Question 1

Management decisions are based primarily on quantitative data because the qualitative factors are usually not relevant to the decision-making process.

Accepted Answer

A) True 
 B)False

Question 2

Felix Time Company manufactures and sells watches for $44 each.Times Products Company has offered Felix Time $30 per watch for a one-time order of 6,000 watches.The total manufacturing cost per watch is $30 per unit and consists of variable costs of $21 per watch and fixed overhead costs of $9 per watch.Assume that Felix Time has excess capacity and that the special pricing order would not adversely affect regular sales.What is the change in operating income that would result from accepting the special sales order?

Accepted Answer

A) increase of $54,000 
B) decrease of $54,000 
C) increase of $180,000 
D) decrease of $180,000 
A) increase of $54,000 
B) decrease of $54,000 
C) increase of $180,000 
D) decrease of $180,000

Question 3

Canada Sailboats Company manufactures 100 luxury yachts per month.A compact media center is included in each yacht.Canada Sailboats manufactures the media center in-house but is considering the possibility of outsourcing this function.At present,the variable cost per unit is $280,and the fixed costs are $42,000 per month.Justin Blake,the CEO,wishes to increase operating income by $2,000.He has an offer from a foreign producer to provide the media centers at a contract cost of $350 per unit.The required saving in fixed cost in order to achieve his objective would be ________.

Accepted Answer

A) $2,000 
B) $7,000 
C) $9,000 
D) $28,000 
A) $2,000 
B) $7,000 
C) $9,000 
D) $28,000

Question 4

A company sells two products with information as follows:
 
The products are machine made.Four units of product A can be made with one machine hour and two units of product B can be made with one machine hour.The company has a maximum of 3,000 machine hours available per month.The company can sell up to 18,000 units of product A per month,and up to 3,000 units of product B for the month.What is the optimum product mix to maximize company's operating income?

Accepted Answer

A) 1,500 units of A and 60,000 units of B 
B) 6,000 units of A and 3,000 units of B 
C) zero units of A and 3,000 units of B 
D) 12,000 units of A and zero units of B 
A) 1,500 units of A and 60,000 units of B 
B) 6,000 units of A and 3,000 units of B 
C) zero units of A and 3,000 units of B 
D) 12,000 units of A and zero units of B

Question 5

Seven Seas Sailboats Company manufactures 100 luxury yachts per month.A compact media center is included in each yacht.Seven Seas Sailboats manufactures the media center in-house.The company is considering the possibility of outsourcing the production of the media center in order to close down some of its facilities and reduce administrative costs.At present,the variable cost per unit is $325,and fixed costs are $37,000 per month.Assuming the company outsources the production of media center and the fixed costs could be eliminated entirely,at what contract cost would outsourcing pay off for Seven Seas? (Round to the nearest whole dollar. )

Accepted Answer

A) at any cost lower than $370 per unit 
B) at any cost lower than $325 per unit 
C) at any cost lower than $795 per unit 
D) at any cost lower than $695 per unit 
A) at any cost lower than $370 per unit 
B) at any cost lower than $325 per unit 
C) at any cost lower than $795 per unit 
D) at any cost lower than $695 per unit

Question 6

Tonix Corporation produces two products,P and Q.P sells for $5.00 per unit;Q sells for $6.50 per unit.Variable costs for P and Q are $3.00 and $4.50,respectively.There are 4,300 direct labor hours per month available for producing the two products.Product P requires 4.00 direct labor hours per unit,and product Q requires 5.00 direct labor hours per unit.The company can sell up to 900 units of each kind per month.What is the maximum monthly contribution margin that Todd can generate under the circumstances? (Round to nearest whole dollar. )

Accepted Answer

A) $1,800 
B)   
C) $2,080 
D) $8,740 
A) $1,800 
B)   
C) $2,080 
D) $8,740

Question 7

Marlow Company makes bulk quantities of cleaning fluids.They currently sell 1,400 containers a month at a sales price of $25 per unit.If they add a new scent,they could charge $30 per unit for the improved product.It would cost them a total of $1,000 per month to make that alteration.If they decide to process further,it will improve their operating income.

Accepted Answer

A) True 
 B)False

Question 8

Differential analysis is a common approach to making short-term business decisions.

