Question 1

The Mansfield Company manufactures and sells two lines of fishing rods. During the most recent accounting period, the Pro line and the Novice line sold 15,000 and 2,000 units, respectively. The company's most recent financial statements are shown below:  Based on this information, the company should:

Accepted Answer

A)  Eliminate the Novice line because it is operating at a loss. 
B)  Keep the Novice line because it contributes $40,000 to total profitability. 
C)  Keep the Novice line because it contributes $55,000 to total profitability. 
D)  It is impossible to determine with the given information.

Question 2

The Mighty Music Company produces and sells a desktop speaker for $100. The company has the capacity to produce 50,000 speakers each period. At capacity, the costs assigned to each unit are as follows: $$\begin{array} { l c } 
\text { Unit level costs } & \$ 45 \
\text { Product level costs } & \$ 15 \
\text { Facility level costs } & \$ 5
\end{array}$$ The company has received a special order for 500 speakers. If this order is accepted, the company will have to spend $15,000 on additional costs. Assuming that no sales to regular customers will be lost if the order is accepted, at what selling price will the company be indifferent between accepting and rejecting the special order?

Accepted Answer

A)  $95 
B)  $45 
C)  $75 
D)  $60

Question 3

Ethan paid $3 for a bottle of ThirstAid. Later, while on a hiking trip, he was offered $8 for the ThirstAid. Select the correct statement from the following:

Accepted Answer

A)  The $8 offer is not relevant if Ethan refuses to sell the ThirstAid. 
B)  If Ethan drinks the ThirstAid, no opportunity cost is associated with his decision. 
C)  The $3 original purchase price is irrelevant to his decision to sell the ThirstAid. 
D)  All of these answers are correct.

Question 4

Chavez Company is considering purchasing new equipment or overhauling its existing equipment. The manager has gathered the following information:
  Required:Identify the sunk costs associated with this decision.Compute the increase or decrease in total income over the five-year period if the company chooses to buy the new equipment.Compute the increase or decrease in total income over the five-year period if the company chooses to overhaul its existing machinery.What is your recommendation for this decision?

Accepted Answer

The answer of Chavez Company is considering purchasing new equipment...

Question 5

Discuss why qualitative characteristics must be considered when making decisions such as special orders, outsourcing, elimination and replacement decisions, and scarce resource allocation decisions. Give examples.

Accepted Answer

The answer of Discuss why qualitative characteristics must be considered...

Question 6

Osprey Company is trying to decide between the following two alternatives: $\begin{array}{lrc}
&\text { Alternative A }&\text { Alternative B }\
\text { Projected revenue } & \$ 50,000 & \$ 60,000 \
\text { Direct material } & 6,000 & 12,000 \
\text { Assembly labor } & 9,000 & 9,000 \
\text { Production supervisor's salary } & 10,000 & 10,000\
\text { Facility-related costs}&\underline{10,000}&\underline{15,000}\

\text { Profit}&\underline{\$15,000}&\underline{\$14,000}
\end{array}$ Which of the following conclusions can be drawn from this example?

Accepted Answer

A)  Variable costs are always relevant for decision making. 
B)  Fixed costs are sunk and thus are never relevant for decision making. 
C)  Relevant costs may include variable costs and fixed costs. 
D)  None of these answers are correct.

Question 7

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

Accepted Answer

The answer of Indicate whether each of the following statements...

Question 8

For an equipment replacement decision, what costs are relevant, and what costs are not relevant?

Accepted Answer

The answer of For an equipment replacement decision, what costs...

Question 9

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

Accepted Answer

The answer of Indicate whether each of the following statements...

Question 10

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

Accepted Answer

The answer of Indicate whether each of the following statements...

Question 11

The cost that is avoided when a company eliminates a single item of a product or service is a:

Accepted Answer

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

Question 12

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.

Question 13

For purposes of decision making, avoidable costs are costs that:

Accepted Answer

A)  were incurred in the past. 
B)  will not be incurred in the future, regardless of the alternative chosen. 
C)  differ among alternatives. 
D)  None of these answers are correct.

Question 14

The benefits sacrificed when one alternative is chosen over another are referred to as:

Accepted Answer

A)  Avoidable costs. 
B)  Opportunity costs. 
C)  Sacrificial costs. 
D)  Beneficial costs.

Question 15

The practice of buying goods and services from other companies is commonly known as vertical integration.

Accepted Answer

A) True 
 B)False

Question 16

An alternative under consideration involves incurring $50 in costs to generate $60 in revenue. The differential revenue for this alternative is $10.

Accepted Answer

A) True 
 B)False

Question 17

Special order decisions involve:

Accepted Answer

A)  An offer to sell goods at a price that is higher than normal. 
B)  Buying goods from other companies rather than making them internally. 
C)  An offer from a customer to buy goods at a lower-than-normal selling price. 
D)  None of these answers are correct.

Exam 13: Relevant Information for Special Decisions

Ethan paid $3 for a bottle of ThirstAid. Later, while on a hiking trip, he was offered $8 for the ThirstAid. Select the correct statement from the following:

Discuss why qualitative characteristics must be considered when making decisions such as special orders, outsourcing, elimination and replacement decisions, and scarce resource allocation decisions. Give examples.

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

For an equipment replacement decision, what costs are relevant, and what costs are not relevant?

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

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

The cost that is avoided when a company eliminates a single item of a product or service is a:

For purposes of decision making, avoidable costs are costs that:

The benefits sacrificed when one alternative is chosen over another are referred to as:

The practice of buying goods and services from other companies is commonly known as vertical integration.

An alternative under consideration involves incurring $50 in costs to generate $60 in revenue. The differential revenue for this alternative is $10.

Special order decisions involve: