Question 1

When capacity is constrained,relevant costs equal incremental costs plus opportunity costs.

Accepted Answer

A) True 
 B)False

Question 2

Zephram Corporation has a plant capacity of 200,000 units per month.Unit costs at capacity are: $$\begin{array} { l r } 
\text { Direct materials } & \$ 4.00 \
\text { Direct labor } & 6.00 \
\text { Variable overhead } & 3.00 \
\text { Fixed overhead } & 1.00 \
\text { Marketing-fixed } & 7.00 \
\text { Marketing/distribution-variable } & 3.60
\end{array}$$ Current monthly sales are 190,000 units at $30.00 each.Q,Inc.,has contacted Zephram Corporation about purchasing 2,000 units at $24.00 each.Current sales would not be affected by the one-time-only special order.What is Zephram's change in operating profits if the one-time-only special order is accepted?

Accepted Answer

A)  $14,800 increase 
B)  $17,200 increase 
C)  $22,000 increase 
D)  $33,200 increase 
A)  $14,800 increase 
B)  $17,200 increase 
C)  $22,000 increase 
D)  $33,200 increase

Question 3

Answer the following questions using the information below:
Helmer's Rockers manufactures two models, Standard and Premium. Weekly demand is estimated to be 100 units of the Standard Model and 70 units of the Premium Model. The following per unit data apply:
 $\begin{array}{lrr}&\text { Standard }&\text { Premium }\
\text { Contribution margin per unit } & \$ 18 & \$ 20 \
\text { Number of machine-hours required } & 3 & 4
\end{array}$
-The contribution per machine-hour is ________.

Accepted Answer

A)  $18 for Standard, $20 for Premium 
B)  $54 for Standard, $80 for Premium 
C)  $15 for Standard, $16 for Premium 
D)  $6 for Standard, $5 for Premium 
A)  $18 for Standard, $20 for Premium 
B)  $54 for Standard, $80 for Premium 
C)  $15 for Standard, $16 for Premium 
D)  $6 for Standard, $5 for Premium

Question 4

Answer the following questions using the information below:
Pizza For Everyone is considering replacing its existing delivery van with a new one. The new van can offer considerable savings in operating costs. Information about the existing van and the new van follow:
 $\begin{array}{lrr}&\text { Existing van }&\text { New van }\
\text { Ori ginal cost } & \$ 50,000 & \$ 90,000 \
\text { Annual operating cost } & \$ 17,500 & \$ 10,000 \
\text { Accumulated depreciation } & \$ 30,000 & - \
\text { Current salvage value of the existing van } & \$ 22,500 & -\\text { Remaining life } & 10 \text { years } & 10 \text { years } \
\text { Salvage value in } 10 \text { years } & \$ 0 & \$ 0 \
\text { Annual depreciation } & \$ 2,000 & \$ 9,000
\end{array}$
-Relevant costs for this decision include ________.

Accepted Answer

A)  the original cost of the existing van 
B)  accumulated depreciation 
C)  the annual operating cost 
D)  the book value of the existing van 
A)  the original cost of the existing van 
B)  accumulated depreciation 
C)  the annual operating cost 
D)  the book value of the existing van

Question 5

Opportunity costs are not recorded in financial accounting systems because historical record keeping is limited to transactions involving alternatives that managers actually selected rather than alternatives that they rejected.

Accepted Answer

A) True 
 B)False

Question 6

Sunk costs ________.

Accepted Answer

A)  are future costs for decision making 
B)  are avoidable costs 
C)  are irrelevant for decision making 
D)  are foregone contribution by not using a limited resource in its next-best alternative use 
A)  are future costs for decision making 
B)  are avoidable costs 
C)  are irrelevant for decision making 
D)  are foregone contribution by not using a limited resource in its next-best alternative use

Question 7

Answer the following questions using the information below:
Helmer's Rockers manufactures two models, Standard and Premium. Weekly demand is estimated to be 100 units of the Standard Model and 70 units of the Premium Model. The following per unit data apply:
 $\begin{array}{lrr}&\text { Standard }&\text { Premium }\
\text { Contribution margin per unit } & \$ 18 & \$ 20 \
\text { Number of machine-hours required } & 3 & 4
\end{array}$
-If there are 496 machine-hours available per week,how many rockers of each model should Jim Helmer produce to maximize profits?

