Question 1

Sunk costs are irrelevant to future decisions as they cannot be changed or avoided.

Accepted Answer

A) True 
 B)False  True

Question 2

The decision to accept additional business should be based on a comparison of the incremental costs of the added production with the additional revenues to be received.

Accepted Answer

A) True 
 B)False  True

Question 3

Yelk Garage uses time and materials pricing.It is setting prices for next year using the following information: $$\begin{array}{l}
\begin{array} { l l r } 
\text { Labor rate, including fringe benefits}&\$ 50 \text { per hour } \
\text { Annual labor hours}&3,350 \text { hours } \
\text { Annual materials purchases}&\$ 825,000 \
\text { Materials purchasing, handling, and storage}&\$ 41,250 \
\text { Overhead for depreciation, taxes, insurance, etc.}&\$ 67,000 \
\text { Target profit margin for both labor and materials}&20 \%
\end{array}
\end{array}$$ What should Yelk set as the materials markup per dollar of materials used?

Accepted Answer

A) 25%. 
B) 5%. 
C) 20%. 
D) 35%. 
E) 30%. 
A) 25%. 
B) 5%. 
C) 20%. 
D) 35%. 
E) 30%. A

Question 4

Marshall Company currently manufactures one of its parts at a cost of $3.25 per unit.This cost is based on a normal production rate of 50,000 units.Variable costs are $2.10 per unit,fixed costs related to making this part are $40,000 per year,and allocated fixed costs are $45,000 per year.Allocated fixed costs are unavoidable whether the company makes or buys the part.Marshall is considering buying the part from a supplier for a quoted price of $2.80 per unit guaranteed for a three-year period.Should the company continue to manufacture the part,or should it buy the part from the outside supplier? Support your answer with analyses.

Accepted Answer

@#IMG-DLM& The allocated fixed costs are not relev

Question 5

Maxim manufactures a hamster food product called Green Health.Maxim currently has 10,000 bags of Green Health on hand.The variable production costs per bag are $1.80 and total fixed costs are $10,000.The hamster food can be sold as it is for $9.00 per bag or be processed further into Premium Green and Green Deluxe at an additional cost.The additional processing will yield 10,000 bags of Premium Green and 3,000 bags of Green Deluxe,which can be sold for $8 and $6 per bag,respectively.
-Assuming Maxim further processes Green Health further into Premium Green and Green Deluxe,revenue from the two products would be:

Accepted Answer

A) $98,000. 
B) $96,000. 
C) $8,000. 
D) $6,000. 
E) $2,000. 
A) $98,000. 
B) $96,000. 
C) $8,000. 
D) $6,000. 
E) $2,000.

Question 6

A company paid $200,000 ten years ago for a specialized machine that has no salvage value and is being depreciated at the rate of $10,000 per year.The company is considering using the machine in a new project that will have incremental revenues of $28,000 per year and annual cash expenses of $20,000.In analyzing the new project,the $200,000 original cost of the machine is an example of a(n):

Accepted Answer

A) Incremental cost. 
B) Opportunity cost. 
C) Variable cost. 
D) Sunk cost. 
E) Out-of-pocket cost. 
A) Incremental cost. 
B) Opportunity cost. 
C) Variable cost. 
D) Sunk cost. 
E) Out-of-pocket cost.

Question 7

Galla Inc.needs to determine a price for a new product.Galla desires a 25% markup on the total cost of the product.Galla expects to sell 5,000 units.Additional information is as follows: $$\begin{array}{l}
\begin{array} { l  l r } 
\text { Variable product cost per unit}&\$15\
\text { Variable administrative cost per unit}&10\
\text { Total fixed overhead}&45,000\
\text { Total fixed administrative}&18,000
\end{array}
\end{array}$$ Using the total cost method what price should Galla charge?

Accepted Answer

A) $56 
B) $47 
C) $62 
D) $30 
E) $42 
A) $56 
B) $47 
C) $62 
D) $30 
E) $42

Question 8

Luxury Linens has three departments: Bath,Kitchen,and Bedding.The most recent income statement,showing the total operating profit and departmental results is shown below:
 
Based on this income statement,management is considering eliminating the Kitchen department.If the Kitchen department is eliminated,the other departments will expand to fill the space but sales are not expected to change.Twenty percent of Kitchen's allocated expenses will be avoided due to restructuring and the remainder reallocated equally to Bath and Bedding.Show an analysis indicating whether the Kitchen department should be eliminated.

Accepted Answer

@#IMG-DLM& Based on this analysis,the Ki

Question 9

To determine a product selling price based on the total cost method,management should include:

Accepted Answer

A) Total production and nonproduction costs plus a markup. 
B) Total production and nonproduction costs only. 
C) Total production costs plus a markup. 
D) Total nonproduction costs plus a markup. 
E) Only a markup. 
A) Total production and nonproduction costs plus a markup. 
B) Total production and nonproduction costs only. 
C) Total production costs plus a markup. 
D) Total nonproduction costs plus a markup. 
E) Only a markup.

