Question 1

The maximum available contributions to profit that have been passed up by using resources for another purpose are:

Accepted Answer

A)  Sunk costs 
B)  Variable costs 
C)  Differential costs 
D)  Opportunity costs 
A)  Sunk costs 
B)  Variable costs 
C)  Differential costs 
D)  Opportunity costs

Question 2

For a cost to be a differential cost, it must be:

Accepted Answer

A)  A future cost 
B)  A sunk cost 
C)  Recorded in the accounting records 
D)  A future cost that changes 
A)  A future cost 
B)  A sunk cost 
C)  Recorded in the accounting records 
D)  A future cost that changes

Question 3

Newell Company presently has three product lines: paper, stamps, and printer ink. The company is considering discontinuing the stamp line. The stamp line has the following current data:   Given this information, if Newell discontinues the stamp line, net income would:

Accepted Answer

A)  Increase by $3,000 
B)  Decrease by $6,000 
C)  Decrease by $9,000 
D)  Decrease by $12,000 
A)  Increase by $3,000 
B)  Decrease by $6,000 
C)  Decrease by $9,000 
D)  Decrease by $12,000

Question 4

Costs that are never relevant to a decision because they are always the same are:

Accepted Answer

A)  Sunk costs 
B)  Variable costs 
C)  Differential costs 
D)  Opportunity costs 
A)  Sunk costs 
B)  Variable costs 
C)  Differential costs 
D)  Opportunity costs

Question 5

Which of the following costs is LEAST likely to be a differential cost?

Accepted Answer

A)  Overtime wages 
B)  Depreciation 
C)  Manager's salary 
D)  Costs for additional equipment 
A)  Overtime wages 
B)  Depreciation 
C)  Manager's salary 
D)  Costs for additional equipment

Question 6

Exhibit 22-1 Lumens Corporation makes ornamental lamps. The costs per lamp are the following:
  The manufacturing overhead can be divided into 40% variable manufacturing overhead and 60% fixed manufacturing overhead.
Refer to Exhibit 22-1. A major department store has offered to buy 1,000 of the lamps from Lumens for $120 each. Given this information, if Lumens has sufficient idle capacity, by how much would Lumens increase its profits by selling the lamps to the store?

Accepted Answer

A)  $20,000 
B)  $10,000 
C)  $0 
D)  Lumens would lose profits for accepting this order 
A)  $20,000 
B)  $10,000 
C)  $0 
D)  Lumens would lose profits for accepting this order

Question 7

Exhibit 22-5 Imperial Company manufactures two types of fruit drinks, Tropical and Hawaiian. The company can sell as many bottles of each product as it can produce, but production is limited by the availability of direct labor hours. The revenues, costs, and labor hours for the two products are as follows:
  Refer to Exhibit 22-5. How much larger or smaller would Imperial's earnings be if the company produced Hawaiian instead of Tropical with the 1,000 available direct labor hours?

Accepted Answer

A)  $12,000 larger 
B)  $12,000 smaller 
C)  $18,000 larger 
D)  $18,000 smaller 
A)  $12,000 larger 
B)  $12,000 smaller 
C)  $18,000 larger 
D)  $18,000 smaller

Question 8

Assuming a firm has excess capacity, which of the following is NOT a reason that the firm would decide to reduce the normal price of a product or service in order to obtain a special order?

Accepted Answer

A)  The demand for the firm's products has dropped sharply in the last three months 
B)  The firm is being offered a contract from a foreign distributor based in a country where normal selling prices are lower 
C)  Market demand is strong and the firm is able to produce more products and still sell them at normal price 
D)  The firm is able to sell its excess product to be retailed under a generic brand name, the product will sell at lower than normal price 
A)  The demand for the firm's products has dropped sharply in the last three months 
B)  The firm is being offered a contract from a foreign distributor based in a country where normal selling prices are lower 
C)  Market demand is strong and the firm is able to produce more products and still sell them at normal price 
D)  The firm is able to sell its excess product to be retailed under a generic brand name, the product will sell at lower than normal price

Question 9

The opportunity cost of producing a component within a firm is:

Accepted Answer

A)  The return that could be earned from the best alternative use of the resources 
B)  The return that could be earned from the worst alternative use of the resources 
C)  The actual cost of making the component 
D)  None of these are correct 
A)  The return that could be earned from the best alternative use of the resources 
B)  The return that could be earned from the worst alternative use of the resources 
C)  The actual cost of making the component 
D)  None of these are correct

Question 10

Costs that can be eliminated in whole or in part by choosing one alternative over another are:

