Exam

Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) Ratzlaff Company has a current production level of 20,000 units per month. Unit costs at this level are:
Direct materials $0.25
Direct labour 0.40
Variable overhead 0.15
Fixed overhead 0.20
Marketing - fixed 0.20
Marketing/distribution - variable 0.40
Current monthly sales are 18,000 units. Jim Company has contacted Ratzlaff Company about purchasing 1,500 units at
$2.00 each. Current sales would NOT be affected by the one-time-only special order, and variable
marketing/distribution costs would NOT be incurred on the special order. What is Ratzlaff Company's change
in operating profits if the special order is accepted?
A) $400 decrease in operating profits
B) $1,500 increase in operating profits
C) $1,800 increase in operating profits
D) $1,800 decrease in operating profits
E) $400 increase in operating profits

2) Sunk costs
A) are relevant.
B) are evaluated to determine if they are relevant or not evaluating alternatives.
C) are ignored when evaluating alternatives.
D) are differential.
E) have future implications.

3) How many units would have to be sold to yield a target operating income of $22,000, assuming variable costs
are $15 per unit, total fixed costs are $2,000, and the unit selling price is $20?
A) 4,400 units B) 4,800 units C) 3,600 units D) 1,600 units E) 4,000 units

4) Which of the following is TRUE concerning opportunity costs?

A) They entail cash disbursements.
B) They are incorporated into formal financial accounting reports.
C) They are relevant for the make/buy decision.
D) They require accounting journal entries.
E) They entail cash receipts.

5) Wages paid to machine operators on an assembly line are an example of which type of cost?
A) indirect material costs
B) direct materials costs
C) indirect manufacturing overhead costs
D) direct manufacturing overhead costs
E) direct manufacturing labour costs

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 6) Which of the following statements about using the equation method to determine the break-even point is
TRUE?
A) Operating income in the equation is set equal to nil.
B) The number of units required to reach the break-even point tends to be higher (as it incorporates total
costs) using this method than when using the contribution margin method.
C) Operating income in the equation is set equal to the target income for the year.
D) Revenue in the equation includes only operating revenues plus fixed costs.
E) Operating income in the equation assumes that fixed costs are nil.

7) Which of the following would not be considered in a make or buy decision?

A) potential usage of manufacturing capacity
B) potential rental income from space occupied by production area
C) variable costs of production
D) unchanged fixed costs
E) qualitative factors

8) Which of the following should management consider to avoid the pitfalls of relevant-cost analysis?
A) Assume that all fixed costs are irrelevant.
B) Assume that all variable costs are relevant.
C) Consider all current revenues and costs.
D) Include any item of revenue or cost that is either an expected future revenue or expected future cost, and,
differs between the alternatives.
E) Historic revenues and costs for items that differ according to alternatives should be considered.

9) Manufacturing overhead includes

A) corporate insurance cost.
B) plant utilities.
C) marketing costs.
D) the executive officers' salaries.
E) supplies used in the human resources department.

10) Which of the following is an indirect production cost?

A) materials placed into production
B) advertising
C) cost of shipping a product to the customer
D) calibrating factory equipment
E) labour placed into production

11) The relevant range is important because

A) it determines the time horizon.
B) it provides a basis for determining a range of acceptable cost alternatives.
C) it specifies which costs should be used for a given decision.
D) it specifies the limits beyond which the relationship of cost to cost drivers may not be valid.
E) it is required to determine inventoriable costs under ASPE/IFRS.

12) Which of the following costs are never relevant in the decision-making process?
A) fixed costs
B) variable costs
C) relevant costs
D) historical costs
E) opportunity costs

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13) When making decisions, it is best to use
A) unit cost, rather than total cost.
B) fixed costs that would be incurred.
C) average costs.
D) variable costs that would be incurred.
E) relevant costs.

14) A computer system installed last year is an example of a(n)

A) sunk cost.
B) differential cost.
C) opportunity cost.
D) relevant cost.
E) avoidable cost.

15) Variable costs

A) include most personnel costs and depreciation on machinery.
B) can always be traced directly to the cost object.
C) change in relation to selling price.
D) increase in total when the actual level of activity increases.
E) are always indirect costs.

16) Which of the following is an assumption of CVP analysis?

A) The time value of money must be taken into account.
B) Total revenues and total costs are curvilinear in relation to output units.
C) There will be a change between beginning and ending levels of inventory.
D) Given revenue mixed of products is dynamic.
E) Costs must be separated into separate fixed and variable components.

17) The people who rely most exclusively on the information in a company's audited financial statements are
A) shareholders.
B) senior management.
C) the accounting staff.
D) operating managers.
E) auditors.

