Question 1

Billings Company has the following costs when producing 100000 units: $\begin{array}{lr}
\text { Variable costs } & \$ 600,000 \
\text { Fixed costs } & 900,000
\end{array}$ An outside supplier has offered to make the item at $4.50 a unit.If the decision is made to purchase the item outside current production facilities could be leased to another company for $165000.The net increase (decrease) in the net income of accepting the supplier's offer is

Accepted Answer

A) $285000. 
B) $315000. 
C) $(15000). 
D) $840000.

Question 2

Janssen Company has old inventory on hand that cost $24000.Its scrap value is $32000.The inventory could be sold for $80000 if manufactured further at an additional cost of $24000.What should Janssen do?

Accepted Answer

A) Sell the inventory for $32000 scrap value 
B) Dispose of the inventory to avoid any further decline in value 
C) Hold the inventory at its $24000 cost 
D) Manufacture further and sell it for $80000.

Question 3

It costs Dryer Company $26 per unit ($18 variable and $8 fixed) to produce its product which normally sells for $38 per unit.A foreign wholesaler offers to purchase 5000 units at $21 each.Dryer would incur special shipping costs of $2 per unit if the order were accepted.Dryer has sufficient unused capacity to produce the 5000 units.If the special order is accepted what will be the effect on net income?

Accepted Answer

A) $5000 decrease 
B) $5000 increase 
C) $15000 increase 
D) $90000 increase

Question 4

Which products should be processed further?

Accepted Answer

A) Green lumber and rough lumber 
B) Green lumber and sawdust 
C) Rough lumber and sawdust 
D) All three products

Question 5

Which is the first step in the management decision-making process?

Accepted Answer

A) Determine and evaluate possible courses of action. 
B) Review results of the decision. 
C) Identify the problem and assign responsibility. 
D) Make a decision.

Question 6

An opportunity cost

Accepted Answer

A) should be initially recorded as an asset. 
B) is the cost of a new product proposal. 
C) is the potential benefit that may be obtained by following an alternative course of action. 
D) is classified as manufacturing overhead.

Question 7

New Age Makeup produces face cream.Each bottle of face cream costs $10 to produce and can be sold for $13.The bottles can be sold as is or processed further into sunscreen at a cost of $14 each.New Age Makeup could sell the sunscreen bottles for $23 each.

Accepted Answer

A) Face cream must be processed further because its profit is $9 each. 
B) Face cream must not be processed further because costs increase more than revenue. 
C) Face cream must not be processed further because it decreases profit by $1 each. 
D) Face cream must be processed further because it increases profit by $3 each.

Question 8

It is always better to sell now rather than process further because of the time value of money.

Accepted Answer

A) True 
 B)False

Question 9

Serene Dairy has four product lines: sour cream ice cream yogurt and butter.The total cost of producing the milk base for the products is $45000 which has been allocated based on the gallons of milk base used by each product.Results for July follow: $\begin{array} { l  } 
& \text {Sour Cream  }& \text { Ice Cream}& \text { Yogurt}& \text { Butter }& \text { Total}\
 \text {Units sold }&2,000&500&400&2,000&4,900\
 \text {revenue }&\$10,000&\$20,000&\$10,000&\$20,000&\$60,000\
 \text {Variable departmental costs }&6,000&13,000&4,200&4,800&28,000\
 \text {Fixed costs }&5,000&2,000&3,000&7,000&17,000\
 \text {Net income (loss) }&\$1,000&\$5,000&\$2,800&\$8,200&\$15,000\
\end{array}$
 How much are total joint costs of the products?

Accepted Answer

A) $28000 
B) $17000 
C) $45000 
D) $15000

Question 10

What is the net cost of the new equipment?

