Company would sell it for $135. The cost to assemble the product is estimated at $27 per unit and Eddy Company believes the market would support a price of $174 on the assembled unit. What is the correct decision using the sell or process further decision rule?

Accepted Answer

A)  Sell before assembly, the company will be better off by $27 per unit. 
B)  Sell before assembly, the company will be better off by $39 per unit. 
C)  Process further, the company will be better off by $39 per unit. 
D)  Process further, the company will be better off by $12 per unit. 
A)  Sell before assembly, the company will be better off by $27 per unit. 
B)  Sell before assembly, the company will be better off by $39 per unit. 
C)  Process further, the company will be better off by $39 per unit. 
D)  Process further, the company will be better off by $12 per unit.

Question 13

Sala Co. is contemplating the replacement of an old machine with a new one. The following information has been gathered: $\begin{array}{lll}&\text {Old Machine }&\text {New Machine }\
\text { Price } & \$ 300,000 & \$ 600,000 \
\text { Accumulated Depreciation } & 90,000 & -0- \
\text { Remaining useful life } & 10 \text { years } & -0 \text { - } \
\text { Useful life } & -0 \text { - } & 10 \text { years } \
\text { Annual operating costs } & \$ 240,000 & \$ 180,600
\end{array}$ If the old machine is replaced, it can be sold for $24,000. Which of the following amounts is relevant to the replacement decision?

Accepted Answer

A)  $210,000 
B)  $300,000 
C)  $59,400 
D)  $90,000 
A)  $210,000 
B)  $300,000 
C)  $59,400 
D)  $90,000

Question 14

Which of the following steps in the management decision-making process does not generally involve the managerial accountant?

Accepted Answer

A)  Determine possible courses of action 
B)  Make the appropriate decision based on relevant data 
C)  Prepare internal reports that review the impact of decisions 
D)  None of these answers are correct. 
A)  Determine possible courses of action 
B)  Make the appropriate decision based on relevant data 
C)  Prepare internal reports that review the impact of decisions 
D)  None of these answers are correct.

Question 15

Use the following information for questions 
Truckel, Inc. currently manufactures a wicket as its main product. The costs per unit are as follows: $\begin{array}{lr}
\text { Direct materials and direct labor } & \$ 11 \
\text { Variable overhead } & 5 \
\text { Fixed overhead } & 8\
\text { Total }&\$24
\end{array}$
-The fixed overhead is an allocated common cost. How much is the relevant cost of the wicket?

Accepted Answer

A)  $36 
B)  $24 
C)  $19 
D)  $16 
A)  $36 
B)  $24 
C)  $19 
D)  $16

Question 16

In incremental analysis,

Accepted Answer

A)  costs are not relevant if they change between alternatives. 
B)  all costs are relevant if they change between alternatives. 
C)  only fixed costs are relevant. 
D)  only variable costs are relevant. 
A)  costs are not relevant if they change between alternatives. 
B)  all costs are relevant if they change between alternatives. 
C)  only fixed costs are relevant. 
D)  only variable costs are relevant.

Question 17

In a make-or-buy decision, which costs can be considered relevant?

Accepted Answer

A)  Unavoidable variable costs, incremental fixed costs, and sunk costs 
B)  Incremental variable costs, unavoidable fixed costs, and opportunity costs 
C)  Incremental variable costs, incremental fixed costs, and sunk costs 
D)  Incremental variable costs, incremental fixed costs, and opportunity costs 
A)  Unavoidable variable costs, incremental fixed costs, and sunk costs 
B)  Incremental variable costs, unavoidable fixed costs, and opportunity costs 
C)  Incremental variable costs, incremental fixed costs, and sunk costs 
D)  Incremental variable costs, incremental fixed costs, and opportunity costs

Question 18

A company has three product lines, one of which reflects the following results: $$\begin{array} { l r } 
\text { Sales } & \$ 215,000 \
\text { Variable expenses } & 125,000 \
\text { Contribution margin } & 90,000 \
\text { Fixed expenses } & 130,000 \
\text { Net loss } & \$ ( 40,000 )
\end{array}$$ If this product line is eliminated, 60% of the fixed expenses can be eliminated and the other 40% will be allocated to other product lines. If management decides to eliminate this product line, the company's net income will

Accepted Answer

A)  increase by $40,000. 
B)  decrease by $90,000. 
C)  decrease by $12,000. 
D)  increase by $12,000. 
A)  increase by $40,000. 
B)  decrease by $90,000. 
C)  decrease by $12,000. 
D)  increase by $12,000.