Accepted Answer

A)  100 units of Standard and 49 units of Premium 
B)  72 units of Standard and 70 units of Premium 
C)  100 units of Standard and 70 units of Premium 
D)  85 units of Standard and 60 units of Premium 
A)  100 units of Standard and 49 units of Premium 
B)  72 units of Standard and 70 units of Premium 
C)  100 units of Standard and 70 units of Premium 
D)  85 units of Standard and 60 units of Premium

Question 8

The theory of constraints (TOC)defines throughput margin as ________.

Accepted Answer

A)  operating income minus the direct material costs of the goods sold 
B)  operating income minus the direct labor costs of the goods sold 
C)  revenues minus the direct material costs of the goods sold 
D)  revenues minus the full costs of the goods sold 
A)  operating income minus the direct material costs of the goods sold 
B)  operating income minus the direct labor costs of the goods sold 
C)  revenues minus the direct material costs of the goods sold 
D)  revenues minus the full costs of the goods sold

Question 9

Answer the following questions using the information below:
Genent's Preserves currently makes jams and jellies and a variety of decorative jars used for packaging. An outside supplier has offered to supply all of the needed decorative jars. For this make-or-buy decision, a cost analysis revealed the following avoidable unit costs for the decorative jars:
 $$\begin{array} { l r } 
\text { Direct materials } & \$ 0.50 \
\text { Direct labor } & 0.06 \
\text { Unit-related support costs } & 0.20 \
\text { Batch-related support costs } & 0.24 \
\text { Product-sustaining support costs } & 0.44 \
\text { Facility-sustaining support costs } & 0.56 \
\quad \text { Total cost per jar } & \$ 2.00
\end{array}$$
-The relevant cost per jar is ________.

Accepted Answer

A)  $0.56 per jar 
B)  $0.76 per jar 
C)  $1.44 per jar 
D)  $2.00 per jar 
A)  $0.56 per jar 
B)  $0.76 per jar 
C)  $1.44 per jar 
D)  $2.00 per jar

Question 10

Answer the following questions using the information below:
Contrafic Lighting manufactures small flashlights and is considering raising the price by 75 cents a unit for the coming year. With a 75-cent price increase, demand is expected to fall by 7,000 units.
 $$\begin{array} { l r r } 
& \text { Current } & \text { Projected } \
\text { Demand } & 75,000 \text { units } & 68,000 \text { units } \
\text { Selling price } & \$ 8.50 & \$ 9.25 \
\text { Incremental cost per unit } & \$ 4.80 & \$ 4.80
\end{array}$$
-When using the five-step decision process,which one of the following steps should be done first?

Accepted Answer

A)  obtain information 
B)  choose an alternative 
C)  evaluation and feedback 
D)  implementing the decision 
A)  obtain information 
B)  choose an alternative 
C)  evaluation and feedback 
D)  implementing the decision

Question 11

Hasselhoff Camera is considering eliminating Model EOS1 from its camera line because of losses over the past quarter.The past three months of information for model EOS1 is summarized below:
 $\begin{array}{lr}
\text { Sales (1,000 units) } & \$ 250,000 \
\text { Manufacturing costs: } & \
\text { Direct materials } & 90,000 \
\text { Direct labor ( } \$ 15 \text { per hour) } & 80,000 \
\text { Support } & 100,000 \
\text { Operating loss } & (\$ 20,000)
\end{array}$ Support costs are 70% variable and the remaining 30% is depreciation of special equipment for model EOS1 that has no resale value.
Should Hasselhoff Camera eliminate Model EOS1 from its product line? Why or why not?

Accepted Answer

No,Hasselhoff Camera should no

Question 12

In the decision making of a one-time-only special order,it is assumed that accepting the special order is not expected to affect the selling price to other customers.

Accepted Answer

A) True 
 B)False

Question 13

In evaluating different alternatives,it is useful to concentrate on ________.