Accepted Answer

A)  Sunk costs 
B)  Variable costs 
C)  Differential costs 
D)  Opportunity costs 
A)  Sunk costs 
B)  Variable costs 
C)  Differential costs 
D)  Opportunity costs

Question 11

When making normal pricing decisions, management should consider:

Accepted Answer

A)  Differential costs and markup amount 
B)  Variable costs and direct fixed costs only 
C)  Total costs and markup amount 
D)  Variable costs only 
A)  Differential costs and markup amount 
B)  Variable costs and direct fixed costs only 
C)  Total costs and markup amount 
D)  Variable costs only

Question 12

Northwest Company presently has two products: compasses and maps. The company is considering discontinuing the compass line. The following financial information is available for these two products:   Given this information, if Northwest discontinues the compass line, net income would:

Accepted Answer

A)  Increase by $15,000 
B)  Decrease by $40,000 
C)  Decrease by $25,000 
D)  Decrease by $30,000 
A)  Increase by $15,000 
B)  Decrease by $40,000 
C)  Decrease by $25,000 
D)  Decrease by $30,000

Question 13

Costs that are significant in the decision-making process but are NOT recorded in the accounting records are:

Accepted Answer

A)  Opportunity costs 
B)  Differential costs 
C)  Sunk costs 
D)  Overhead costs 
A)  Opportunity costs 
B)  Differential costs 
C)  Sunk costs 
D)  Overhead costs

Question 14

Exhibit 22-3 Shasta Company is operating at less than full capacity. The production manager is considering using this excess capacity to make a part that he usually buys. The full costs of manufacturing the part are as follows:
  Up to now, the company has been buying 2,000 units of the part for a total of $124,000.
Refer to Exhibit 22-3. In deciding whether or not to make the part, Shasta Company should use a differential unit cost figure of:

Accepted Answer

A)  $46 
B)  $58 
C)  $64 
D)  $76 
A)  $46 
B)  $58 
C)  $64 
D)  $76

Question 15

Exhibit 22-3 Shasta Company is operating at less than full capacity. The production manager is considering using this excess capacity to make a part that he usually buys. The full costs of manufacturing the part are as follows:
  Up to now, the company has been buying 2,000 units of the part for a total of $124,000.
Refer to Exhibit 22-3. If Shasta Company decided to make this product, its profit would:

Accepted Answer

A)  Decrease $28,000 
B)  Decrease $4,000 
C)  Increase $4,000 
D)  Increase $10,000 
A)  Decrease $28,000 
B)  Decrease $4,000 
C)  Increase $4,000 
D)  Increase $10,000

Question 16

Puyallup Corporation makes two products in a joint manufacturing process. At the point of separation, costs of $56,000 have been incurred. Each product can be sold at the separation point or processed further. The following information is available for these products:

Accepted Answer

The answer of Puyallup Corporation makes two products in a...

Question 17

The total-cost approach to pricing products is usually relevant to:

Accepted Answer

A)  Only the pricing of normal orders for products 
B)  Only the pricing of special orders 
C)  The pricing of both special orders and normal orders for products 
D)  Neither the pricing of special orders nor the pricing of normal orders for products 
A)  Only the pricing of normal orders for products 
B)  Only the pricing of special orders 
C)  The pricing of both special orders and normal orders for products 
D)  Neither the pricing of special orders nor the pricing of normal orders for products

Question 18

Inyo Company is planning to market a new product and must decide on a proper selling price. The following cost information for the manufacture of one unit has been compiled:

Accepted Answer

The answer of Inyo Company is planning to market a...

Question 19

When using the functional cost approach to set selling prices, the markup must cover:

Accepted Answer

A)  Variable costs plus a reasonable return on investment 
B)  Fixed costs plus a reasonable return on investment 
C)  Period costs plus a reasonable return on investment 
D)  None of these are correct 
A)  Variable costs plus a reasonable return on investment 
B)  Fixed costs plus a reasonable return on investment 
C)  Period costs plus a reasonable return on investment 
D)  None of these are correct

Question 20

Exhibit 22-6 Newell Company presently has three product lines: paper, stamps, and printer ink. The company is considering adding a new line of pens. Market research shows the following expected revenues and costs if the pen line were added:
  Refer to Exhibit 22-6. What is the lowest selling price that Newell should consider that would still make it economically desirable to add this product line?

Accepted Answer

A)  $4.33 
B)  $3.40 
C)  $2.80 
D)  $0.93 
A)  $4.33 
B)  $3.40 
C)  $2.80 
D)  $0.93

The maximum available contributions to profit that have been passed up by using resources for another purpose are:

For a cost to be a differential cost, it must be:

Newell Company presently has three product lines: paper, stamps, and printer ink. The company is considering discontinuing the stamp line. The stamp line has the following current data: Given this information, if Newell discontinues the stamp line, net income would:

Costs that are never relevant to a decision because they are always the same are:

Which of the following costs is LEAST likely to be a differential cost?

Assuming a firm has excess capacity, which of the following is NOT a reason that the firm would decide to reduce the normal price of a product or service in order to obtain a special order?

The opportunity cost of producing a component within a firm is:

Costs that can be eliminated in whole or in part by choosing one alternative over another are:

When making normal pricing decisions, management should consider:

Northwest Company presently has two products: compasses and maps. The company is considering discontinuing the compass line. The following financial information is available for these two products: Given this information, if Northwest discontinues the compass line, net income would:

Costs that are significant in the decision-making process but are NOT recorded in the accounting records are:

Puyallup Corporation makes two products in a joint manufacturing process. At the point of separation, costs of $56,000 have been incurred. Each product can be sold at the separation point or processed further. The following information is available for these products:

The total-cost approach to pricing products is usually relevant to:

Inyo Company is planning to market a new product and must decide on a proper selling price. The following cost information for the manufacture of one unit has been compiled:

When using the functional cost approach to set selling prices, the markup must cover:

Accounting Information: Users and Uses

Financial Statements: An Overview

The Accounting Cycle: The Mechanics of Accounting

Completing the Accounting Cycle

Internal Controls: Ensuring the Integrity of Financial Information

Receivables: Selling a Product or a Service

Inventory and the Cost of Sales

Completing the Operating Cycle

Investments: Property, Plant, and Equipment and Intangible Assets

Financing: Long-Term Liabilities

Financing: Equity

Investments: Debt and Equity Securities

Statement of Cash Flows

Analyzing Financial Statements

Management Accounting and Cost Concepts

Cost Flows and Business Organizations

Activity-Based Costing

Budgeting and Control

Controlling Cost and Profit

Inventory Management and Variable and Absorption Costing

Cost Behavior and Decisions Using C-V-P Analysis

Capital Investment Decisions

New Measures of Performance

Filters

Exam 22: Relevant Information and Decisions

The maximum available contributions to profit that have been passed up by using resources for another purpose are:

For a cost to be a differential cost, it must be:

Newell Company presently has three product lines: paper, stamps, and printer ink. The company is considering discontinuing the stamp line. The stamp line has the following current data: Given this information, if Newell discontinues the stamp line, net income would:

Costs that are never relevant to a decision because they are always the same are:

Which of the following costs is LEAST likely to be a differential cost?

Assuming a firm has excess capacity, which of the following is NOT a reason that the firm would decide to reduce the normal price of a product or service in order to obtain a special order?

The opportunity cost of producing a component within a firm is:

Costs that can be eliminated in whole or in part by choosing one alternative over another are:

When making normal pricing decisions, management should consider:

Northwest Company presently has two products: compasses and maps. The company is considering discontinuing the compass line. The following financial information is available for these two products: Given this information, if Northwest discontinues the compass line, net income would:

Costs that are significant in the decision-making process but are NOT recorded in the accounting records are:

Puyallup Corporation makes two products in a joint manufacturing process. At the point of separation, costs of $56,000 have been incurred. Each product can be sold at the separation point or processed further. The following information is available for these products:

The total-cost approach to pricing products is usually relevant to:

Inyo Company is planning to market a new product and must decide on a proper selling price. The following cost information for the manufacture of one unit has been compiled:

When using the functional cost approach to set selling prices, the markup must cover:

Accounting Information: Users and Uses

Financial Statements: An Overview

The Accounting Cycle: The Mechanics of Accounting

Completing the Accounting Cycle

Internal Controls: Ensuring the Integrity of Financial Information

Receivables: Selling a Product or a Service

Inventory and the Cost of Sales

Completing the Operating Cycle

Investments: Property, Plant, and Equipment and Intangible Assets

Financing: Long-Term Liabilities

Financing: Equity

Investments: Debt and Equity Securities

Statement of Cash Flows

Analyzing Financial Statements

Management Accounting and Cost Concepts

Cost Flows and Business Organizations

Activity-Based Costing

Budgeting and Control

Controlling Cost and Profit

Inventory Management and Variable and Absorption Costing

Cost Behavior and Decisions Using C-V-P Analysis

Capital Investment Decisions

New Measures of Performance

Filters