Question 1

What is the sunk cost in this situation?

Accepted Answer

A)   $0.
B)   $10,000.
C)   $11,200.
D)   $26,800. D

Question 2

What is the opportunity cost of making a component part in a factory with no excess capacity?

Accepted Answer

A)   Variable manufacturing cost of the component.
B)   Fixed manufacturing cost of the component.
C)   Cost of the production given up in order to manufacture the component.
D)   Net benefit foregone from the alternative use of the capacity requireD. D

Question 3

What is the net total dollar advantage (disadvantage)of purchasing the part rather than making it?

Accepted Answer

A)   ($64,000) .
B)   $264,000.
C)   ($328,000) .
D)   ($548,000) . A

Question 4

What would be the change in the company's overall annual operating income that would result from making the component,rather than buying it?

Accepted Answer

A)   $1,000 decrease.
B)   $5,000 increase.
C)   $14,000 decrease.
D)   $17,000 increase.

Question 5

Assume that discontinuing the manufacture and sale of Product J will not affect the sale of other products.If the company discontinues Product J,what will be the change in annual operating income due to this decision?

Accepted Answer

A)   $25,000 decrease.
B)   $145,000 increase.
C)   $170,000 decrease.
D)   $315,000 decrease.

Question 6

Which of the following costs are always relevant in decision making?

Accepted Answer

A)   Variable costs.
B)   Avoidable costs.
C)   Sunk costs.
D)   Fixed costs.

Question 7

Assume that discontinuing Product J would result in a $30,000 increase in the contribution margin of other product lines.If Bingham chooses to discontinue Product J,what will be the change in operating income next year due to this action?

Accepted Answer

A)   $5,000 increase.
B)   $120,000 increase.
C)   $145,000 increase.
D)   $145,000 decrease.

Question 8

If by dropping a product a firm can avoid more in fixed costs than it loses in contribution margin,then the firm is better off economically if the product is dropped.

Accepted Answer

A) True 
 B)False

Question 9

If Austin produced and sold 4,000 afghans and zero spindles of yarn the total contribution margin would be closest to:

Accepted Answer

A)   $24,000.
B)   $40,000.
C)   $60,000.
D)   $8,000.

Question 10

Relay Corporation manufactures batons.Relay can manufacture 300,000 batons a year at a variable cost of $750,000 and a fixed cost of $450,000.Based on Relay's predictions for next year,240,000 batons will be sold at the regular price of $5.00 each.In addition,a special order was placed for 60,000 batons to be sold at a 40% discount off the regular price.Total fixed costs would be unaffected by this order.By what amount would the company's operating income be increased or decreased as a result of the special order?

Accepted Answer

A)   $30,000 increase.
B)   $36,000 increase.
C)   $60,000 decrease.
D)   $180,000 increase.

Question 11

(Appendix 12A)What is the target selling price based on the absorption costing approach?

Accepted Answer

A)   $48.38.
B)   $51.38.
C)   $52.50.
D)   $56.25.

Question 12

Two or more different products that are manufactured in the same production period are known as joint products.

Accepted Answer

A) True 
 B)False

Question 13

Lusk Company produces and sells 15,000 units of Product A each month.The selling price of Product A is $20 per unit,and variable expenses are $14 per unit.A study has been conducted concerning whether Product A should be discontinued.The study shows that $70,000 of the $100,000 in fixed expenses charged to Product A would continue even if the product were discontinued.These data indicate that if Product A were discontinued,the company's overall monthly operating income would change by how much?

Accepted Answer

A)   An increase of $10,000.
B)   An increase of $20,000.
C)   A decrease of $20,000.
D)   A decrease of $60,000.

Question 14

Consider a decision facing a firm of either accepting or rejecting a special offer for one of its products.Which of the following costs is NOT relevant?

Accepted Answer

A)   Direct materials.
B)   Variable overhead.
C)   Fixed overhead that will be avoided if the special offer is accepted.
D)   Common fixed overhead that will continue if the special offer is NOT accepteD.

Question 15

(Appendix 12A)Which of the following statements is NOT consistent with target costing?

Accepted Answer

A)   The target cost is the anticipated selling price less the desired profit.
B)   The technique is most useful in the manufacturing stage of a product.
C)   Effective target costing is an integral part of continuous improvement (Kaizen costing) as a management philosophy.
D)   In target costing,the anticipated selling price of a product determines the maximum allowable cost for the product.

Question 16

(Appendix 12A)What is the markup percentage needed on Product S in order to achieve the company's required return on investment?

Accepted Answer

A)   29%.
B)   37%.
C)   40%.
D)   50%.Markup = (800,000 * .20 + 40,000 * 5 + 240,000) /(40,000 * 37.50) = 40%.

Question 17

What is the minimum amount the company should accept for Product X if it is to be sold at the split-off point?

Accepted Answer

A)   $20,800.
B)   $22,400.
C)   $43,400.
D)   $45,000.

Question 18

(Appendix 12A)Holding all other things constant,if the unit sales increase,what will happen to the markup under absorption costing?

Accepted Answer

A)   It will increase.
B)   It will decrease.
C)   It will remain the same.
D)   The effect cannot be determineD.

Question 19

How many minutes of milling machine time would be required to satisfy demand for all four products?

Accepted Answer

A)   9,000 minutes.
B)   18,400 minutes.
C)   22,600 minutes.
D)   23,700 minutes.

Question 20

At what selling price per unit should Immanuel be indifferent between accepting or rejecting the special offer?

Accepted Answer

A)   $4.90.
B)   $6.40.
C)   $7.40.
D)   $7.70.

Exam 12: Relevant Costs for Decision Making