Question 1

Costs that are NOT the responsibility of any specific segment, product, or department are:

Accepted Answer

A)  Common costs 
B)  Differential costs 
C)  Sunk costs 
D)  Fixed costs 
A)  Common costs 
B)  Differential costs 
C)  Sunk costs 
D)  Fixed costs

Question 2

Plumas Company presently has two products: tapes and CDs. The company is considering discontinuing the tape line. The following financial information is available for these two products:
   Should Plumas Company discontinue the tape line? Explain your answer.

Accepted Answer

Tape segment margin: $825,000 - $570,000

Question 3

Granger Company makes portable DVD players. In its inventory, Granger found 200 DVD players that had become obsolete. Each DVD player has a cost of $100. Granger can upgrade these DVD players for $15 each after which they can be sold at a cost of $40 each. Granger has also received an offer to sell the DVD players, as is, for a total of $4,000. Compared to just selling the 200 DVD players for a total of $4,000 as they are, what is the net increase (decrease) in operating income if Granger upgrades the DVD players and then sells them?

Accepted Answer

A)  $1,000 decrease 
B)  $1,000 increase 
C)  $5,000 decrease 
D)  $5,000 increase 
A)  $1,000 decrease 
B)  $1,000 increase 
C)  $5,000 decrease 
D)  $5,000 increase

Question 4

Exhibit 22-2 JD Smith 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 3,000 units of the part for a total of $115,000.
Refer to Exhibit 22-2. In deciding whether or not to make the part, JD Smith Company should use a differential unit cost figure of:

Accepted Answer

A)  $33 
B)  $38 
C)  $40 
D)  $46 
A)  $33 
B)  $38 
C)  $40 
D)  $46

Question 5

Silverado Company needs 3,000 special cinches for a saddle that it designs and manufactures. If the company buys the cinches from another company, it will have idle capacity in its plant that cannot otherwise be used. The company factory space is sufficient to make the cinch if that is the logical choice. Indirect fixed manufacturing overhead is 20% and will be incurred whether the buckles are purchased or manufactured by the company. The relevant costs of making and buying the cinches are as follows:

Accepted Answer

The answer of Silverado Company needs 3,000 special cinches for...

Question 6

Granger Company makes portable DVD players. In its inventory, Granger found 200 DVD players that had become obsolete. Each DVD player has a cost of $100. Granger can upgrade these DVD players for $15 each after which they can be sold at a cost of $40 each. Granger has also received an offer to sell the DVD players, as is, for a total of $4,000. What is the total amount of sunk cost?

Accepted Answer

A)  $3,000 
B)  $4,500 
C)  $8,000 
D)  $20,000 
A)  $3,000 
B)  $4,500 
C)  $8,000 
D)  $20,000

Question 7

In making a decision about whether or not to fill a special order, fixed costs that are incurred regardless of whether the order is accepted should:

Accepted Answer

A)  Be considered because they help to reduce net income 
B)  Be considered because they cannot be avoided 
C)  Not be considered because they will be incurred whether or not the order is accepted 
D)  None of these are correct 
A)  Be considered because they help to reduce net income 
B)  Be considered because they cannot be avoided 
C)  Not be considered because they will be incurred whether or not the order is accepted 
D)  None of these are correct

Question 8

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:   If pens are added as a product line, it is expected that the other lines will have a decrease in contribution margin of $7,000. Given this information, if Newell adds the pen line, net income would increase by:

Accepted Answer

A)  $16,000 
B)  $14,000 
C)  $7,000 
D)  $0 
A)  $16,000 
B)  $14,000 
C)  $7,000 
D)  $0

Question 9

Exhibit 22-2 JD Smith 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 3,000 units of the part for a total of $115,000.
Refer to Exhibit 22-2. If JD Smith decided to make this product, its profit would:

Accepted Answer

A)  Decrease $5,000 
B)  Decrease $23,000 
C)  Increase $5,000 
D)  Increase $23,000 
A)  Decrease $5,000 
B)  Decrease $23,000 
C)  Increase $5,000 
D)  Increase $23,000

Question 10

Costs that have already been incurred and CANNOT be avoided 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

Packer Corporation makes vases, the costs of which are:   The manufacturing overhead can be divided into 60% variable manufacturing overhead and 40% fixed manufacturing overhead. A major department store has offered to buy 1,000 of the vases from Packer for $250 each. Given this information, if Packer has sufficient idle capacity and no adverse qualitative factors, should Packer accept the special order?

Accepted Answer

A)  No, Packer would lose $10,000 in profits 
B)  Yes, Packer would earn $18,000 in profits 
C)  Yes, Packer would earn $42,000 in profits 
D)  No, Packer would lose $8,000 in profits 
A)  No, Packer would lose $10,000 in profits 
B)  Yes, Packer would earn $18,000 in profits 
C)  Yes, Packer would earn $42,000 in profits 
D)  No, Packer would lose $8,000 in profits

Question 12

Under what circumstance will it be profitable to continue processing after the split-off point?

