QUIZ – ACCTG 120A SHORT-TERM NON-ROUTINE DECISIONS
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5. A company’s approach to a make-or-buy decision
a. depends on whether the company is operating at or
below breakeven
b. depends on whether the company is operating at or
below normal volume
c. involves an analysis of avoidable costs
d. should use absorption (full) costing
e. should use activity-based costing
6. Total unit costs are
a. relevant for CVP analysis
b. needed for determining sunk cost
c. irrelevant in marginal analysis
d. independent of the cost system used to generate
them
e. needed for determining product contribution
7. The term relevant cost applies to all the following
decision situations except the
a. acceptance of a special order
b. manufacture or purchase of a component part
c. determination of a product price
d. replacement of equipment
e. addition or deletion of a product line
8. Filipino Coat Company estimates that 60,000 special
zippers will be used in the manufacture of men's jackets
during the next year. Resse Zipper Company has quoted
a price of P.60 per zipper. Filipino would prefer to
purchase 5,000 units per month, but Reese is unable to
guarantee this delivery schedule. In order to ensure
availability of these zippers, Filipino is considering the
purchase of all 60,000 units at the beginning of the year.
Assuming Filipino can invest cash at 8%, the company's
opportunity cost of purchasing that 60,000 units at the
beginning of the year is
a. P1,320 b. P1,440 c. P1,500 d. P16,500
9. Sunk costs
a. are substitutes for opportunity costs
b. in and of themselves are not relevant to decision
making
c. are relevant to decision making
d. are relevant to long-run decisions but not to short-run
decisions
e. are fixed costs
Questions 10 and 11 are based on the following
information. Regis Company manufactures plugs used it
ints manufacturing cycle at a cost of P36 per unit that
includes P8 of fixed overhead. Regis needs 30,000 of
these plugs annually, and Orlan Company has offered to
sell these units to Regis at P33 per unit. If Regis decides
to purchase the plugs, P60,000 of the annual fixed
overhead applied will be eliminated, and the company
may be able to rent the facility previously used for
manufacturing the plugs.
10. If Regis Company purchases the plugs but does not
rent the unused facility, the company would
a. save P3 per unit b. lose P6 per unit
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c. save P2 per unit d. lose P3 per unit
e. save P1 per unit
11. If the plugs are purchased and the facility rented,
Regis Company wishes to realize P100,000 in savings
annually. To achieve this goal, the minimum annual rent
on the facility must be
a. P10,000 b. P40,000 c. P70,000
d. P190,000 e. P280,000
12. Laurel Corporation has its own cafeteria with the
following annual costs:
Food P100,000
Labor P 75,000
Overhead P110,000
The overhead is 40% fixed. Of the fixed factory
overhead, P25,000 is the salary of the cafeteria
supervisor. The remainder of the fixed overhead has
been allocated from total company overhead. Assuming
the cafeteria supervisor will remain and that Laurel will
continue to pay his/her salary, the maximum cost Laurel
will be willing to pay an outside firm to service the
cafeteria is
a. P285,000 b. P175,000 c. P219,000
d. P266,000 e. P241,000
13. Norkis Motors, Inc. employs 45 sales personnel to
market its line of luxury automobiles. The average car
sells for P23,000, and a 6% commission is paid to the
salesperson. Norkis is considering a change to a
commission arrangement that would pay each
salesperson a salary of P2,000 per month plus a
commission of 2% of the sales made by that
salesperson. The amount of total monthly car sales at
which Norkis Motors would be indifferent as to which
plan to select is
a. P2,250,000 b. P3,000,000 c. P1,500,000
d. P1,250,000 e. P4,500,000
14. The opportunity cost of making a component part in
a factory with no excess capacity is the
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 given up from the best alternative use of
the capacity
e. total manufacturing cost of the component.
15. ABC Realty manages five apartment complexes in a
three-state area. Shown below are summary income
statements for each apartment complex.
QUIZ – ACCTG 120A SHORT-TERM NON-ROUTINE DECISIONS
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ABC Realty 17. The costs described in situations I and IV

