Question 1

One of the potential dangers from outsourcing is the possible occurrence of low-ball pricing.

Accepted Answer

A) True 
 B)False

Question 2

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 5-year period if it replaces the old equipment. 
B)  The company will be $20,000 better off over the 5-year period if it keeps the old equipment. 
C)  The company will be $12,000 better off over the 5-year period if it replaces the old equipment. 
D)  The company will be $6,000 better off over the 5-year period if it replaces the old equipment. 
A)  The company will be $11,000 better off over the 5-year period if it replaces the old equipment. 
B)  The company will be $20,000 better off over the 5-year period if it keeps the old equipment. 
C)  The company will be $12,000 better off over the 5-year period if it replaces the old equipment. 
D)  The company will be $6,000 better off over the 5-year period if it replaces the old equipment.

Question 3

Grady Corporation is evaluating two decision alternatives. Alternative One has costs of $2,000 and revenues of $3,000 while Alternative Two has costs of $3,200 and revenues of $4,000. The amount of differential revenue is $1,000.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following statements is true?

Accepted Answer

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

Question 5

Engineering design costs are generally referred to as:

Accepted Answer

A)  Batch-level costs. 
B)  Facility-level costs. 
C)  Unit-level costs. 
D)  Product-level costs. 
A)  Batch-level costs. 
B)  Facility-level costs. 
C)  Unit-level costs. 
D)  Product-level costs.

Question 6

Mary must decide between two alternatives for the weekend: babysitting or yard work. If she babysits, she will receive $40 and will incur $15 in transportation costs. If she does yard work, she will receive $40 and will incur $3 in lawn mower gas and oil costs and $5 in transportation costs. The payment she would receive for the jobs is relevant in deciding which alternative to select.

Accepted Answer

A) True 
 B)False

Question 7

Select the incorrect statement regarding relevant costs and revenues.

Accepted Answer

A)  To be relevant, a cost or revenue must be future-oriented and must differ between the alternatives. 
B)  Sunk costs are never relevant for decision-making purposes. 
C)  Differential revenues are expected future revenues that differ from past revenues. 
D)  Avoidable costs are also known as differential costs. 
A)  To be relevant, a cost or revenue must be future-oriented and must differ between the alternatives. 
B)  Sunk costs are never relevant for decision-making purposes. 
C)  Differential revenues are expected future revenues that differ from past revenues. 
D)  Avoidable costs are also known as differential costs.

Question 8

When evaluating alternatives, what type of costs should be considered?

Accepted Answer

A)  Relevant costs 
B)  Sunk costs 
C)  Prevention costs 
D)  Fixed costs 
A)  Relevant costs 
B)  Sunk costs 
C)  Prevention costs 
D)  Fixed costs

Question 9

A company that provides services (not goods) to its customers may incur costs that are appropriately classified as product-level costs.

Accepted Answer

A) True 
 B)False

Question 10

Select the correct statement regarding opportunity costs.

Accepted Answer

A)  Opportunity costs need not be considered in decision making. 
B)  Opportunity costs are not recorded in a firm's financial accounting records. 
C)  Opportunity costs represent sunk costs. 
D)  All of the above. 
A)  Opportunity costs need not be considered in decision making. 
B)  Opportunity costs are not recorded in a firm's financial accounting records. 
C)  Opportunity costs represent sunk costs. 
D)  All of the above.

Question 11

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 12

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

Accepted Answer

A cost that is relevant to one decision

Question 13

Although opportunity costs are not recorded in the financial records, they nevertheless are useful for decision making.

Accepted Answer

A) True 
 B)False

Question 14

Outsourcing reduces the extent of a company's vertical integration.

Accepted Answer

A) True 
 B)False

Question 15

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 further 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 16

QRC Company is trying to decide which one of two alternatives it will accept. The costs and revenues associated with each alternative are listed below:   What is the differential revenue for this decision?

Accepted Answer

A)  $25,000 
B)  $12,500 
C)  $62,500 
D)  $75,000 
A)  $25,000 
B)  $12,500 
C)  $62,500 
D)  $75,000

Question 17

To be relevant in decision making, cost or revenue information must be future-oriented and must not differ between the alternatives.

Accepted Answer

A) True 
 B)False

Question 18

Great Outdoors Company operates a store in downtown Denver that has five departments including a fishing department. If the fishing department is closed, the store manager's position will not be affected, but if the entire store is closed, the manager will be terminated. Which of the following lessons should be learned from this example?

Accepted Answer

A)  Opportunity costs are always present. 
B)  Sunk costs cannot be avoided. 
C)  Relevance of costs is context sensitive. 
D)  Information does not have to be precisely accurate in order to be relevant. 
A)  Opportunity costs are always present. 
B)  Sunk costs cannot be avoided. 
C)  Relevance of costs is context sensitive. 
D)  Information does not have to be precisely accurate in order to be relevant.

Question 19

For decision-making purposes, qualitative factors are relevant if they differ among the alternatives and relate to the future.

Accepted Answer

A) True 
 B)False

Question 20

Costs that are not related to any specific product, batch, or unit of production are referred to as facility-level costs.

Accepted Answer

A) True 
 B)False

One of the potential dangers from outsourcing is the possible occurrence of low-ball pricing.

Grady Corporation is evaluating two decision alternatives. Alternative One has costs of $2,000 and revenues of $3,000 while Alternative Two has costs of $3,200 and revenues of $4,000. The amount of differential revenue is $1,000.

Which of the following statements is true?

Engineering design costs are generally referred to as:

Select the incorrect statement regarding relevant costs and revenues.

When evaluating alternatives, what type of costs should be considered?

A company that provides services (not goods) to its customers may incur costs that are appropriately classified as product-level costs.

Select the correct statement regarding opportunity costs.

Select the incorrect statement concerning opportunity costs.

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

Although opportunity costs are not recorded in the financial records, they nevertheless are useful for decision making.

Outsourcing reduces the extent of a company's vertical integration.

QRC Company is trying to decide which one of two alternatives it will accept. The costs and revenues associated with each alternative are listed below: What is the differential revenue for this decision?

To be relevant in decision making, cost or revenue information must be future-oriented and must not differ between the alternatives.

For decision-making purposes, qualitative factors are relevant if they differ among the alternatives and relate to the future.

Costs that are not related to any specific product, batch, or unit of production are referred to as facility-level costs.

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

Exam 13: Relevant Information for Special Decisions

One of the potential dangers from outsourcing is the possible occurrence of low-ball pricing.

Grady Corporation is evaluating two decision alternatives. Alternative One has costs of $2,000 and revenues of $3,000 while Alternative Two has costs of $3,200 and revenues of $4,000. The amount of differential revenue is $1,000.

Which of the following statements is true?

Engineering design costs are generally referred to as:

Select the incorrect statement regarding relevant costs and revenues.

When evaluating alternatives, what type of costs should be considered?

A company that provides services (not goods) to its customers may incur costs that are appropriately classified as product-level costs.

Select the correct statement regarding opportunity costs.

Select the incorrect statement concerning opportunity costs.

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

Although opportunity costs are not recorded in the financial records, they nevertheless are useful for decision making.

Outsourcing reduces the extent of a company's vertical integration.

QRC Company is trying to decide which one of two alternatives it will accept. The costs and revenues associated with each alternative are listed below: What is the differential revenue for this decision?

To be relevant in decision making, cost or revenue information must be future-oriented and must not differ between the alternatives.

For decision-making purposes, qualitative factors are relevant if they differ among the alternatives and relate to the future.

Costs that are not related to any specific product, batch, or unit of production are referred to as facility-level costs.

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