CH 11

Cost Accounting, 13e (Horngren et al.) Chapter 11 Decision Making and Relevant In or!
ation
1) A decision model is a formal method for making a choice, frequently involving both quantitative and qualitative analyses. Answer: TR !
Diff: 1 Terms: decision model, quantitative factors, qualitative factors Objective: 1 AACSB: Reflective thin in!
") #eedback from $revious decisions uses historical information and, therefore, is irrelevant for making future $redictions. Answer: #A%&! !'$lanation: (istorical costs may be hel$ful in making future $redictions, but are not relevant costs for decision making.
Diff: " Terms: relevant costs Objective: 1 AACSB: Communication
)) Relevant costs are e'$ected future costs that differ among alternatives. Answer: TR !
Diff: " Terms: relevant costs Objective: " AACSB:
Reflective thin in!
*) Relevant revenues are e'$ected future revenues that do not differ among alternatives. Answer: #A%&! !'$lanation: Relevant revenues are e'$ected future revenues that differ among alternatives.
Diff: " Terms: relevant revenues Objective: " AACSB: Reflective thin in!
+) The amount $aid to $urchase tools last month is an e'am$le of a sunk cost. Answer: TR !
Diff: " Terms: sun costs Objective: " AACSB: Anal#tical s ills
,) #or decision making, differential costs assist in choosing between alternatives. Answer: TR !
Diff: 1 Terms: differential cost Objective: " AACSB: Reflective thin in!
"
-) #or a $articular decision, differential revenues and differential costs are always relevant. Answer: TR !
Diff: 1 Terms: differential cost, differential revenue Objective: " AACSB: Reflective thin in!
.) A cost may be relevant for one decision, but not relevant for a different decision. Answer: TR !
Diff: " Terms: relevant costs Objective: " AACSB: Reflective thin in!
/) Revenues that remain the same for two alternatives being e'amined are relevant revenues. Answer: #A%&! !'$lanation: Revenues that remain the same between two alternatives are irrelevant for that decision since they do not differ between alternatives.
Diff: 1 Terms: relevant revenues Objective: " AACSB: Reflective thin in!
10) *
&unk costs are $ast costs that are unavoidable. Answer: TR !

Diff: 1 Terms: sun costs Objective: " AACSB: Reflective thin in!
11) The cost of a machine $urchased last year will be irrelevant in a decision for ne't year. Answer: TR !
Diff: " Terms: sun costs, relevant costs Objective: " AACSB: Anal#tical s ills
1") A sunk cost can never be relevant. Answer: TR !

Diff: " Terms: sun costs, relevant costs Objective: " AACSB: Reflective thin in!
1)) 1uantitative factors are always e'$ressed in numerical terms. Answer: TR !

Diff: " Terms:
quantitative factors Objective: " AACSB: Reflective thin in!
1*) 1ualitative factors are outcomes that are measured in numerical terms, such as the costs of direct labor. Answer: #A%&! !'$lanation: $uantitative factors are outcomes that are measured in numerical terms, such as the costs of direct labor.
Diff: 1 Terms: qualitative factors Objective: " AACSB: Reflective thin in!
1+) 2f a manufacturer chooses to continue $urchasing direct materials from a su$$lier because of the ongoing relationshi$ that has develo$ed over the years, the decision is based on qualitative factors. Answer: TR !
Diff: " Terms: qualitative factors Objective: " AACSB: Reflective thin in!
1,) Relevant revenues and relevant costs are the only information managers need to select among alternatives. Answer: #A%&! !'$lanation: 1ualitative factors, as well as relevant revenues and relevant costs need to be considered when selecting among alternatives.
Diff: % Terms: relevant revenues, relevant costs, qualitative factors Objective: " AACSB:
Reflective thin in!
1-) #ull costs of a $roduct are relevant for one3time3only s$ecial order $ricing decisions. Answer: #A%&! !'$lanation: 2ncremental costs of a $roduct are relevant for one3time3only s$ecial order $ricing decisions.
