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Cost Accounting Chapter 10 Quiz

1. Which of the following is not a required characteristic of relevant information? a. Must be associated with the decision under consideration b. Must have a connection to or bearing on some future endeavor c. Must be important to the decision maker d. Must be verifiable by an independent reviewer or auditor 2. Contribution to income that is foregone by not using a limited resource for its best alternative use is referred to as a. marginal cost. b. incremental cost. c. non-relevant cost. d. opportunity cost. 3. Total unit costs are: a. relevant for cost-volume-profit analysis. b. needed for determining sunk costs. c. non-relevant in marginal analysis. d. needed for determining product contribution. 4. Sunk costs are: a. relevant to decision making. b. not relevant to decision making. c. non-relevant to long-run decisions but not to short-run decisions. d. fixed costs. 5. In equipment-replacement decisions, which one of the following does not affect the decisionmaking process? a. Historical cost of the old equipment b. Cost of the new equipment c. Operating costs of the new equipment d. Current disposal price of the old equipment 6. Select the incorrect statement from the following. a. A cost that is the same for multiple alternatives under consideration is not relevant. b. The cost of acquiring the machine that is currently used to produce a component is relevant in making an outsourcing decision. c. The cost to acquire a component in a make or buy decision is relevant. d. The salvage or residual value of a piece of machinery is relevant in a keep-or-replace decision. 7. A companys approach to a make-buy decision a. involves an analysis of avoidable costs. b. depends on whether the company is operating at or below breakeven. c. should use absorption costing. d. should use activity-based costing.

8. P Company currently manufactures all component parts used in the manufacture of various small appliances. A steel handle is used in three different products. The current year budget for 20,000 handles has the following unit cost: Direct material Direct labor Variable overhead Fixed overhead Total unit cost $0.60 0.40 0.10 0.20 $1.30

A steel company has offered to supply 20,000 handles to P Company for $1.25 each, which includes delivery. Accepting the offer will: a. decrease the handle unit cost by $0.15. b. decrease the handle unit cost by $0.25. c. increase the handle unit cost by $0.15. d. Increase the handle unit cost by $0.05. 9. Select the incorrect statement concerning scarce resource decisions. a. Unit contribution margin rather than gross margin is the appropriate measure of profitability. b. Scarce resources may include machine hours, skilled labor hours, and raw materials. c. If the objective is to maximize profits, a scarce resource is best used to produce and sell the product generating the highest contribution margin per unit. d. Although in the long run, a company may acquire a higher quantity of the scarce resource, in the short run, management must make the most efficient use of the currently available resources. 10. D Company recently expanded its manufacturing capacity, which will allow it to produce up to 15,000 units of Products A and B. The sales department believes it can sell up to 13,000 units of either product this year. Because the two products are very similar, D Company will produce only one of the two products. The following information is available: Per Unit Data Product A Selling price $88.20 Variable costs 52.80 Product B $80.00 52.80

Fixed costs will total $369,600 if Product A is produced but will be only $316,800 if Product B is produced. D Company is subject to a 40% income tax rate. If the company desires an after-tax profit of $24,000, how many units of Product B will the company have to sell? a. 4,460 b. 12,529 c. 13,118 d. 13,853 11. Select the correct statement concerning special order decisions. a. Such decisions must not violate the Robinson-Patman Act which prohibits companies from pricing the same product at different levels when those amounts do not reflect related cost differences. b. Companies may give ad hoc discounts if such concessions relate to real or imagined competitive pressures. c. Special order decisions often hinge on productive capacity issues. d. All of the above are correct.

12. R Company sells a product for $10.00 that has the following unit cost: Direct material Direct labor Variable overhead Fixed overhead Total unit cost $1.60 2.40 1.20 1.30 $6.50

A company that does not compete with R Companys existing customers has made an offer to purchase 1,000 units of the product at a proposed price of $6.00. R Company is currently selling all of the units it can produce to its existing customers. Select the correct statement from the following. a. Reject the offer since the offer price is less than the unit production cost. b. Accept the offer since the offer price exceeds the sum of the variable costs. c. Reject the offer to avoid a $4.00 per unit decrease in profit on the 1,000 units. d. Accept the offer since the offer price exceeds the unit fixed cost. 13. Select the correct definition of segment margin from the following: a. Revenue Expenses b. Revenue Variable Costs c. Revenue Variable Costs Avoidable Fixed Costs d. Revenue Variable Costs Unavoidable Fixed Costs