18) Boyd Tool Company is a tool manufacturer. Production capacity is 3,000 units per month; however, they are
considering alternative ways to increase capacity to 3,500 units. One of the alternatives involves purchasing new
equipment. In this alternative, there are two choices: machine A will provide increased capacity of 4,000 units
per month, with unit costs of $14 at capacity; and, machine B will increase capacity to 3,600 units per month
with unit costs of $15 at capacity. Both machines are adequate since Boyd's does not intend to go beyond the
3,500 units per month level for the foreseeable future. Relevant information for this decision includes
A) whether other costs will change solely due to a capacity increase.
B) the different unit cost of production between the two machine at their capacity levels.
C) Boyd's planned capacity utilization.
D) excess capacity of either machine.
E) the different unit cost of production between the two machines at Boyd's planned capacity levels.

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19) Omark Corporation currently manufactures a subassembly for its main product. The variable costs per unit are
$48, in addition to a $6 charge based on estimated selling expenses. R-Corp has contacted Omark with an offer
to sell them 5,000 of the subassemblies for $44.00 each. Omark will eliminate $50,000 of fixed overhead if it
accepts the proposal. What is increase or decrease in profit from accepting the offer?
A) $170,000 increase
B) $50,000 decrease
C) $50,000 increase
D) $100,000 increase
E) $70,000 increase

20) A hospital receives $1,000,000 monthly in funding from various sources. Annual fixed costs are projected to be
$5,000,000 and the variable cost per patient, across all departments is projected to be $534.80. Last year they
treated 11,500 patients. The hospital expects a 5% increase in patients this year. A governing bylaw requires that
the hospital be run as a non-profit organization. What is the maximum number of patients the hospital can
expect to be able to treat assuming the operating income is zero?
A) 11,500
B) 13,000
C) more than 13,000
D) 12,079
E) CVP analysis is not relevant for non-profit organizations.

21) Jansen Industries is considering replacing a machine that is presently used in its production process. The
following information is available:

Old Machine Replacement

Machine
Original cost $25,000 $35,000
Remaining useful life in years 1 5
Current age in years 5 0
Book value $5,000
Current disposal value in cash $3,000
Future disposal value in cash (in 5 years) $0 $2,000
Annual cash operating costs $7,000 $4,000

Which of the information provided in the table is irrelevant to the replacement decision?
A) the annual operating cost of the old machine
B) the original cost of the old machine
C) the remaining useful life of the old machine
D) the future disposal value of the replacement machine
E) the current disposal value of the old machine

22) A one-time-only special order decision

A) allows a company to sell products at prices which only cover fixed costs.
B) should only be undertaken if there is idle capacity.
C) should consider only long-term costs and benefits.
D) should consider only short-term costs and benefits.
E) must still consider short-term and long-term costs and benefits.

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23) A company has two manufacturing facilities: one in Alberta that produces a bulk chemical that it sells to many
different retailers, and one facility in Ontario that is dedicated to producing a specialty chemical for one client
only. The annual profit from the single client is $150,000; and, the profit from the other facility's sales is
$1,500,000, after allocating combined fixed costs based on units produced. Another company has offered to lease
the Ontario facilities for $250,000. Which of the following is TRUE?
A) The company incurred a $250,000 opportunity cost for the past years, but this was not recorded on its
books.
B) The $250,000 is an opportunity cost of continuing to use the Ontario plant.
C) Incremental costs exceed incremental revenues if the plant is rented.
D) The company needs to determine the contribution margin for each product before making any decision.
E) Incremental revenues exceed total costs if the plant is rented.

24) Which of the following anticipated future costs always differ among alternative courses of actions?
A) direct materials costs
B) relevant costs
C) historical costs
D) direct labour costs
E) indirect costs

25) Cost behaviour refers to

A) whether a particular expense has been ethically incurred.
B) classifying costs as either inventoriable or period costs.
C) whether a cost is incurred in a manufacturing, merchandising, or service company.
D) how costs react to a change in the level of activity.
E) how costs react to a change in selling price.

26) For February, the cost components of a picture frame include $0.25 for the glass, $.65 for the wooden frame, and
$0.80 for assembly. The assembly desk and tools cost $400. 1,000 frames are expected to be produced in the
coming year. What cost function best represents these costs?
A) y = 400 + 1.70X
B) y = 2.10 + 1,000X
C) y = .90 + 400X
D) y = 400 + 0.90X
E) y = 1.70 + 400X

27) The Gameshop manufactures specialized board games. Management is attempting to search for ways to reduce
costs and is considering two alternatives for an upcoming project of special games that must be delivered to the
customer in 12 months' time. Management agreed to the special project job as they have an idle plant that is
scheduled for demolition 18 months from now, and either alternative will easily meet the delivery deadline.
Alternative 1 requires 10 machine operators and 2.5 individuals to handle direct materials. Employee pay averages
$17.50 per hour and will increase to $18.50 at the mid-point (July 1) of next year. Each employee currently works 2,500
hours but will decrease to 2,400 hours if Alternative 2 is implemented. The second proposal only requires 8.5 workers.
Which of the following items of information are relevant to this decision?
A) the number of employees required in each alternative
B) property taxes for the idle plant
C) hourly wage rates
D) the timing of the wage increase
E) the delivery deadline

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28) At the break-even point of 200 units, variable costs total $400 and fixed costs total $600. The 201st unit sold will
contribute ________ to profits.
A) $2 B) $1 C) $3 D) $5 E) $6

29) For make-or-buy decisions, relevant costs include

A) differential costs plus sunk costs.
B) incremental costs plus fixed costs.
C) direct material costs plus direct labour costs.
D) incremental costs plus opportunity costs.
E) variable costs plus fixed overhead.