Accepted Answer

A)  variable costs 
B)  fixed costs 
C)  total costs 
D)  relevant costs 
A)  variable costs 
B)  fixed costs 
C)  total costs 
D)  relevant costs

Question 14

Answer the following questions using the information below:
Pizza For Everyone is considering replacing its existing delivery van with a new one. The new van can offer considerable savings in operating costs. Information about the existing van and the new van follow:
 $\begin{array}{lrr}&\text { Existing van }&\text { New van }\
\text { Ori ginal cost } & \$ 50,000 & \$ 90,000 \
\text { Annual operating cost } & \$ 17,500 & \$ 10,000 \
\text { Accumulated depreciation } & \$ 30,000 & - \
\text { Current salvage value of the existing van } & \$ 22,500 & -\\text { Remaining life } & 10 \text { years } & 10 \text { years } \
\text { Salvage value in } 10 \text { years } & \$ 0 & \$ 0 \
\text { Annual depreciation } & \$ 2,000 & \$ 9,000
\end{array}$
-If Pizza For Everyone replaces the existing delivery van with the new one,over the next 10 years operating income will ________.

Accepted Answer

A)  decrease by $90,000 
B)  increase by $75,000 
C)  decrease by $75,000 
D)  increase by $90,000 
A)  decrease by $90,000 
B)  increase by $75,000 
C)  decrease by $75,000 
D)  increase by $90,000

Question 15

Answer the following questions using the information below:
Indium Services, Inc., is considering replacing a machine. The following data are available:
 $$\begin{array}{l}\begin{array} { l r r } 
&&\text { Replacement }\

& \text { Old Machine } & \text { Machine } \
\text { Ori ginal cost } & \$ 630,000 & \$ 490,000 \
\text { Useful life in years } & 10 & 5 \
\text { Current age in years } & 5 & 0 \
\text { Book value } & \$ 350,000 & - \
\text { Disposal value now } & \$ 112,000 & - \
\text { Disposal value in } 5 \text { years } & 0 & 0 \
\text { Antual cash operating costs } & \$ 98,000 & \$ 56,000
\end{array}
\end{array}$$
-Which of the data provided in the table is a sunk cost?

Accepted Answer

A)  the annual cash operating costs of the old machine 
B)  the annual cash operating costs of the replacement machine 
C)  the disposal value of the old machine 
D)  the original cost of the old machine 
A)  the annual cash operating costs of the old machine 
B)  the annual cash operating costs of the replacement machine 
C)  the disposal value of the old machine 
D)  the original cost of the old machine

Question 16

For one-time-only special orders,fixed costs may be relevant but NOT variable costs.

Accepted Answer

A) True 
 B)False

Question 17

Unit cost data can most mislead decisions by ________.

Accepted Answer

A)  not computing fixed overhead costs 
B)  computing labor and materials costs only 
C)  computing administrative costs 
D)  not computing unit costs at the same output level 
A)  not computing fixed overhead costs 
B)  computing labor and materials costs only 
C)  computing administrative costs 
D)  not computing unit costs at the same output level

Question 18

Answer the following questions using the information below:
Piels Corporation produces a part that is used in the manufacture of one of its products. The costs associated with the production of 10,000 units of this part are as follows:
 $\begin{array}{lr}
\text { Direct materials } & \$ 90,000 \
\text { Direct labor } & 130,000 \
\text { Variable factory overhead } & 60,000 \
\text { Fixed factory overhead } & 140,000 \
\quad \text { Total costs } & \$ 420,000
\end{array}$ Of the fixed factory overhead costs, $60,000 is avoidable.
-Conners Company has offered to sell 10,000 units of the same part to Piels Corporation for $36 per unit.Assuming there is no other use for the facilities,Schmidt should ________.

Accepted Answer

A)  make the part, as this would save $6 per unit 
B)  buy the part, as this would save $6 per unit 
C)  buy the part, as this would save the company $60,000 
D)  make the part, as this would save $2 per unit 
A)  make the part, as this would save $6 per unit 
B)  buy the part, as this would save $6 per unit 
C)  buy the part, as this would save the company $60,000 
D)  make the part, as this would save $2 per unit

Question 19

How can conflicts arise between the decision model and the performance evaluation model used to evaluate managers? Provide an example of this type of conflict.

Accepted Answer

Since managers will act in their self in

Question 20

Managers tend to favor the alternative that makes their performance look best.Therefore,they tend to focus on ________.