Accepted Answer

A) True 
 B)False

Question 9

Gardner Sail Makers manufactures sails for sailboats.The company has the capacity to produce 36,000 sails per year and is currently producing and selling 30,000 sails per year.The following information relates to current production:
 
Assume that a special pricing order is accepted for 5,600 sails at a sales price of $140 per unit.This special order requires both variable manufacturing and variable selling and administrative costs,as well as incremental fixed costs of $401,000.What will be the impact on operating income?

Accepted Answer

A) Operating income decreases by $324,800. 
B) Operating income decreases by $76,200. 
C) Operating income increases by $324,800. 
D) Operating income increases by $76,200. 
A) Operating income decreases by $324,800. 
B) Operating income decreases by $76,200. 
C) Operating income increases by $324,800. 
D) Operating income increases by $76,200.

Question 10

Paradiso Company manufactures dolls that are sold to various distributors.The company produces at full capacity for six months each year to meet peak demand;the manufacturing facility operates at 60% of capacity for the other six months of the year.The company has provided the following data for the year:
 
Paradiso receives an offer to produce 7,000 dolls for a special event.This is a one-time opportunity during a period when the company has excess capacity.What is the minimum sales price the company should accept for the order?

Accepted Answer

A) $17 
B) $30 
C) $20 
D) $23 
A) $17 
B) $30 
C) $20 
D) $23

Question 11

What is the decision rule for outsourcing?

Accepted Answer

The answer of What is the decision rule for outsourcing?
...

Question 12

A company sells two products with information as follows:
 
The products are machine made.Four units of product A can be made with one machine hour,and two units of product B can be made with one machine hour.The company has a maximum of 5,000 machine hours available per month.The company can sell up to 17,000 units of product A per month and up to 3,000 units of product B for the month.What is the maximum amount of contribution margin that the company could earn in a month given the stated constraints?

Accepted Answer

A) $34,000 
B) $58,000 
C) $28,000 
D) $30,000 
A) $34,000 
B) $58,000 
C) $28,000 
D) $30,000

Question 13

Differential analysis is a method that ________.

Accepted Answer

A) evaluates both relevant and irrelevant information 
B) considers all areas of the traditional income statement 
C) is not used for short-term decision making 
D) looks at how operating income would differ under each decision alternative 
A) evaluates both relevant and irrelevant information 
B) considers all areas of the traditional income statement 
C) is not used for short-term decision making 
D) looks at how operating income would differ under each decision alternative

Question 14

Trina Productions is a price-taker.The company produces large spools of electrical wire in a highly competitive market;thus,it uses target pricing.The current market price of the electric wire is $800 per unit.The company has $3,000,000 in average assets,and the desired profit is a return of 9% on assets.Assume all products produced are sold.The company provides the following information:
 
If fixed costs cannot be reduced,how much reduction in variable costs will be needed to achieve the desired target?

Accepted Answer

A) $270,000 
B) $14,000,000 
C) $2,170,000 
D) $75,900,000 
A) $270,000 
B) $14,000,000 
C) $2,170,000 
D) $75,900,000

Question 15

When replacing an old asset with a new one,the original purchase price of the old asset represents a(n)________ cost.

Accepted Answer

A) relevant 
B) differential 
C) opportunity 
D) sunk 
A) relevant 
B) differential 
C) opportunity 
D) sunk

Question 16

Santora Company manufactures two products-toaster ovens and bread machines.The following data are available:
 
Santora can manufacture six toaster ovens per machine hour and four bread machines per machine hour.Santora's production capacity is 1,600 machine hours per month,and it can sell as many units of either type as it can produce.Which product and how many units should the company produce in a month to maximize profits? (Round machine hour per unit to two decimal places and your final answer to the nearest whole dollar. )

Accepted Answer

A) 6,400 bread machines 
B) 4,800 toaster ovens and 3,200 bread machines 
C) 6,400 toaster ovens and 4,800 bread machines 
D) 9,600 toaster ovens 
A) 6,400 bread machines 
B) 4,800 toaster ovens and 3,200 bread machines 
C) 6,400 toaster ovens and 4,800 bread machines 
D) 9,600 toaster ovens

Question 17

Nordic Avionics makes aircraft instrumentation.Its basic navigation radio requires $80 in variable costs and $4,000 per month in fixed costs.Further processing the radio,to enhance its functionality,will require an additional $27 per unit of variable costs but no change to the fixed costs.The marketing manager believes that the company would be able to increase the sales price from $280 to $300.If Nordic decides to further process the product,operating income would ________.