30) Which of the following statements refers to management accounting information?

A) The audience tends to be stockholders, creditors, and tax authorities.
B) The reports are generally delayed and historical.
C) There are no regulations governing the reports.
D) It primarily measures and records business transactions.
E) The reports are audited so can be used in confidence by potential investors.

31) Past costs that are unavoidable and unchangeable are known as
A) operating costs.
B) product production costs.
C) fixed overhead costs.
D) constraining costs.
E) sunk costs.

32) If Harry Inc. doesn't use one of its limited resources in the best possible way, the lost contribution to income
could be called
A) a resource cost.
B) an opportunity cost.
C) an alternative cost.
D) a total alternative cost.
E) a constraining factor.

33) A decision as to whether to insource or outsource is a(n)

A) make/buy decision.
B) product mix decision.
C) idle capacity decision.
D) production scheduling analysis.
E) short-run focus decision.

34) In a company with low operating leverage

A) less risk is assumed than in a highly leveraged firm.
B) fixed costs are high and variable costs are low.
C) there is a higher possibility of net loss than a higher-leveraged firm.
D) companies follow the strategy of replacing variable costs with fixed costs.
E) small increases in sales lead to large increases in operating income.

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35) Brandt Cheque Encoders employs 30 individuals. Ten employees are paid $10 per hour for 173 hours a month
and the rest are salaried employees paid $6,000 a month. How would total costs of personnel be classified?
A) a mixed cost
B) a fixed cost within a relevant range
C) a variable cost within a relevant range
D) variable and fixed
E) a fixed cost

36) Mount Carmel Company sells only two products, Product A and Product B.
Product A Product B Total
Selling price $40 $50
Variable cost per unit $24 $40
Total fixed costs $840,000
Mount Carmel sells two units of Product A for each unit it sells of Product B. Mount Carmel faces a tax rate of 30%.
Mount Carmel desires a net after-tax income of $73,500. The number of units needed to be sold to achieve the
desired after-tax profit would be
A) 45,000 units of Product A and 22,500 units of Product B.
B) 21,750 units of Product A and 43,500 units of Product B.
C) 64,616 units of Product A and 32,308 units of Product B.
D) 43,500 units of Product A and 21,750 units of Product B.
E) 22,500 units of Product A and 22,500 units of product B.

37) Financial accounting

A) is primarily concerned with profitability analysis.
B) focuses on the future and includes activities such as preparing next year's operating budget.
C) is prepared for the use of department heads and other employees.
D) must comply with IFRS/ASPE.
E) reports include detailed information on the various operating segments of the business such as product
lines or departments.

38) Which of the following statements is TRUE concerning operating leverage?

A) It measures the change in operating income when costs change proportionately with the change in the
number of units sold.
B) The degree of operating leverage increases inversely to the number of units sold.
C) The degree of operating leverage equals contribution margin divided by operating income, at any specific
sales level.
D) The degree of operating leverage remains constant (in the relevant range) when there is a change in the
number of units sold.
E) It summarizes the risk-return tradeoff across alternate revenue possibilities.

39) Sales total $200,000 when variable costs total $150,000 and fixed costs total $30,000. The break-even point in
sales dollars is
A) $120,000. B) $200,000. C) $40,000. D) $30,000. E) $180,000.

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40) Audio Labs collected the following information on the cost of producing 20,000 speaker units:
Direct materials $32.00 per unit
Direct labour 4.00 per unit
Variable overhead 16.00 per unit
Fixed overhead 20.00 per unit
Cartunes has offered to sell Audio 10,000 speakers for $56.00 each.
Should Audio Labs make or buy the parts if the facilities remain idle when speakers are purchased?
A) make, save $6.00 per unit
B) make, save $2.00 per unit
C) buy, save $4.00 per unit
D) buy, save $16.00 per unit
E) make, save $4.00 per unit

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Answer Key
Testname: TRIAL 8 MAR 2019

1) C
2) C
3) B
4) C
5) E
6) A
7) D
8) D
9) B
10) D
11) D
12) D
13) E
14) A
15) D
16) E
17) A
18) E
19) D
20) C
21) B
22) E
23) B
24) B
25) D
26) A
27) A
28) C
29) D
30) C
31) E
32) B
33) A
34) A
35) A
36) A
37) D
38) C
39) A
40) E