Question 1

Fixed costs are relevant for decision making if they vary among the alternatives and are future-oriented.

Accepted Answer

A) True 
 B)False

Question 2

Indicate whether each of the following statements about outsourcing decisions is true or false.

Accepted Answer

The answer of Indicate whether each of the following statements...

Question 3

Outdoor Living Company has just received a special order for 500 hammocks. Outdoor Living has sufficient idle capacity to accept the order. Accepting the order will increase Outdoor Living's variable manufacturing costs. Variable selling and administrative costs would be unaffected. What is the minimum price that Outdoor Living should accept for the special order?

Accepted Answer

A)  A price equivalent to the hammock's variable manufacturing cost per unit 
B)  A price equivalent to the hammock's unit contribution margin 
C)  The same price that Outdoor Living charges its existing customers 
D)  None of these answers are correct. 
A)  A price equivalent to the hammock's variable manufacturing cost per unit 
B)  A price equivalent to the hammock's unit contribution margin 
C)  The same price that Outdoor Living charges its existing customers 
D)  None of these answers are correct.

Question 4

Rachel is deciding whether to remain in the home she has lived in for the past ten years, which is located very near her work, or to move into a newer home that is located in the suburbs farther from her job. The old house was purchased for $160,000 and has a market value of $220,000. The new home can be purchased for $285,000. Which of the following is not relevant to Rachel's decision?

Accepted Answer

A)  Driving distance to work 
B)  Cost of the old house 
C)  Market value of the old house 
D)  Cost of the new house 
A)  Driving distance to work 
B)  Cost of the old house 
C)  Market value of the old house 
D)  Cost of the new house

Question 5

King Company has two divisions whose most recent financial statements are shown below:
   Required:Compute the impact on profit if the Residential Division is eliminated.Do you recommend that King eliminate the Residential Division?

Accepted Answer

The answer of King Company has two divisions whose most...

Question 6

Qualitative information is only relevant for decision making if it can be quantified.

Accepted Answer

A) True 
 B)False

Question 7

Breezy Company is disposing of equipment that was originally purchased for $616,000 and has $232,000 of accumulated depreciation to date. The same equipment would cost $785,000 to replace. What is the total amount of sunk cost in this decision?

Accepted Answer

A)  $232,000 
B)  $384,000 
C)  $848,000 
D)  $785,000 
A)  $232,000 
B)  $384,000 
C)  $848,000 
D)  $785,000

Question 8

Select the incorrect statement concerning opportunity costs.

Accepted Answer

A)  Opportunity costs are relevant costs. 
B)  Opportunity costs are cumulative. 
C)  Opportunity costs are future-oriented. 
D)  Opportunity costs are not recorded in the books. 
A)  Opportunity costs are relevant costs. 
B)  Opportunity costs are cumulative. 
C)  Opportunity costs are future-oriented. 
D)  Opportunity costs are not recorded in the books.

Question 9

Outdoor Living Company has just received a special order for 500 hammocks. Outdoor Living has sufficient idle capacity to accept the order. Accepting the order will increase Outdoor Living's total variable manufacturing costs. Which type of cost is considered relevant to Outdoor Living's decision whether to accept or reject the special order?

Accepted Answer

A)  Raw materials to make the 500 hammocks 
B)  Company president's salary 
C)  Salary of the production manager 
D)  Depreciation on equipment that would be used to make the hammocks 
A)  Raw materials to make the 500 hammocks 
B)  Company president's salary 
C)  Salary of the production manager 
D)  Depreciation on equipment that would be used to make the hammocks

Question 10

Mountain Gear has been using the same machines to make its name-brand clothing for the last five years. A cost efficiency consultant has suggested that production costs may be reduced by purchasing more technologically advanced machinery. The old machines cost the company $100,000. The old machines presently have a book value of $60,000 and a market value of $6,000. They are expected to have a five-year remaining life and zero salvage value. The new machines would cost the company $50,000 and have operating expenses of $9,000 a year. The new machines are expected to have a five-year useful life and no salvage value. The operating expenses associated with the old machines are $15,000 a year. The new machines are expected to increase quality, justifying a price increase and thereby increasing sales revenue by $5,000 a year. Select the true statement.

Accepted Answer

A)  The company will be $11,000 better off over the five-year period if it replaces the old equipment. 
B)  The company will be $20,000 better off over the five-year period if it keeps the old equipment. 
C)  The company will be $12,000 better off over the five-year period if it replaces the old equipment. 
D)  The company will be $6,000 better off over the five-year period if it replaces the old equipment. 
A)  The company will be $11,000 better off over the five-year period if it replaces the old equipment. 
B)  The company will be $20,000 better off over the five-year period if it keeps the old equipment. 
C)  The company will be $12,000 better off over the five-year period if it replaces the old equipment. 
D)  The company will be $6,000 better off over the five-year period if it replaces the old equipment.

Question 11

Taylor Company is considering whether or not to replace a drill press that is several years old. The current market value of the old equipment is an opportunity cost of replacing the drill press.

