ACCT 202 Mock Exam 7 Chapter 11 1.

All costs are relevant in a decision except costs that do not differ between alternatives. a. True b. False 2. Sunk costs may be relevant in a decision. a. True b. False 3. Costs that are relevant in one decision are not necessarily relevant in another decision. a. True b. False 4. Allocation of common fixed costs to product lines and to other segments of a company helps the manager to see if the product line or segment is profitable. a. True b. False 5. Opportunity cost may be a key factor in a make or buy decision. a. True b. False 6. All f the following costs are relevant in a make or buy decision except: a. The opportunity cost of space b. Costs that are avoidable by buying rather than making c. Variable costs of producing the item d. Costs that are differential between the make and buy alternatives e. All of the above costs are relevant 7. One of Fowler Company’s products has a contribution margin of $50,000 and fixed costs totaling $60,000. If the product is dropped, $40,000 of the fixed costs will continue unchanged. As a result of dropping the product, the company’s net operating income should: a. Decrease by $50,000 b. Increase by $30,000 c. Decrease by $30,000 d. Increase by $10,000

then the company should emphasize: a. . If the constraint is machine-hours. . The variable selling costs on the special order would be $0. and requires 4 machine-hours to produce. The effect on net operating income as a result of purchasing the part would be a: a. Product B has a contribution margin of $12 per unit. Product B 10.850 decrease c. . at its normal sales level of 30.95 for each kite. . The customer has offered a price of $9. Unit product cost . Fixed manufacturing cost .850 increase b.75 Fixed selling and administrative costs $3. $5. . two-thirds of the fixed manufacturing costs can be eliminated. Martin Products. .000 units of a sport-fighting kite. .000 parts each year that are used in one of its products. Giese Company produces 2.000 decrease 9. has received a special order for 1. . Inc. . . $1. If the part is purchased from the outside supplier. The unit product cost of this part is: Variable manufacturing cost . . are detailed below: Variable production costs $5. The special order would have no impact on the company’s other sales.50 6. . $1. $7.35 Variable selling costs $0.25 Fixed production costs $2.000 increase b. The unit costs of the kite. $4.550 increase . . a contribution margin ratio of 50%. $7.000 decrease c.50 The part can be purchased from an outside supplier for $10 per unit. . . a contribution margin ratio of 40%. .8.75 per unit.000 units per year. and requires 5 machine-hours to produce.00 $13. Product A has a contribution margin of $8 per unit.000 increase d. $1. $3. .15 per unit instead of $0. What effect would accepting this special order have on the company’s net operating income? a. Product A b.45 There is ample idle capacity to produce the special order without any increase in total fixed costs.

Which of the following statements is false? a. Vermont. and the manufacturing overhead per unit is $18. c. Fixed costs cannot be relevant costs. and by how much? a. for a 5-day/4-night winter ski vacation. what is the minimum price that can be accepted for the special order? a. The $400 airline ticket to Stowe c. Telluride by $70 d.000 units of a customized product.d. The $180 per night hotel room in Telluride 13. The $450 airline ticket to Telluride b. including $6 of variable manufacturing overhead.550 decrease 11. Future costs that do not differ between alternatives are irrelevant. the direct labor cost per unit is $5. for $400 that includes a free ski lift ticket. A and D f. Which of the following costs is not relevant in a decision of whether to proceed with the planned trip to Telluride or to change to a trip to Stowe? a. The price of your lift ticket for the Telluride vacation would be $300. A company has received a special order from a customer to make 5. You now have an opportunity to buy an airline ticket for a 5-day/4-night winter ski vacation in Stowe. e. Under some circumstances. The direct materials cost per unit of the customized product is $15. The price of a hotel room in Stowe is $150 per night. If the company has sufficient available manufacturing capacity. d. The $300 lift ticket for the Telluride vacation d. $24 . Stowe by $20 c. Assume that in October you bought a $450 nonrefundable airline ticket to Telluride. Stowe by $470 b. The price of a hotel room in Telluride is $180 per night. does a differential cost analysis favor Telluride or Stowe. Based on the facts in question 12 above. Colorado. Telluride by $20 14. B and C 12. a sunk cost may be a relevant cost. b. The same cost may be relevant or irrelevant depending on the decision context. Only variable costs are relevant costs. $4.

D) variable costs. $100.000. $25. $18.000. $50.000. $50.000 obsolete units of a product that are carried in inventory at a manufacturing cost of $40. however. $75.b.5 minutes of the constrained resource per unit. in answering this question assume that the company is operating at 100% of its capacity without the special order. If the units are remachined for $10. Refer to the facts from question 14. 18. a. 17. The Brosnan Corporation has 2. C) fixed overhead that will be avoided if the special offer is accepted. C) Scrap. Alternatively. C) sunk costs. $32 d.000. D) Scrap.000 c.000 16. B) Remachine. D) variable overhead. B) fixed costs. If the company normally manufactures only one product that has a contribution margin of $20 per unit and that consumes 2 minutes of the constrained resource per unit. .000. B) direct materials.000. The alternative that is more desirable and the total relevant costs for that alternative are A) Remachine.000 b. A cost that is not relevant is their decision is the: A) common fixed overhead that will continue if the special offer is not accepted. The managers of a firm are in the process of deciding whether to accept or reject a special offer for one of its products. Costs that are always relevant in decision-making are: A) avoidable costs. $38 15. $26 c. the units could be sold for scrap for $2. $10.000.000 d. $40. they could be sold for $18.000. what is the opportunity cost (stated in terms of forgone contribution margin) of taking the special order? Assume that the special order would require 1.

D) $21. This would have no effect on the company's other sales.000 units a year at a variable cost of $1.500.00 C) $420.000 and a fixed cost of $900.00 per unit.00 each. Based on management's predictions for next year. C) $16.000 units to be sold at a 40% discount off the regular price.000 units per month (which represents the company's full capacity): Assume the company has 300 units left over from last year which have small defects and which will have to be sold at a reduced price as scrap.000 . The following are the Burgess Company's unit costs of making and selling an item at a volume of 30. 20. a special order was placed for 120.000. In addition. The variable selling and administrative costs would have to be incurred to sell the defective units.000 B) $300.00 per unit.00 per unit.000 units will be sold at the regular price of $10.00 per unit.19. By what amount would the company's net operating income be increased as a result of the special order? A) $240. Total fixed costs would be unaffected by this order. The relevant cost to be used as a guide for setting a minimum price on these defective units is A) $4. B) $12.000 D) $720. Remington Corporation can manufacture 600. 480.

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