Diff: " Terms: full costs of the &roduct, one'time'onl# s&ecial order, relevant costs Objective: " AACSB: Reflective thin in!
1.) #ull costs of a $roduct include variable costs, but not fi'ed costs. Answer: #A%&! !'$lanation: #ull costs of a $roduct include variable and fi'ed costs for all business functions in the value chain.
Diff: 1 Terms: full costs of the &roduct Objective: " AACSB: Reflective thin in!
1/) #or one3time3only s$ecial orders, variable costs may be relevant but not fi'ed costs. Answer: TR !
Diff: " Terms: one'time'onl# s&ecial order, relevant costs Objective: " AACSB:
Reflective thin in!
"0) The $rice quoted for a one3time3only s$ecial order may be less than the $rice for a long3term customer. Answer: TR !
Diff: " Terms: one'time'onl# s&ecial order Objective: " AACSB: Reflective thin in!
"1) 4id $rices and costs that are relevant for regular orders are the same costs that are relevant for one3time3only s$ecial orders. Answer: #A%&! !'$lanation: &ince long3term costs are relevant for regular orders and short3term costs are relevant for one3time3only s$ecial orders, the relevant costs differ.
Diff: " Terms: one'time'onl# s&ecial order, relevant costs Objective: " AACSB: Reflective thin in!
"") 1ualitative factors, because they are not measured numerically, are unim$ortant in the decision3making $rocess. Answer: #A%&! !'$lanation: 1ualitative factors are im$ortant in the decision3making $rocess even though they cannot be measured numerically.
Diff: " Terms: qualitative factors Objective: " AACSB:
Reflective thin in!
")) 2n a one3time s$ecial order situation, if the $rice offered by the $otential buyer is less than the absor$tion cost $er unit, then the $roducer should not acce$t the s$ecial offer. Answer: #A%&! !'$lanation: 2n a one3time s$ecial order situation, if the $rice offered by the buyer is less than the absor$tion cost $er unit, the s$ecial order may still be $rofitable since absor$tion costs include allocated fi'ed manufacturing overhead.
Diff: % Terms: one'time'onl# s&ecial order, full costs of the &roduct Objective: " AACSB: Reflective thin in!
"*) 2n relevant cost analysis, managers should avoid incorrect general assum$tions and beware of misleading unit cost information. Answer: TR !
Diff: % Terms: relevant costs Objective: " AACSB: (thical reasonin!
"+) An incremental $roduct cost is generally a fi'ed cost. Answer: #A%&! !'$lanation: An incremental $roduct cost is generally a variable cost.
Diff: 1 Terms: incremental cost Objective:
10
" AACSB: Reflective thin in!
",) 2f 5$tion 1 costs 6100 and 5$tion " costs 6.0, then the differential cost is 61.0. Answer: #A%&! !'$lanation: 2f 5$tion 1 costs 6100 and 5$tion " costs 6.0, then the differential cost is 6"0.
Diff: 1 Terms: differential cost Objective: " AACSB: Anal#tical s ills
"-) 7roducing another 10,000 units ma# increase the fi'ed cost of rent. Answer: TR ! !'$lanation: True, if additional ca$acity must be added to accommodate the additional $roduction needs.
Diff: % Terms: incremental cost Objective: " AACSB: Anal#tical s ills
".) Absor$tion cost $er unit is the best $roduct cost to use for one3time3only s$ecial order decisions. Answer: #A%&! !'$lanation: 8ariable cost $er unit is the best cost to use for one3time3only s$ecial order decisions.
Diff: " Terms:
11
full costs of the &roduct, one'time'onl# s&ecial order Objective: " AACSB: Reflective thin in!
"/) &ometimes qualitative factors are the most im$ortant factors in make3or3buy decisions. Answer: TR !
