Question 1

What are three characteristics of relevant information?

Accepted Answer

Relevant information must be:(

Question 2

Eichholtz Company uses 10,000 units of a part in its production process.The costs to make a part are: direct material,$12;direct labor,$25;variable overhead,$13;and applied fixed overhead,$30.Eichholtz has received a quote of $55 from a potential supplier for this part.If Eichholtz buys the part,70 percent of the applied fixed overhead would continue.Eichholtz Company would be better off by

Accepted Answer

A) $50,000 to manufacture the part. 
B) $150,000 to buy the part. 
C) $40,000 to buy the part. 
D) $160,000 to manufacture the part. 
A) $50,000 to manufacture the part. 
B) $150,000 to buy the part. 
C) $40,000 to buy the part. 
D) $160,000 to manufacture the part.

Question 3

An increase in direct fixed costs could reduce all of the following except

Accepted Answer

A) product line contribution margin. 
B) product line segment margin. 
C) product line operating income. 
D) corporate net income. 
A) product line contribution margin. 
B) product line segment margin. 
C) product line operating income. 
D) corporate net income.

Question 4

Define segment margin and explain why it is a relevant measure of a segment's contribution to overall organizational profitability.

Accepted Answer

Segment margin is the amount of income t

Question 5

Birmingham Corporation manufactures batons.Birmingham can manufacture 300,000 batons a year at a variable cost of $750,000 and a fixed cost of $450,000.Based on Birmingham's predictions,240,000 batons will be sold at the regular price of $5.00 each.In addition,a special order was placed for 60,000 batons to be sold at a 40 percent discount off the regular price.The unit relevant cost per unit for Birmingham's decision is

Accepted Answer

A) $1.50. 
B) $2.50. 
C) $3.00. 
D) $4.00. 
A) $1.50. 
B) $2.50. 
C) $3.00. 
D) $4.00.

Question 6

Wholesome Wheat Corporation
Wholesome Wheat Corporation grows grain in rural areas of the South.The corporation's costs per bushel of grain (based on an average yield of 130 bushels per acre)follow:
 Direct material                        $ \$1.10 $
Direct1abor                              0.40
Variable overhead                   0.30
Fixed overhead                       0.60
Variable selling costs              0.10
Fixed selling cost                       0

Wholesome Wheat Corporation defines direct material costs as seed,fertilizer,water,and other chemicals.The variable overhead costs represent maintenance and repair costs of machinery.The fixed overhead costs are completely comprised of depreciation expense on machinery and real estate taxes.
Refer to Wholesome Wheat Corporation.Assume that the current date is March 15.On this date,the corporation must make a decision as to whether it is financially better off to plant a certain farm with grain or leave the land idle (no income is derived from idle land).Grain prices have been severely depressed in recent years and Wholesome Wheat's best guess is that grain prices will be around $2.00 per bushel at the time the crop is ready for harvest.Should the company plant grain or leave the land idle? Explain.

Accepted Answer

The company should make their decision b

Question 7

Which of the following costs would not be accounted for in a company's recordkeeping system?

Accepted Answer

A) an unexpired cost 
B) an expired cost 
C) a product cost 
D) an opportunity cost 
A) an unexpired cost 
B) an expired cost 
C) a product cost 
D) an opportunity cost

Question 8

Why are fixed costs generally more relevant in long-run decisions than short-run decisions?

Accepted Answer

In the long run,all costs are relevant.I

Question 9

Which of the following are relevant in a make or buy decision?
$\text {\underline{ Prime costs} }$        $\text {\underline{ Sunk costs} }$              $\text {\underline{ Incremental costs} }$

Accepted Answer

A) yes yes yes 
B) yes no yes 
C) yes no no 
D) no no yes 
A) yes yes yes 
B) yes no yes 
C) yes no no 
D) no no yes

Question 10

In a make or buy decision,the opportunity cost of capacity could

Accepted Answer

A) be considered to decrease the price of units purchased from suppliers. 
B) be considered to decrease the cost of units manufactured by the company. 
C) be considered to increase the price of units purchased from suppliers. 
D) not be considered since opportunity costs are not part of the accounting records. 
A) be considered to decrease the price of units purchased from suppliers. 
B) be considered to decrease the cost of units manufactured by the company. 
C) be considered to increase the price of units purchased from suppliers. 
D) not be considered since opportunity costs are not part of the accounting records.

Question 11

McCoy Corporation
McCoy Corporation sells a product for $21 per unit,and the standard cost card for the product shows the following costs:
Direct material                                $ \$ 2 $
Directlabor                                        3
$\text { Overhe ad (70\% fixed) }$                        $\underline{10}$
Total                                                $\underline{\$15}$

Refer to McCoy Corporation.McCoy received a special order for 1,200 units of the product.The only additional cost to McCoy would be foreign import taxes of $2 per unit.If McCoy is able to sell all of the current production domestically,what would be the minimum sales price that McCoy would consider for this special order?