Summary Income Statements a. prime costs
(in thousands) b. sunk costs
c. discretionary costs
1 2 3 4 5 d. relevant costs
Rental income P1,000 P1,210 P2,347 P1,878 P1,065 e. imputed costs
Expenses 800 1,300 2,600 2,400 1,300
Profit P 200 P(90) P (253) P (552) P (235)
18. The costs described in situations III and V are
a. prime costs
Included in the expenses is P1,200,000 of corporate
b. sunk costs
overhead allocated to the apartment complexes based
c. discretionary costs
on rental income. The apartment complex(es) that ABC
d. relevant costs
should consider selling is (are)
e. imputed costs
a. apartment complexes 2, 3, 4, and 5
19. The cost described in situation II is a
b. apartment complexes 3, 4, and 5
a. prime costs
c. apartment complexes 4 and 5
b. sunk costs
d. apartment complex 4
c. discretionary costs
e. apartment complexes 2, 3 and 4
d. relevant costs
e. imputed costs
16. Power Systems, Inc. manufactures jet engines for
the United States armed forces on a cost-plus basis. The
Questions 19-20 are based on the following information.
cost of a particular jet engine the company manufactures
Condensed monthly operating income date for Korbin,
is shown below.
Inc. for May 31, 2008 follow:
Direct materials 200,000
Urban Suburban Total
Direct labor 150,000
Sales 80,000 120,000 200,000
Overhead:
VC 32,000 84,000 116,000
Supervisor's salary 20,000
CM 48,000 36,000 84,000
Fringe benefits on direct labor 15,000
Direct FC 20,000 40,000 60,000
Depreciation 12,000
Store segment margin 28,000 (4,000) 24,000
Rent 11,000
Common FC 4,000 6,000 10,000
Total cost 408,000
Operating income 24,000 (10,000) (14,000)

If production of this engine were discontinued, the
production capacity would be idle, and the supervisor
would be laid off. When asked to bid on the next contract
for this engine, the minimum unit price that Power
Systems should bid is
a. P408,000 b. 365,000 c. 397,000
d. 385,000 e. 350,000
Questions 17-19 are based on the following information.
Management accountants are frequently asked to
analyze various decision situations, including the
following:
Additional information regarding Korbin's operations
follows:
 ¼ of each store's direct FC would continue if
either store is closed
 Korbin allocates common FC to each store on
the basis of sales dollars
 Management estimates that closing Suburban
Store would result in a 10% decrease in Urban
Store's sales, whereas closing Urban Store
would not affect Suburban Store's sales
 The operating results for May 2008 are
representative of all months

I. The cost of a special device that is necessary if
a special order is accepted
II. The cost proposed annually for the plant
service for the grounds at corporate
headquarters
III. Joint production costs incurred, to be
considered in a sell-at-split versus a process
further decision
IV. The costs associated with alternative uses of
plant space, to be considered in a make/buy
decision
V. The cost of obsolete inventory acquired several
years ago, to be considered in a keep-versus-
disposal decision
19. A decision by Korbin to close Suburban Store would
result in a monthly increase (decrease) in Korbin's
operating income of
a. P(10,800) b. P(6,000) c. P(1,200)
d. P4,000 e. P10,000
20. Korbins is considering a promotional campaign
at Suburban Store that would not affect Urban
Store. Increasing annual promotional expense
at Suburban Store by P60,000 in order to
increase this store's sales by 10% would result
in a monthly increase (decrease) in Korbin's
operating income during 2009 (rounded) of