Accepted Answer

A)  how to implement the chosen alternative 
B)  the measures used in the decision model 
C)  the measures used in the performance evaluation model 
D)  gathering the required information 
A)  how to implement the chosen alternative 
B)  the measures used in the decision model 
C)  the measures used in the performance evaluation model 
D)  gathering the required information

When capacity is constrained,relevant costs equal incremental costs plus opportunity costs.

Opportunity costs are not recorded in financial accounting systems because historical record keeping is limited to transactions involving alternatives that managers actually selected rather than alternatives that they rejected.

Sunk costs ________.

The theory of constraints (TOC)defines throughput margin as ________.

In the decision making of a one-time-only special order,it is assumed that accepting the special order is not expected to affect the selling price to other customers.

In evaluating different alternatives,it is useful to concentrate on ________.

For one-time-only special orders,fixed costs may be relevant but NOT variable costs.

Unit cost data can most mislead decisions by ________.

How can conflicts arise between the decision model and the performance evaluation model used to evaluate managers? Provide an example of this type of conflict.

Managers tend to favor the alternative that makes their performance look best.Therefore,they tend to focus on ________.

The Manager and Management Accounting

An Introduction to Cost Terms and Purposes

Cost-Volume-Profit Analysis

Job Costing

Activity-Based Costing and Activity-Based Management

Master Budget and Responsibility Accounting

Flexible Budgets, direct-Cost Variances, and Management Control

Flexible Budgets, overhead Cost Variances, and Management Control

Inventory Costing and Capacity Analysis

Determining How Costs Behave

Strategy, balanced Scorecard, and Strategic Profitability Analysis

Pricing Decisions and Cost Management

Cost Allocation, customer-Profitability Analysis, and Sales-Variance Analysis

Allocation of Support-Department Costs, common Costs, and Revenues

Cost Allocation: Joint Products and Byproducts

Process Costing

Spoilage, rework, and Scrap

Balanced Scorecard: Quality and Time

Inventory Management, just-In-Time, and Simplified Costing Methods

Capital Budgeting and Cost Analysis

Management Control Systems, transfer Pricing, and Multinational Considerations

Performance Measurement, compensation, and Multinational Considerations

Filters

Exam 11: Decision Making and Relevant Information

When capacity is constrained,relevant costs equal incremental costs plus opportunity costs.

Opportunity costs are not recorded in financial accounting systems because historical record keeping is limited to transactions involving alternatives that managers actually selected rather than alternatives that they rejected.

Sunk costs ________.

The theory of constraints (TOC)defines throughput margin as ________.

In the decision making of a one-time-only special order,it is assumed that accepting the special order is not expected to affect the selling price to other customers.

In evaluating different alternatives,it is useful to concentrate on ________.

For one-time-only special orders,fixed costs may be relevant but NOT variable costs.

Unit cost data can most mislead decisions by ________.

How can conflicts arise between the decision model and the performance evaluation model used to evaluate managers? Provide an example of this type of conflict.

Managers tend to favor the alternative that makes their performance look best.Therefore,they tend to focus on ________.

The Manager and Management Accounting

An Introduction to Cost Terms and Purposes

Cost-Volume-Profit Analysis

Job Costing

Activity-Based Costing and Activity-Based Management

Master Budget and Responsibility Accounting

Flexible Budgets, direct-Cost Variances, and Management Control

Flexible Budgets, overhead Cost Variances, and Management Control

Inventory Costing and Capacity Analysis

Determining How Costs Behave

Strategy, balanced Scorecard, and Strategic Profitability Analysis

Pricing Decisions and Cost Management

Cost Allocation, customer-Profitability Analysis, and Sales-Variance Analysis

Allocation of Support-Department Costs, common Costs, and Revenues

Cost Allocation: Joint Products and Byproducts

Process Costing

Spoilage, rework, and Scrap

Balanced Scorecard: Quality and Time

Inventory Management, just-In-Time, and Simplified Costing Methods

Capital Budgeting and Cost Analysis

Management Control Systems, transfer Pricing, and Multinational Considerations

Performance Measurement, compensation, and Multinational Considerations

Filters