Accepted Answer

A) $10.00 
B) $15.00 
C) $21.00 
D) $23.00 
A) $10.00 
B) $15.00 
C) $21.00 
D) $23.00

Question 12

The Hanks Company normally produces 150,000 units of Product AB per year.Due to an economic downturn,the company has some idle capacity.Product AB sells for $15 per unit.
The firm's production,marketing,and administration costs at its normal capacity are:
 
                                                                                              $\text {\underline{Per Unit} }$
$\begin{array}{l|l}
\text { Direct material } & \$ 1.00 \
\text { Direct labor } & 2.00 \
\text { Variable overhead } & 1.50 \
\text { Fixed overhead } & \
\quad(\$ 450,000 / 150,000 \text { units) } & 3.00 \
\text { Variable marketing costs } & 1.05 \
\text { Fixed marketing and administrative costs } & \
\quad(\$ 210,000 / 150,000 \text { units) } & \underline{1.40}\
\quad \text { Total } & \$ 9.95
\end{array}$
Required:
a.	Compute the firm's operating income before income taxes if the firm produced and sold 110,000 units.
b.	For the current year, the firm expects to sell the same number of units as it sold in the prior year. However, in a trade newspaper, the firm noticed an invitation to bid on selling Product AB to a state government. There are no marketing costs associated with the order if Hanks is awarded the contract. The company wishes to prepare a bid for 40,000 units at its full manufacturing cost plus $ 0.25 per unit. How much should it bid? If Hanks is successful at getting the contract, what would be its effect on operating income?
c.	Assume that the company is awarded the contract on January 2, and in addition it also receives an order from a foreign vendor for 40,000 units at the regular price of $15 per unit. The foreign shipment will require the firm to incur its normal marketing costs. The government contract contains a 10-day escape clause (i.e., the firm can reject the contract within 10 days without any penalty). If the firm accepts the government contract, overtime pay at 1 1/2 times the straight time rate will be paid on the 40,000 units. In addition, fixed overhead will increase by $60,000 and variable overhead will behave in its normal pattern. The company has the capacity to produce both orders. Decide the following:
1.	Should the firm accept the foreign offer? Show the effect on operating income of accepting the order.
2.	Assuming the foreign order is accepted, should the firm accept the government order? Show the effect on operating income of accepting the government order.

Accepted Answer

Required:
 a.
@#LAT-DLM& 
 b.For the current year,

Question 13

The potential rental value of space used for production activities

Accepted Answer

A) is a variable cost of production. 
B) represents an opportunity cost of production. 
C) is an unavoidable cost. 
D) is a sunk cost of production. 
A) is a variable cost of production. 
B) represents an opportunity cost of production. 
C) is an unavoidable cost. 
D) is a sunk cost of production.

Question 14

Under what circumstances is the sum of variable production and selling costs the appropriate minimum price for special orders?

Accepted Answer

Variable costs would serve as the bottom

Question 15

What is the relationship between scarce resources and an organization's production capacity?

Accepted Answer

In the long run,capacity is likely to be

Question 16

Irrelevant costs generally include
$\text {\underline{ Sunk costs} }$          $\text {\underline{ Historical costs} }$              $\text {\underline{ Allocated costs} }$

Accepted Answer

A) yes yes no 
B) yes no no 
C) no no yes 
D) yes yes yes 
A) yes yes no 
B) yes no no 
C) no no yes 
D) yes yes yes

Question 17

Denver Boot Corporation has been asked to submit a bid on supplying 1,000 pairs of military combat boots to the Armed Forces Training Center.The company's costs per pair of boots are as follows:
Direct inaterial                                                       $8
Directlabor                                                              6
Variable overhead                                                    3
V ariable selling cost (commission)                        3
Fixed overhead (allocated)                                      2
Fixed selling and administrative cost                      1
Assuming that there would be no commission on this potential sale,the lowest price the firm can bid is some price greater than

Accepted Answer

A) $23. 
B) $20. 
C) $17. 
D) $14. 
A) $23. 
B) $20. 
C) $17. 
D) $14.

Question 18

Phillips Company has 3 divisions: X,Y,and Z.Division X's income statement shows the following for the year ended December 31:
             Sales              $1,000,000               Cost of goods sold               (800,000)               Gross profit              $ 200,000               Selling expenses       $100,000                      Administrative expenses        250,000        (350,000)               Net loss              $ (150,000)      
Cost of goods sold is 75 percent variable and 25 percent fixed.Of the fixed costs,60 percent are avoidable if the division is closed.All of the selling expenses relate to the division and would be eliminated if Division X were eliminated.Of the administrative expenses,90 percent are applied from corporate costs.If Division X were eliminated,Phillips's income would

Accepted Answer

A) increase by $150,000. 
B) decrease by $ 75,000. 
C) decrease by $155,000. 
D) decrease by $215,000. 
A) increase by $150,000. 
B) decrease by $ 75,000. 
C) decrease by $155,000. 
D) decrease by $215,000.