Question 10

Gordon Corporation produced 10,000 digital watches in the current year.Variable costs are $8 per watch.Overhead assigned is $2.25 per watch.A supplier offers the watches for $9.50 each.Gordon's production manager reports the incremental overhead is $1.25 per watch.Gordon should:

Accepted Answer

A) Continue making the watches as an additional $1.50 per watch would be incurred if bought from the supplier. 
B) Continue making the watches as an additional $0.25 per watch would be incurred if bought from the supplier. 
C) Buy the watches as they would save $0.75 per watch. 
D) Buy the watches as they would save $1.50 per watch. 
E) Buy the watches as they would save $1.75 per watch. 
A) Continue making the watches as an additional $1.50 per watch would be incurred if bought from the supplier. 
B) Continue making the watches as an additional $0.25 per watch would be incurred if bought from the supplier. 
C) Buy the watches as they would save $0.75 per watch. 
D) Buy the watches as they would save $1.50 per watch. 
E) Buy the watches as they would save $1.75 per watch.

Question 11

Incremental costs should be considered in a make or buy decision.

Accepted Answer

A) True 
 B)False

Question 12

Minor Electric has received a special one-time order for 1,500 light fixtures (units)at $5 per unit.Minor currently produces and sells 7,500 units at $6.00 each.This level represents 75% of its capacity.Production costs for these units are $4.50 per unit,which includes $3.00 variable cost and $1.50 fixed cost.To produce the special order,a new machine needs to be purchased at a cost of $1,000 with a zero salvage value.Management expects no other changes in costs as a result of the additional production.Should the company accept the special order?

Accepted Answer

A) No,because net income would decrease by $1,500. 
B) No,because net income would decrease by $2,000. 
C) Yes,because net income would increase by $7,500. 
D) Yes,because net income would increase by $2,000. 
E) No,because net income would decrease by $5,500. 
A) No,because net income would decrease by $1,500. 
B) No,because net income would decrease by $2,000. 
C) Yes,because net income would increase by $7,500. 
D) Yes,because net income would increase by $2,000. 
E) No,because net income would decrease by $5,500.

Question 13

Gion Company is considering eliminating its windows division,which reported an operating loss for the recent year of $105,000.Division sales for the year were $1,110,000 and its variable costs were $975,000.The fixed costs of the division were $220,000.If the windows division is dropped,65% of the fixed costs allocated to it could be eliminated.The impact on Gion's operating income from eliminating this business segment would be:

Accepted Answer

A) $7,200 decrease 
B) $8,000 increase 
C) $143,000 decrease 
D) $143,000 increase 
E) $8,000 decrease 
A) $7,200 decrease 
B) $8,000 increase 
C) $143,000 decrease 
D) $143,000 increase 
E) $8,000 decrease

Question 14

An opportunity cost is the potential benefit lost by taking a specific action when two or more alternative choices are available.

Accepted Answer

A) True 
 B)False

Question 15

Sammy Company is considering eliminating its commercial division.The company allocates fixed costs based on division sales.If the commercial division is dropped,$100,000 of the fixed costs allocated to it could be eliminated.The impact on Sammy's operating income from eliminating the commercial division would be: $\begin{array}{lcrrr}
& \text { Garden } & \text { Farm } & \text { Commercial } \
\text { Sales } & \$ 678,000 & \$ 920,000 & \$ 692,000 \
\text { Variable costs } & 372,900 & 414,000 & 649,800 \
\hline \text { Contribution margin } & 305,100 & 506,000 &  42,200 \
\hline\text { Fixed costs } & 247,200 & 335,500 & 252,400\\text{Net income (loss)}&57,900&170,500&(210,200)
\end{array}$

Accepted Answer

A) $10,200 decrease 
B) $45,000 increase 
C) $57,800 increase 
D) $15,000 increase 
E) $57,800 decrease 
A) $10,200 decrease 
B) $45,000 increase 
C) $57,800 increase 
D) $15,000 increase 
E) $57,800 decrease

Question 16

Maxim manufactures a cat food product called Green Health.Maxim currently has 10,000 bags of Green Health on hand.The variable production costs per bag are $1.80 and total fixed costs are $10,000.The cat food can be sold as it is for $9.00 per bag or be processed further into Premium Green and Green Deluxe at an additional $2,000 cost.The additional processing will yield 10,000 bags of Premium Green and 3,000 bags of Green Deluxe,which can be sold for $8 and $6 per bag,respectively.
-If Green Health is processed further into Premium Green and Green Deluxe,the total gross profit would be:

Accepted Answer

A) $68,000. 
B) $78,000. 
C) $96,000. 
D) $98,000. 
E) $100,000. 
A) $68,000. 
B) $78,000. 
C) $96,000. 
D) $98,000. 
E) $100,000.