Accepted Answer

A) True 
 B)False

Question 12

Expected future revenues that differ among the alternatives under consideration are often referred to as:

Accepted Answer

A)  Alternative revenues. 
B)  Preferential revenues. 
C)  Relative revenues. 
D)  Differential revenues. 
A)  Alternative revenues. 
B)  Preferential revenues. 
C)  Relative revenues. 
D)  Differential revenues.

Question 13

Dapper Dan produces a man's suit that sells for $200. Although the company's production capacity is 3,000 suits per year, only 2,500 suits are currently being produced and sold. At this level of production, the company incurs the following costs:
 $\begin{array}{llr}
  \text {Unit-level material cost per suit } &\$80\
 \text { Unit-level labor cost per suit } &\$40\
 \text {Unit-level overhead per suit } &\$20\
 \text { Batch-level set-up costs for each batch of 500 suits} &1,200\
 \text {  Annul product-level costs} &\$15,000\
 \text { Allocated facility-level costs   } &\$50,000\
\end{array}$
  Easton Clothiers has offered to purchase 500 suits as a one-time special purchase at a price of $135.Required:Prepare a quantitative analysis that indicates whether the special order should be accepted.

Accepted Answer

To determine whether the special order s

Question 14

Which of the following statements is incorrect?

Accepted Answer

A)  An outsourcing decision typically affects only product-level costs. 
B)  Accepting a special order will involve incurring unit-level costs. 
C)  Eliminating a business segment often allows a company to avoid some facility-level costs. 
D)  Facility-level costs generally are not relevant in special order decisions. 
A)  An outsourcing decision typically affects only product-level costs. 
B)  Accepting a special order will involve incurring unit-level costs. 
C)  Eliminating a business segment often allows a company to avoid some facility-level costs. 
D)  Facility-level costs generally are not relevant in special order decisions.

Question 15

Match between columns
                        Premises:  Future oriented costs that differ between business alternatives
 Costs that can be avoided when a product line or type of service is eliminated
 Costs that are incurred each time a company makes a single product or performs a single service
 Features such as company reputation, welfare of employees, and customer reaction
 Items that are future oriented and that differ between the alternatives
 Setting a selling price low enough to lure customers away from competitors
 Costs that are not relevant for decision making
 Costs that, for example, would include the cost of setting up machinery to produce a specific lot of units
 The $20 variation between Alternative A, which costs $100 and Alternative B, which costs $80
 Revenues or cost savings that are sacrified when one alternative is chosen over another
 Deciding to purchase a component that until now has been produced in house.
 Future costs that do not have to be incurred if a specified course of action is taken

Accepted Answer

The Answer of Avoidable costs and Batch-level costs and Differential is...

Question 16

The Enhanced Products Division of Forrest Industries makes ceramic pots that are used to hold large decorative plants. During the current year, the division produced 10,000 pots and incurred the following costs:
 $\begin{array}{llr}
  \text {\text { Unit-level materials costs }(10,000 @ \$ 15)  } &\$150,000\
 \text {Unit-level labor costs $ (10,000 $ @ $ \$ 20) $  } &200,000\
 \text {Unit-level overhead costs $ (\mathbf{1 0 , 0 0 0} $ @ \$16)  } &160,000\
 \text { Depreciation expenses on equipment* } &12,000\
 \text { other manufacturing overhead** } &36,000\
\end{array}$
 *The equipment was purchased on January 1 last year for $60,000 and has a current book value of $48,000, a remaining useful life of four years, and a zero salvage value. If the equipment is not used to produce ceramic pots, it can be leased for $8,000 per year.
**Includes supervisors' salaries and rent for manufacturing plant.Required:Assume Forrest Industries uses a cost plus pricing strategy. What price should be charged for the ceramic pot product if the division sets its price 40% above the unit product cost?A potential overseas customer who would not compete with the division's existing customers would like to purchase 1,000 ceramic pots but is not willing to pay the regular price. At what selling price would the division be indifferent about accepting the special order?Suppose the division has the opportunity to purchase the ceramic pot from another manufacturer for $60. The supplier is willing to hold sufficient inventories to meet Forrest's demand. Should the division outsource its ceramic pots? Why or why not?

Accepted Answer

1. To calculate the price that should be

Question 17

Which of the following statements is true?

Accepted Answer

A)  Outsourcing decreases the extent of a company's vertical integration. 
B)  Reputation of the supplier is a critical issue in an outsourcing decision. 
C)  An outsourcing decision involves a purchase offer from a customer at a lower than normal selling price. 
D)  Outsourcing decreases the extent of a company's vertical integration and the reputation of the supplier is a critical issue in an outsourcing decision. 
A)  Outsourcing decreases the extent of a company's vertical integration. 
B)  Reputation of the supplier is a critical issue in an outsourcing decision. 
C)  An outsourcing decision involves a purchase offer from a customer at a lower than normal selling price. 
D)  Outsourcing decreases the extent of a company's vertical integration and the reputation of the supplier is a critical issue in an outsourcing decision.