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QUIZ – ACCTG 120A SHORT-TERM NON-ROUTINE DECISIONS
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a. P(5,000) P40,000 of these fixed expenses could be eliminated if

b. P(1,400) the department is discontinued. These data indicate that
c. P487 if the department is discontinued, the company's overall
d. P7,000 net operating income would:
e. P12,000 a. decrease by P25,000 per year.
b. increase by P25,000 per year.
21. The Lantern Corporation has 1,000 obsolete lanterns c. decrease by P10,000 per year.
that are carried in inventory at a manufacturing cost of d. increase by P10,000 per year.
P20,000. If the lanterns are reworked for P5,000, they
could be sold for P9,000. Alternatively, the lanterns 25. The Cook Company has two divisions--Eastern and
could be sold for scrap for P1,000. Which alternative is Western. The divisions have the following revenues and
more desirable and what are the total relevant costs for expenses:
that alternative?
a. rework and P5,000. Eastern Western
b. rework and P25,000. Sales P550,000 P500,000
c. scrap and P20,000. Variable costs 275,000 200,000
d. scrap and P19,000. Direct fixed costs 80,000 150,000
Allocated corporate costs 170,000 135,000
22. Relay Corporation manufactures batons. Relay can Net income (loss) (75,000) 15,000
manufacture 300,000 batons a year at a variable cost of
P750,000 and a fixed cost of P450,000. Based on The management of Cook is considering the elimination
Relay's predictions for next year, 240,000 batons will be of the Eastern Division. If the Eastern Division were
sold at the regular price of P5.00 each. In addition, a eliminated, the direct fixed costs associated with this
special order was placed for 60,000 batons to be sold at division could be avoided. However, corporate costs
a 40% discount off the regular price. Total fixed costs would still be P305,000 in total. Given these data, the
would be unaffected by this order. By what amount elimination of the Eastern Division would result in an
would the company's net operating income be increased overall company net income (loss) of:
or decreased as a result of the special order? a. P15,000.
a. P60,000 decrease. b. (P155,000).
b. P30,000 increase. c. (P75,000).
c. P36,000 increase. d. (P60,000).
d. P180,000 increase.
26. Manico Company produces three products -- X, Y, &
23. Wagner Company sells product A for $21 per unit. Z -- with the following characteristics:
Wagner's unit product cost based on the full capacity of X Y Z o
200,000 units is as follows: Selling price per unit P20 100% P16 100% P15 100%
Variable cost per unit 12 60 12 75 6 40
Contribution margin per unit P 8 40% P 4 25% P 9 60%
Direct materials P4
Machine hours per unit ...... 5 3 6
Direct labor 5
Manufacturing overhead 6
The company has only 2,000 machine-hours available
Unit product cost P15
each month. If demand exceeds the company's capacity,
in what sequence should orders be filled if the company
A special order offering to buy 20,000 units has been
wants to maximize its total contribution margin?
received from a foreign distributor. The only selling costs
a. orders for Z first, X second, and Y third.
that would be incurred on this order would be $3 per unit
b. orders for X first, Z second, and Y third.
for shipping. Wagner has sufficient idle capacity to
c. orders for Y first, X second, and Z third.
manufacture the additional units. Two-thirds of the
d. orders for Z first and no orders for X or Y.
manufacturing overhead is fixed and would not be
affected by this order. Assume that direct labor is an
27. Consider the following statements:
avoidable cost in this decision. In negotiating a price for I. A vertically integrated firm is more dependent on its
the special order, the minimum acceptable selling price suppliers than a firm that is not vertically integrated.
per unit should be: II. Many firms feel they can control quality better by making
a. P14. their own parts.
b. P15. III. A vertically integrated firm realizes profits from the parts it is
c. P16. "making" instead of "buying" as well as profits from its regular
d. P18. operations.
Which of the above statements represent advantages to
24. A study has been conducted to determine if one of a firm that is vertically integrated?
the departments in Parry Company should be a. Only I
discontinued. The contribution margin in the department b. Only III
is P50,000 per year. Fixed expenses charged to the c. Only I and II
department are P65,000 per year. It is estimated that d. Only II and III

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