Question 17

Contribution margin lost from a decline in sales is an opportunity cost.

Accepted Answer

A) True 
 B)False

Question 18

Pauley Company needs to determine a markup for a new product.Pauley expects to sell 15,000 units and wants a target profit of $22 per unit.Additional information is as follows: $$\begin{array} { l r } 
\text { Variable product cost per unit } & \$ 19 \
\text { Variable administrative cost per unit } & 11 \
\text { Total fixed overhead } & 13,500 \
\text { Total fixed administrative } & 21,000
\end{array}$$ Using the variable cost method,what markup percentage to variable cost should be used?

Accepted Answer

A) 71% 
B) 76% 
C) 92% 
D) 81% 
E) 80% 
A) 71% 
B) 76% 
C) 92% 
D) 81% 
E) 80%

Question 19

Relevant costs are also known as ________.

Accepted Answer

The answer of Relevant costs are also known as ________....

Question 20

Identify the five steps involved in managerial decision-making.

Accepted Answer

The five steps are: (1)Define the decisi

Sunk costs are irrelevant to future decisions as they cannot be changed or avoided.

The decision to accept additional business should be based on a comparison of the incremental costs of the added production with the additional revenues to be received.

To determine a product selling price based on the total cost method,management should include:

Gordon Corporation produced 10,000 digital watches in the current year.Variable costs are $8 per watch.Overhead assigned is $2.25 per watch.A supplier offers the watches for $9.50 each.Gordon's production manager reports the incremental overhead is $1.25 per watch.Gordon should:

Incremental costs should be considered in a make or buy decision.

An opportunity cost is the potential benefit lost by taking a specific action when two or more alternative choices are available.

Contribution margin lost from a decline in sales is an opportunity cost.

Relevant costs are also known as ________.

Identify the five steps involved in managerial decision-making.

Accounting in Business

Accounting for Business Transactions

Adjusting Accounts for Financial Statements

Accounting for Merchandising Operations

Inventories and Cost of Sales

Cash,fraud,and Internal Controls

Accounting for Receivables

Accounting for Long-Term Assets

Accounting for Current Liabilities

Accounting for Long-Term Liabilities

Corporate Reporting and Analysis

Reporting Cash Flows

Analysis of Financial Statements

Managerial Accounting Concepts and Principles

Job Order Costing and Analysis

Process Costing and Analysis

Activity-Based Costing and Analysis

Cost Behavior and Cost-Volume-Profit Analysis

Variable Costing and Analysis

Master Budgets and Performance Planning

Flexible Budgets and Standard Costs

Performance Measurement and Responsibility Accounting

Capital Budgeting and Investment Analysis

Time Value of Money

Investments

Lean Principles and Accounting

Filters

Exam 23: Relevant Costing for Managerial Decisions

Sunk costs are irrelevant to future decisions as they cannot be changed or avoided.

The decision to accept additional business should be based on a comparison of the incremental costs of the added production with the additional revenues to be received.

To determine a product selling price based on the total cost method,management should include:

Gordon Corporation produced 10,000 digital watches in the current year.Variable costs are $8 per watch.Overhead assigned is $2.25 per watch.A supplier offers the watches for $9.50 each.Gordon's production manager reports the incremental overhead is $1.25 per watch.Gordon should:

Incremental costs should be considered in a make or buy decision.

An opportunity cost is the potential benefit lost by taking a specific action when two or more alternative choices are available.

Contribution margin lost from a decline in sales is an opportunity cost.

Relevant costs are also known as ________.

Identify the five steps involved in managerial decision-making.

Accounting in Business

Accounting for Business Transactions

Adjusting Accounts for Financial Statements

Accounting for Merchandising Operations

Inventories and Cost of Sales

Cash,fraud,and Internal Controls

Accounting for Receivables

Accounting for Long-Term Assets

Accounting for Current Liabilities

Accounting for Long-Term Liabilities

Corporate Reporting and Analysis

Reporting Cash Flows

Analysis of Financial Statements

Managerial Accounting Concepts and Principles

Job Order Costing and Analysis

Process Costing and Analysis

Activity-Based Costing and Analysis

Cost Behavior and Cost-Volume-Profit Analysis

Variable Costing and Analysis

Master Budgets and Performance Planning

Flexible Budgets and Standard Costs

Performance Measurement and Responsibility Accounting

Capital Budgeting and Investment Analysis

Time Value of Money

Investments

Lean Principles and Accounting

Filters