Accepted Answer

A) $375000 
B) $315000 
C) $150000 
D) $75000

Question 11

Marcus Company gathered the following data about the three products that it produces: $$\begin{array} { c c c c } 
\text { Present } & \begin{array} { c } 
\text { Estimated Additional } \
\text { Product }
\end{array} & \begin{array} { c } 
\text { Estimated Sales } \
\text { Sales Value }
\end{array} &\begin{array} { c }  \text { Processing Costs } \ \text { if Processed Further }\end{array}  \
\hline \text { A } & \$ 12,000 & \$ 8,000 & \$ 21,000 \
\text { B } & 14,000 & 5,000 & 18,000 \
\text { C } & 11,000 & 3,000 & 16,000
\end{array}$$ Which of the products should not be processed further?

Accepted Answer

A) Product A 
B) Product B 
C) Product C 
D) Products A and C

Question 12

Galley Industries can produce 100 units of a necessary component part with the following costs: $$\begin{array} { l r } 
\text { Direct Materials } & \$ 20,000 \
\text { Direct Labor } & 9,000 \
\text { Variable Overhead } & 21,000 \
\text { Fixed Overhead } & 8,000
\end{array}$$ If Galley Industries purchases the component externally $2000 of the fixed costs can be avoided.Below what external price for the 100 units would Galley choose to buy instead of make?

Accepted Answer

A) $50000 
B) $56000 
C) $44000 
D) $52000

Question 13

If a company is operating at full capacity the incremental costs of a special order will likely include fixed manufacturing costs.

Accepted Answer

A) True 
 B)False

Question 14

In a retain or replace equipment decision trade-in allowance available on old equipment

Accepted Answer

A) increases the cost of the new equipment. 
B) is relevant because it will not be realized if the old equipment is retained. 
C) is not relevant to the decision. 
D) reduces the cost of the old equipment.

Question 15

A company contemplating the acceptance of a special order has the following unit cost behavior based on 10000 units: $$\begin{array} { l r } 
\text { Direct materials } & \$ 4 \
\text { Direct labor } & 10 \
\text { Variable overhead } & 8 \
\text { Fixed overhead } & 6
\end{array}$$ A foreign company wants to purchase 2000 units at a special unit price of $25.The normal price per unit is $40.In addition a special stamping machine will have to be purchased for $4000 in order to stamp the foreign company's name on the product.The incremental income (loss) from accepting the order is

Accepted Answer

A) $6000. 
B) $2000. 
C) $(6000). 
D) $(2000).

Question 16

The opportunity cost of an alternate course of action that is relevant to a make-or-buy decision is

Accepted Answer

A) subtracted from the "Make" costs. 
B) added to the "Make" costs. 
C) added to the "Buy" costs. 
D) None of these answers are correct.

Question 17

Internal reports that review the actual impact of decisions are prepared by

Accepted Answer

A) department heads. 
B) the controller. 
C) management accountants. 
D) factory workers.

Question 18

Moreland Clean Company spent $8000 to produce Product 89 which can be sold as is for $10000 or processed further incurring additional costs of $3000 and then be sold for $14000.Which amounts are relevant to the decision about Product 89?

Accepted Answer

A) $8000 $10000 and $14000 
B) $8000 $3000 and $14000 
C) $10000 $3000 and $14000 
D) $8000 $10000 $3000 and $14000

Question 19

Tasty Bites produces corn chips.The cost of one batch is below: $$\begin{array} { l r } 
\text { Direct materials } & \$ 18 \
\text { Direct labor } & 13 \
\text { Variable overhead } & 11 \
\text { Fixed overhead } & 14
\end{array}$$ An outside supplier has offered to produce the corn chips for $30 per batch.How much will Tasty Bites save if it accepts the offer?

Accepted Answer

A) $15 per batch 
B) $12 per batch 
C) $26 per batch 
D) $1 per batch

Question 20

If Clemente accepts the offer by how much will net income increase (decrease)?

Accepted Answer

A) $3750 
B) $19950 
C) $(8850) 
D) $(2850)

Exam 13: Budgetary Control and Responsibility Accounting