Accepted Answer

A)  When incremental revenues exceed incremental processing costs after the split-off point 
B)  There are no additional sunk costs 
C)  Opportunity costs outweigh the differential costs 
D)  None of these are correct 
A)  When incremental revenues exceed incremental processing costs after the split-off point 
B)  There are no additional sunk costs 
C)  Opportunity costs outweigh the differential costs 
D)  None of these are correct

Question 13

To maximize net income in a situation involving scarce resources, a company should:

Accepted Answer

A)  Manufacture products that generate overall contribution margin 
B)  Manufacture products that generate the greatest overall contribution margin per unit of scarce resource 
C)  Manufacture products that sell for the highest price 
D)  Manufacture products that have the lowest variable costs 
A)  Manufacture products that generate overall contribution margin 
B)  Manufacture products that generate the greatest overall contribution margin per unit of scarce resource 
C)  Manufacture products that sell for the highest price 
D)  Manufacture products that have the lowest variable costs

Question 14

Exhibit 22-2 JD Smith 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 3,000 units of the part for a total of $115,000.
Refer to Exhibit 22-2. If JD Smith uses a differential-cost analysis in deciding whether to make the part or buy the part, the total differential cost of making the part would be:

Accepted Answer

A)  $99,000 
B)  $114,000 
C)  $120,000 
D)  $138,000 
A)  $99,000 
B)  $114,000 
C)  $120,000 
D)  $138,000

Question 15

Which of the following statements about opportunity costs is true?

Accepted Answer

A)  They are not recorded in the accounts and thus are not useful in the decision-making process 
B)  They are not recorded in the accounts but are useful in the decision-making process 
C)  They are recorded in the accounts but are not useful in the decision-making process 
D)  They are recorded in the accounts and are useful in the decision-making process 
A)  They are not recorded in the accounts and thus are not useful in the decision-making process 
B)  They are not recorded in the accounts but are useful in the decision-making process 
C)  They are recorded in the accounts but are not useful in the decision-making process 
D)  They are recorded in the accounts and are useful in the decision-making process

Question 16

A firm can increase profits if:

Accepted Answer

A)  The selling price exceeds the total variable costs 
B)  The selling price exceeds the total variable and differential fixed costs 
C)  The price floor exceeds the selling price 
D)  Special sales have no adverse effect on normal sales 
A)  The selling price exceeds the total variable costs 
B)  The selling price exceeds the total variable and differential fixed costs 
C)  The price floor exceeds the selling price 
D)  Special sales have no adverse effect on normal sales

Question 17

CharCore mixes together wood chips and pine oil. After joint manufacturing costs of $2,000 have been incurred, the mixture separates into two products, granulated charcoal and methyl alcohol. At the split-off point, granulated charcoal can be sold for $5,000 and the alcohol can be sold for $9,000. The charcoal can be further processed at a cost of $6,000 to make air filters which could be sold for $15,000. The alcohol can be further processed at a cost of $7,000 to make a cleaning solvent which could be sold for $14,000. What is the net increase (decrease) in operating income from cleaning solvents?

Accepted Answer

A)  $(2,000) 
B)  $2,000 
C)  $3,000 
D)  $4,000 
A)  $(2,000) 
B)  $2,000 
C)  $3,000 
D)  $4,000

Question 18

When pricing special orders, management can often approximate additional costs by the:

Accepted Answer

A)  Sunk costs of making the product 
B)  Total costs of making the product 
C)  Fixed costs of making the product 
D)  Variable costs of making the product 
A)  Sunk costs of making the product 
B)  Total costs of making the product 
C)  Fixed costs of making the product 
D)  Variable costs of making the product

Question 19

A special order is an:

Accepted Answer

A)  Order that is priced at normal price in order to utilize excess capacity 
B)  Order that is priced above the normal price in order to make a large profit 
C)  Order that is priced below the normal price in order to utilize excess capacity 
D)  Order that is part of normal business 
A)  Order that is priced at normal price in order to utilize excess capacity 
B)  Order that is priced above the normal price in order to make a large profit 
C)  Order that is priced below the normal price in order to utilize excess capacity 
D)  Order that is part of normal business

Question 20

Exhibit 22-7 West Star Company is planning to market a new computer and must decide on a proper selling price. The following cost information for the manufacture of one computer has been compiled:
  Refer to Exhibit 22-7. If the selling price is set at $400 and only variable costs are considered in the pricing decision, what is the markup percentage based on selling price?

Accepted Answer

A)  25% 
B)  30% 
C)  40% 
D)  50% 
A)  25% 
B)  30% 
C)  40% 
D)  50%

Costs that are NOT the responsibility of any specific segment, product, or department are:

Plumas Company presently has two products: tapes and CDs. The company is considering discontinuing the tape line. The following financial information is available for these two products: Should Plumas Company discontinue the tape line? Explain your answer.

In making a decision about whether or not to fill a special order, fixed costs that are incurred regardless of whether the order is accepted should:

Costs that have already been incurred and CANNOT be avoided are:

Under what circumstance will it be profitable to continue processing after the split-off point?

To maximize net income in a situation involving scarce resources, a company should:

Which of the following statements about opportunity costs is true?

A firm can increase profits if:

When pricing special orders, management can often approximate additional costs by the:

A special order is an:

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

Costs that are NOT the responsibility of any specific segment, product, or department are:

Plumas Company presently has two products: tapes and CDs. The company is considering discontinuing the tape line. The following financial information is available for these two products: Should Plumas Company discontinue the tape line? Explain your answer.

In making a decision about whether or not to fill a special order, fixed costs that are incurred regardless of whether the order is accepted should:

Costs that have already been incurred and CANNOT be avoided are:

Under what circumstance will it be profitable to continue processing after the split-off point?

To maximize net income in a situation involving scarce resources, a company should:

Which of the following statements about opportunity costs is true?

A firm can increase profits if:

When pricing special orders, management can often approximate additional costs by the:

A special order is an:

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