Question 18

Safety Products currently outsources an electrical switch that is a component in its sprinkler systems. The switches are purchased for $20 each. The company is considering making the switches internally and has conducted a study to determine the costs involved. The costs below are projected annual production costs: $\begin{array}{llr}
  \text { Unlt-level materlal cost } &\$3\
 \text { Unit-level labor cost } &\$2\
 \text { Unit-level overhead } &\$1\
 \text { Batch-level set-up cost ( 5,000 units per batch) } &\$5,000\
 \text {Product-level supervisory salaries  } &\$37,500\
 \text { 
allocated facilitv-level costs } &\$20,000\
\end{array}$
 Assume that the company needs 15,000 of the switches, which would be produced in three batches. Assume also that the company will still be operating within the relevant range. If Safety decides to make the parts under these conditions, the total relevant costs will be:

Accepted Answer

A)  $132,500. 
B)  $162,500. 
C)  $105,000. 
D)  $142,500. 
A)  $132,500. 
B)  $162,500. 
C)  $105,000. 
D)  $142,500.

Question 19

Segment reports are used to evaluate the true profitability of a company's business segments.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following statements is true?

Accepted Answer

A)  Fixed costs are sometimes relevant for decision making. 
B)  Opportunity costs are never relevant for decision making. 
C)  Information must be exactly accurate to be relevant for decision making. 
D)  A cost that is relevant in one decision context is relevant in other decision contexts. 
A)  Fixed costs are sometimes relevant for decision making. 
B)  Opportunity costs are never relevant for decision making. 
C)  Information must be exactly accurate to be relevant for decision making. 
D)  A cost that is relevant in one decision context is relevant in other decision contexts.

Fixed costs are relevant for decision making if they vary among the alternatives and are future-oriented.

Indicate whether each of the following statements about outsourcing decisions is true or false.

King Company has two divisions whose most recent financial statements are shown below: Required:Compute the impact on profit if the Residential Division is eliminated.Do you recommend that King eliminate the Residential Division?

Qualitative information is only relevant for decision making if it can be quantified.

Breezy Company is disposing of equipment that was originally purchased for $616,000 and has $232,000 of accumulated depreciation to date. The same equipment would cost $785,000 to replace. What is the total amount of sunk cost in this decision?

Select the incorrect statement concerning opportunity costs.

Taylor Company is considering whether or not to replace a drill press that is several years old. The current market value of the old equipment is an opportunity cost of replacing the drill press.

Expected future revenues that differ among the alternatives under consideration are often referred to as:

Which of the following statements is incorrect?

Which of the following statements is true?

Segment reports are used to evaluate the true profitability of a company's business segments.

Which of the following statements is true?

An Introduction to Accounting

Accounting for Accruals and Deferrals

Accounting for Merchandising Businesses

Internal Controls, Accounting for Cash, and Ethics

Accounting for Receivables and Inventory Cost Flow

Accounting for Long-Term Operational Assets

Accounting for Liabilities

Proprietorships, Partnerships, and Corporations

Financial Statement Analysis

An Introduction to Management Accounting

Cost Behavior, Operating Leverage, and Profitability Analysis

Cost Accumulation, Tracing, and Allocation

Planning for Profit and Cost Control

Performance Evaluation

Planning for Capital Investments

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Exam 13: Relevant Information for Special Decisions

Fixed costs are relevant for decision making if they vary among the alternatives and are future-oriented.

Indicate whether each of the following statements about outsourcing decisions is true or false.

King Company has two divisions whose most recent financial statements are shown below: Required:Compute the impact on profit if the Residential Division is eliminated.Do you recommend that King eliminate the Residential Division?

Qualitative information is only relevant for decision making if it can be quantified.

Breezy Company is disposing of equipment that was originally purchased for $616,000 and has $232,000 of accumulated depreciation to date. The same equipment would cost $785,000 to replace. What is the total amount of sunk cost in this decision?

Select the incorrect statement concerning opportunity costs.

Taylor Company is considering whether or not to replace a drill press that is several years old. The current market value of the old equipment is an opportunity cost of replacing the drill press.

Expected future revenues that differ among the alternatives under consideration are often referred to as:

Which of the following statements is incorrect?

Which of the following statements is true?

Segment reports are used to evaluate the true profitability of a company's business segments.

Which of the following statements is true?

An Introduction to Accounting

Accounting for Accruals and Deferrals

Accounting for Merchandising Businesses

Internal Controls, Accounting for Cash, and Ethics

Accounting for Receivables and Inventory Cost Flow

Accounting for Long-Term Operational Assets

Accounting for Liabilities

Proprietorships, Partnerships, and Corporations

Financial Statement Analysis

An Introduction to Management Accounting

Cost Behavior, Operating Leverage, and Profitability Analysis

Cost Accumulation, Tracing, and Allocation

Planning for Profit and Cost Control

Performance Evaluation

Planning for Capital Investments

Filters