Exam 19: Information for Decisions: Relevant Costs and Benefits

Mod Clothiers makes women's clothes.It costs $28 000 to produce 5000 pairs of polka-dot polyester pants.They have been unable to sell the pants at their usual price of $50.00.The company is evaluating two alternatives.They could sell the pants 'as is' for a total of $15 000 or they could modify the pants at a cost of $3000 and sell them for a total of $20 000.What would be the effect on profit of modifying the pants and selling them as opposed to selling 'as is'?

Which of the following statements about relevant information is/are true? i.An accountant can use past prices,previous market demand and previous cost data to predict future costs when repetitive decisions are made ii.No relevant information is available within an organisation's information system for unique decisions. iii.It is important to segregate relevant data from irrelevant data because it is possible to overload management with information.

The manager of Big Mac Ltd is considering the purchase of equipment to make hamburgers that will reduce annual operating costs by $1500.The equipment will cost $6000 and will have a useful life of five years with no resale value.The new equipment will replace equipment purchased five years ago at a cost of $10 000,has a book value of $5000 and no resale value.What will be the net effect on profit for the next five years in total if the new equipment is purchased? (Ignore tax effects. )

Which of the following statements about the management accountant's role in the decision-making process is/are true? i.The management accountant is primarily responsible for selecting an alternative in the decision-making process ii.The management account is primarily responsible for collecting the data in the decision-making process. iii.The management accountant is sometimes involved in developing a decision model in the decision-making process.

A joint product with very little value relative to other joint products is termed a:

An accounting information system should be designed to provide useful information.To be useful the information must be:

If a management accountant is trying to decide whether a cost is relevant to a decision,he or she should consider the cost relevant if:

When the objectives of the decision are in conflict,one objective may be specified as the decision criterion and the other objectives are established as:

Which of the following is a correct quantitative decision-rule with respect to whether to drop a product?

Why are joint costs never relevant in deciding whether to sell a product at split-off or process it further?

Which of the following statements is true of relevant costs?

Lipex Pty Ltd produces two products (A and B)from a particular joint process.Each product may be sold at the split-off point or processed further.Additional processing requires no special facilities,and production costs of further processing are entirely variable and traceable to the products involved.Joint production costs for the year were $60 000.Sales values and costs are as follows.Allocate the joint production costs based on the physical units method.What are the joint costs assigned to product B?

A firm currently makes a component,and requires 30 000 for the coming year's production.Another supplier has offered the part at a delivered price of $3 per unit.It would cost $3000 to check purchased units for quality.Product costs per unit for the past year were $2.35 variable,and $1 fixed based on 30 000 units.If the component was bought,fixed overhead would be reduced by $6000,the cost of leasing specialised equipment.The space vacated by the equipment can be rented for $4000 for the year.At what level of units of production is the firm indifferent between making and buying?

A firm has the following cost data per unit.Calculate fixed costs per unit.

Which of the following is a correct statement regarding the link between decision making and performance evaluation?

While there is a decision-making model,in many instances managers frequently make decisions without necessarily following the set steps detailed in the model.

C Limited produces two products (A and B)from a particular joint process.Each product may be sold at split-off or may be further processed.Joint production costs for the year amounted to $60 000.Sales values and costs are as follows.If the joint production costs were assigned using the relative sales value method the joint costs allocated to A would be:

A chocolate company uses the weight of joint products as the allocation basis.This type of cost allocation is the:

The very nature of tactical decisions means that in many situations most overhead costs are considered fixed and may not be relevant to the decision in hand.

Sunk costs,unitizing costs,how costs are allocated,and leaving out opportunity costs are all factors where errors are often made,and will ultimately affect the outcome of the decision.