Question 19

Graham Company has 15,000 units in inventory that had a production cost of $3 per unit.These units cannot be sold through normal channels due to a significant technology change.These units could be reworked at a total cost of $23,000 and sold for $28,000.Another alternative is to sell the units to a junk dealer for $8,500.The relevant cost for Graham to consider in making its decision is

Accepted Answer

A) $45,000 of original product costs. 
B) $23,000 for reworking the units. 
C) $68,000 for reworking the units. 
D) $28,000 for selling the units to the junk dealer. 
A) $45,000 of original product costs. 
B) $23,000 for reworking the units. 
C) $68,000 for reworking the units. 
D) $28,000 for selling the units to the junk dealer.

Question 20

In deciding whether an organization will keep an old machine or purchase a new machine,a manager would ignore the

Accepted Answer

A) estimated disposal value of the old machine. 
B) acquisition cost of the old machine. 
C) operating costs of the new machine. 
D) estimated disposal value of the new machine. 
A) estimated disposal value of the old machine. 
B) acquisition cost of the old machine. 
C) operating costs of the new machine. 
D) estimated disposal value of the new machine.

What are three characteristics of relevant information?

An increase in direct fixed costs could reduce all of the following except

Define segment margin and explain why it is a relevant measure of a segment's contribution to overall organizational profitability.

Which of the following costs would not be accounted for in a company's recordkeeping system?

Why are fixed costs generally more relevant in long-run decisions than short-run decisions?

Which of the following are relevant in a make or buy decision? $\text {\underline{ Prime costs} }$ $\text {\underline{ Sunk costs} }$ $\text {\underline{ Incremental costs} }$

In a make or buy decision,the opportunity cost of capacity could

The potential rental value of space used for production activities

Under what circumstances is the sum of variable production and selling costs the appropriate minimum price for special orders?

What is the relationship between scarce resources and an organization's production capacity?

Irrelevant costs generally include $\text {\underline{ Sunk costs} }$ $\text {\underline{ Historical costs} }$ $\text {\underline{ Allocated costs} }$

In deciding whether an organization will keep an old machine or purchase a new machine,a manager would ignore the

Introduction to Cost Accounting

Cost Terminology and Cost Behaviors

Predetermined Overhead Rates, Flexible Budgets, and Absorptionvariable Costing

Activity-Based Management and Activity-Based Costing

Job Order Costing

Process Costing

Standard Costing and Variance Analysis

The Master Budget

Break-Even Point and Cost-Volume-Profit Analysis

Allocation of Joint Costs and Accounting for By-Products

Introduction to Cost Management Systems

Responsibility Accounting,support Department Allocations,and Transfer Pricing

Performance Measurement, balanced Scorecards, and Performance Rewards

Capital Budgeting

Managing Costs and Uncertainty

Implementing Quality Concepts

Inventory and Production Management

Emerging Management Practices

Filters

Sales		$1,000,000
Cost of goods sold		(800,000)
Gross profit		$ 200,000
Selling expenses	$100,000
Administrative expenses	250,000	(350,000)
Net loss		$ (150,000)

Exam 10: Relevant Information for Decision Making

What are three characteristics of relevant information?

An increase in direct fixed costs could reduce all of the following except

Define segment margin and explain why it is a relevant measure of a segment's contribution to overall organizational profitability.

Which of the following costs would not be accounted for in a company's recordkeeping system?

Why are fixed costs generally more relevant in long-run decisions than short-run decisions?

Which of the following are relevant in a make or buy decision? Prime costs‾ \text {\underline{ Prime costs} } Prime costs​ Sunk costs‾ \text {\underline{ Sunk costs} } Sunk costs​ Incremental costs‾ \text {\underline{ Incremental costs} } Incremental costs​

In a make or buy decision,the opportunity cost of capacity could

The potential rental value of space used for production activities

Under what circumstances is the sum of variable production and selling costs the appropriate minimum price for special orders?

What is the relationship between scarce resources and an organization's production capacity?

Irrelevant costs generally include Sunk costs‾ \text {\underline{ Sunk costs} } Sunk costs​ Historical costs‾ \text {\underline{ Historical costs} } Historical costs​ Allocated costs‾ \text {\underline{ Allocated costs} } Allocated costs​

In deciding whether an organization will keep an old machine or purchase a new machine,a manager would ignore the

Introduction to Cost Accounting

Cost Terminology and Cost Behaviors

Predetermined Overhead Rates, Flexible Budgets, and Absorptionvariable Costing

Activity-Based Management and Activity-Based Costing

Job Order Costing

Process Costing

Standard Costing and Variance Analysis

The Master Budget

Break-Even Point and Cost-Volume-Profit Analysis

Allocation of Joint Costs and Accounting for By-Products

Introduction to Cost Management Systems

Responsibility Accounting,support Department Allocations,and Transfer Pricing

Performance Measurement, balanced Scorecards, and Performance Rewards

Capital Budgeting

Managing Costs and Uncertainty

Implementing Quality Concepts

Inventory and Production Management

Emerging Management Practices

Filters

Which of the following are relevant in a make or buy decision? $\text {\underline{ Prime costs} }$ $\text {\underline{ Sunk costs} }$ $\text {\underline{ Incremental costs} }$

Irrelevant costs generally include $\text {\underline{ Sunk costs} }$ $\text {\underline{ Historical costs} }$ $\text {\underline{ Allocated costs} }$