Multiple Choice Problems

1. Which of the following is not part of the decision-making process?

a. Reaching a decision
b. Identifying the problem
c. Reversing the decision if not economically sound
d. Quantifying the factors associate with the alternatives
2. What are the relevant costs?
a. The change in prime cost under each alternative course of action
b. Future costs will differ under each alternative course of action
c. Historical costs which are the best available basis for estimating future costs
d. Standard costs which are developed by time-and-motion study techniques
because of their relevance to managerial control
3. The relevance of a particular cost to a decision is determined by the
a. Size of the cost
b. Risk level of the decision
c. Potential effect on the decision
d. Accuracy and verifiability of the cost
4. In short-term decision making, which kind of cost should be ignored?
a. Sunk cost
b. Relevant cost
c. Differential cost
d. Incremental cost
5. This entire amount is usually a differential cost
a. Direct cost
b. Period cost
c. Conversion cost
d. Factory overhead
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6. The opportunity cost of making a component part in a factory with no excess capacity is
the
a. Fixed manufacturing costs of the component
b. Variable manufacturing cost of the component
c. Net benefit given up in order to manufacture the component
d. Cost of the production given up in order to manufacture the component
7. Which of the following qualitative factors favors the buy choice in a make or buy decision?
a. Idle capacity is available
b. Maintaining a long-run relationship with suppliers is desirable
c. Quality control is critical
d. All of the choices
8. In an insourcing vs outsourcing situation, which of the following qualitative factors is
usually considered?
a. Skilled labor
b. Special materials requirements
c. Special technology
d. All of the choices
Items 9 and 10 are based on the following information:
ABC Company manufactures plugs used in its manufacturing cycle at a cost of Php45 per unit
that includes Php10 of fixed overhead. ABC needs 37,500 of these plugs annually, and XYZ
Company has offered to sell these units to ABC at Php42 per unit. If ABC decided to purchase
the plugs, Php75,000 of the annual fixed overhead will be eliminated, and the company may be
able to rent the facility previously used manufacturing the plugs.
9. If ABC Company purchases the plugs but does not rent the unused facility, the company
would
a. Lose Php3.00 per unit
b. Save Php3.00 per unit
c. Lose Php5.00 per unit
d. Save Php5.00 per unit
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10. If the plugs are purchased and the facility rented, ABC Company wishes to realize
Php125,000 in savings annually. To achieve this goal, the minimum annual rent on facility
must be
a. Php112,500
b. Php187,500
c. Php150,000
d. Php312,500
11. A company that is operating at full capacity should set the minimum selling price of a
special order to cover
a. Fixed costs
b. Fixed cost-plus foregone contribution margin on lost regular sales
c. Variable costs
d. Variable cost-plus forgone contribution margin on lost regular sales
12. Which of the following are not relevant to a decision to accept or reject an order?
a. Historical cost
b. Avoidable cost
c. Differential cost
d. Out-of-pocket cost
13. In deciding whether to accept a special order or not, which of the following costs are
considered irrelevant?
a. Materials
b. Direct labor
c. Depreciation
d. Variable overhead
14. Which of the following cost allocation methods is used to determine the lowest price that
can be quoted for a special order that will use idle capacity within a production?
a. Process
b. Variable
c. Standard
d. Job order
15. A special order would be acceptable as long as the revenue from the special order
exceeds
a. The contribution margin on the order
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b. The sunk costs associated with the order
c. The variable costs associated with the order
d. The incremental cost associated with the order
Items 16 and 17 are based on the following information:
Nonsense Company is a manufacturer of industrial components. One of its products was
Product
X, with a selling price of Php360 per unit with a cost per unit of Php250. The Company received
a special, one-time, order for 2,400 units of Product X. Assuming that the Company is operating
at full capacity and that the contribution margin of the output that would be displaced by the
special
order is Php24,000.
16. Assume that the Company is not operating at full capacity and there is no contribution
margin that can be lost, determine the minimum price acceptable.
a. Php250
b. Php260
c. Php300
d. Php360
17. Assuming that the Company is operating at full capacity and that the contribution margin
of the output that would be displaced by the special order is Php24,000. Determine the
minimum price acceptable.
a. Php250
b. Php260
c. Php300
d. Php360
Items 18 to 21 are based on the following information:
A company want to open a new store in one of the three nearby shopping malls. In Mall X, the
rent will be Php300,000 per year. In Mall Y, the rent will be 4% of gross revenues. In Mall Z, the
rent will be Php150,000 per year plus 3% of gross revenues and all other elements under
consideration are the same for all three malls.
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18. Which mall should the company choose if revenues are expected to be Php 6,000,000 per
year?
a. Mall X
b. Mall Y
c. Mall Z
d. Indifferent
19. If the company expects revenues to be per year, which mall should be chosen?
a. Mall X
b. Mall Y
c. Mall Z
d. Indifferent
20. Assuming that revenues and all other elements under consideration are the same for both
malls, at what level of revenue will the company be indifferent between the malls (Mall X
and Y)?
a. Php 1,000,000
b. Php 4,000,000
c. Php 7,500,000
d. Php 12,500,000
21. What is the maximum level of revenues at which Mall Z will be the most desirable the three
options?
a. Php 149,999
b. Php 5,000,000
c. Php 15,000,000
d. None
22. Which of the following statements is true?
a. Constraints may be either internal or external.
b. Internal constraints are physical while external constraints are imaginary.
c. Theory of constraints is useful in analyzing internal constraints but cannot identify
external constraints.
d. Theory of constraints is useful for identifying physical constraints but cannot
incorporate nonphysical constraints.
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23. Which of the following short-term approach to managing bottlenecks or binding constraints
in production or distribution processes?
a. Benchmarking
b. Rationalization
c. Reengineering
d. Theory of Constraints
24. When a multiproduct plant operates at full capacity, decisions must be made as to which
products to emphasize. These decisions are frequently made with a short-run focus. In
making such decisions, managers should select products with the
a. Highest sales price per unit
b. Highest sales volume potential
c. Highest individual unit contribution margin
d. Highest contribution margin per unit of the constraining resource
25. ABC Company manufactures three products at its highly automated factory. The products
are very popular, with demand far exceeding the company's ability to supply the
marketplace. To maximize profit, management should focus on each product's
a. Gross margin
b. Contribution margin ratio
c. Segment Margin
d. Contribution margin per machine