Accepted Answer

A) remain the same 
B) increase by $27 per unit 
C) increase by $107 per unit 
D) decrease by $7 per unit 
A) remain the same 
B) increase by $27 per unit 
C) increase by $107 per unit 
D) decrease by $7 per unit

Question 18

Kim Sunshades Company's western territory's forecasted income statement for the upcoming year is as follows:
 
The company's management is considering dropping the western territory and has determined that 90% of the fixed costs are avoidable.What is the change in the forecasted operating loss for the upcoming year if the western territory is dropped? Assume the company predicts an operating loss across the entire company.

Accepted Answer

A) The loss will be reduced by $130,000. 
B) The loss will be increased by $130,000. 
C) The loss will be reduced by $450,000. 
D) The loss will be increased by $450,000. 
A) The loss will be reduced by $130,000. 
B) The loss will be increased by $130,000. 
C) The loss will be reduced by $450,000. 
D) The loss will be increased by $450,000.

Question 19

Home Bakery Company manufactures two products-toaster ovens and bread machines.The following data are available:
 
Home Bakery Living can manufacture six toaster ovens per machine hour and four bread machines per machine hour.Home Bakery's production capacity is 1,600 machine hours per month.What is the contribution margin per machine hour for toaster ovens? (Round machine hour per unit to two decimal places and your final answer to the nearest whole dollar. )

Accepted Answer

A) $480 
B) $25 
C) $10 
D) $360 
A) $480 
B) $25 
C) $10 
D) $360

Question 20

Gabriel Metalworks produces a special kind of metal ingots that are unique,which allows Gabriel to follow a cost-plus pricing strategy.Gabriel has $11,000,000 of assets and shareholders expect approximately a 8% return on assets.Assume all products produced are sold.Additional data are as follows:
 
Using the cost-plus pricing approach,what should be the sales price per unit? (Round your answer to the nearest cent. )

Accepted Answer

A) $15.00 
B) $18.78 
C) $20.73 
D) $1.96 
A) $15.00 
B) $18.78 
C) $20.73 
D) $1.96

Management decisions are based primarily on quantitative data because the qualitative factors are usually not relevant to the decision-making process.

Differential analysis is a common approach to making short-term business decisions.

What is the decision rule for outsourcing?

Differential analysis is a method that ________.

When replacing an old asset with a new one,the original purchase price of the old asset represents a(n)________ cost.

Accounting and the Business Environment

Recording Business Transactions

The Adjusting Process

Completing the Accounting Cycle

Merchandising Operations

Merchandise Inventory

Accounting Information Systems

Internal Control and Cash

Receivables

Plant Assets, natural Resources, and Intangibles

Current Liabilities and Payroll

Partnerships

Corporations

Long-Term Liabilities

Investments

The Statement of Cash Flows

Financial Statement Analysis

Introduction to Managerial Accounting

Job Order Costing

Process Costing

Cost-Volume-Profit Analysis

Master Budgets

Flexible Budgets and Standard Cost Systems

Cost Allocation and Responsibility Accounting

Capital Investment Decisions

Filters

Exam 25: Short-Term Business Decisions

Management decisions are based primarily on quantitative data because the qualitative factors are usually not relevant to the decision-making process.

Differential analysis is a common approach to making short-term business decisions.

What is the decision rule for outsourcing?

Differential analysis is a method that ________.

When replacing an old asset with a new one,the original purchase price of the old asset represents a(n)________ cost.

Accounting and the Business Environment

Recording Business Transactions

The Adjusting Process

Completing the Accounting Cycle

Merchandising Operations

Merchandise Inventory

Accounting Information Systems

Internal Control and Cash

Receivables

Plant Assets, natural Resources, and Intangibles

Current Liabilities and Payroll

Partnerships

Corporations

Long-Term Liabilities

Investments

The Statement of Cash Flows

Financial Statement Analysis

Introduction to Managerial Accounting

Job Order Costing

Process Costing

Cost-Volume-Profit Analysis

Master Budgets

Flexible Budgets and Standard Cost Systems

Cost Allocation and Responsibility Accounting

Capital Investment Decisions

Filters