Question 19

A company decided to replace an old machine with a new machine. Which of the following is considered a relevant cost?

Accepted Answer

A)  The book value of the old equipment 
B)  Depreciation expense of the old equipment 
C)  The loss on disposal of the old equipment 
D)  The current disposal price of the old equipment 
A)  The book value of the old equipment 
B)  Depreciation expense of the old equipment 
C)  The loss on disposal of the old equipment 
D)  The current disposal price of the old equipment

Question 20

Alvarez Company is considering the following alternatives: $\begin{array}{lrr}&\text { Alternative A }&\text { Alternative B }\
\text { Revenues } & \$ 50,000 & \$ 60,000 \
\text { Variable costs } & 30,000 & 30,000 \
\text { Fixed costs } & 10,000 & 16,000
\end{array}$ What is the incremental profit?

Accepted Answer

A)  $10,000 
B)  $0 
C)  $6,000 
D)  $4,000 
A)  $10,000 
B)  $0 
C)  $6,000 
D)  $4,000

Canosta, Inc. determined that it must expand its capacity to accept a special order. Which situation is likely?

If a company has excess capacity and present markets will not be affected, it would be profitable to accept an order at a special unit price even though the price is less than the unit variable cost to manufacture the item.

The decision rule on whether to sell or process further

Which of the following stages of the management decision-making process is improperly sequenced?

What of the following would not be relevant in a make-or-buy decision?

Decision-making involves choosing among alternative courses of action.

Which of the following is an irrelevant cost?

Which of the following steps in the management decision-making process does not generally involve the managerial accountant?

In incremental analysis,

In a make-or-buy decision, which costs can be considered relevant?

A company decided to replace an old machine with a new machine. Which of the following is considered a relevant cost?

Alvarez Company is considering the following alternatives: Alternative A Alternative B Revenues \ 50,000 \ 60,000 Variable costs 30,000 30,000 Fixed costs 10,000 16,000 What is the incremental profit?

Managerial Accounting

Job Order Costing

Process Costing

Activity-Based Costing

Cost-Volume-Profit

Cost-Volume-Profit Analysis: Additional Issues

Pricing

Budgetary Planning

Budgetary Control and Responsibility Accounting

Standard Costs and Balanced Scorecard

Planning for Capital Investments

Statement of Cash Flows

Financial Statement Analysis

Filters

Exam 7: Incremental Analysis

Canosta, Inc. determined that it must expand its capacity to accept a special order. Which situation is likely?

If a company has excess capacity and present markets will not be affected, it would be profitable to accept an order at a special unit price even though the price is less than the unit variable cost to manufacture the item.

The decision rule on whether to sell or process further

Which of the following stages of the management decision-making process is improperly sequenced?

What of the following would not be relevant in a make-or-buy decision?

Decision-making involves choosing among alternative courses of action.

Which of the following is an irrelevant cost?

Which of the following steps in the management decision-making process does not generally involve the managerial accountant?

In incremental analysis,

In a make-or-buy decision, which costs can be considered relevant?

A company decided to replace an old machine with a new machine. Which of the following is considered a relevant cost?

Alvarez Company is considering the following alternatives: Alternative A Alternative B Revenues \ 50,000 \ 60,000 Variable costs 30,000 30,000 Fixed costs 10,000 16,000 What is the incremental profit?

Managerial Accounting

Job Order Costing

Process Costing

Activity-Based Costing

Cost-Volume-Profit

Cost-Volume-Profit Analysis: Additional Issues

Pricing

Budgetary Planning

Budgetary Control and Responsibility Accounting

Standard Costs and Balanced Scorecard

Planning for Capital Investments

Statement of Cash Flows

Financial Statement Analysis

Filters