)0) 2f a com$any is deciding whether to outsource a $art, the reliability of the su$$lier is an im$ortant factor to consider. Answer: TR !
Diff: " Terms: outsourcin!, ma e'or'bu# decision Objective: " AACSB: Anal#tical s ills
)1) 5utsourcing is risk free to the manufacturer because the su$$lier now has the res$onsibility of $roducing the $art. Answer: #A%&! !'$lanation: 5utsourcing has risks since the manufacturer is de$endent on the su$$lier for a quality $roduct, delivered in a timely manner, for a reasonable $rice.
Diff: " Terms: outsourcin!, ma e'or'bu# decision
1"
)") 5$$ortunity cost is the contribution to o$erating income that is forgone by not using a limited resource in its ne't3best alternative use. Answer: TR !
Diff: " Terms: o&&ortunit# cost Objective: % AACSB: Reflective thin in!
))) 9hen a firm ma'imi:es $rofits it will simultaneously minimi:e o$$ortunity costs. Answer: TR !
Diff: % Terms: o&&ortunit# cost Objective: % AACSB: Reflective thin in!
)*) 2n a make3or3buy decision when there are alternative uses for ca$acity, the o$$ortunity cost of idle ca$acity is relevant. Answer: TR !
Diff: % Terms: ma e'or'bu# decision, outsourcin!, o&&ortunit# cost Objective: % AACSB: Reflective thin in!
1)
)+) 9hen o$$ortunity costs e'ist, they are always relevant. Answer: TR !
Diff: % Terms: o&&ortunit# cost, relevant costs Objective: % AACSB: Reflective thin in!
),) 9hen ca$acity is constrained, relevant costs equal incremental costs $lus o$$ortunity costs. Answer: TR !
Diff: " Terms: constraint, relevant costs, incremental cost, o&&ortunit# cost Objective: % AACSB: Reflective thin in!
)-) 2f the 61-,000 s$ent to $urchase inventory could be invested and earn interest of 61,000, then the o$$ortunity cost of holding inventory is 61-,000. Answer: #A%&! !'$lanation: The o$$ortunity cost of holding inventory is 61,000.
Diff: " Terms: o&&ortunit# cost Objective: % AACSB: Anal#tical s ills
).) 1*
The choice is not really whether to make or buy, but rather how to best use available $roduction ca$acity. Answer: TR !
Diff: 1 Terms: ma e'or'bu# decision, constraint Objective: % AACSB: Anal#tical s ills
)/) 5$$ortunity costs never a$$ear in a com$any;s accounting records since they are foregone costs and not actual costs. Answer: TR !
*0) 7roduct3mi' decisions are ty$ically long3run decisions. Answer: #A%&! !'$lanation: 7roduct3mi' decisions are short3run decisions.
Diff: " Terms: &roduct'mi) decisions Objective: * AACSB: Reflective thin in!
1+
*1) #or short3run $roduct3mi' decisions, managers should focus on minimi:ing total fi'ed costs. Answer: #A%&! !'$lanation: #or short3run $roduct mi' decisions, managers should focus on ma)imi+in! total contribution mar!in.
Diff: " Terms: decision model Objective: * AACSB: Reflective thin in!
*") #or short3run $roduct3mi' decisions, ma'imi:ing contribution margin will also result in ma'imi:ing o$erating income. Answer: TR !
Diff: " Terms: decision model Objective: * AACSB: Reflective thin in!
*)) Regardless of the restraining resource, managers should $roduce more of the $roduct with the greatest contribution margin $er unit to ma'imi:e $rofits. Answer: #A%&! !'$lanation: To ma'imi:e $rofits, managers should $roduce more of the $roduct with the !reatest contribution mar!in &er unit of the constrainin! resource.
Diff: " Terms: decision model, constraint Objective: * AACSB:
1,
(thical reasonin!
**) 9hen there are scarce resources, the firm should attem$t to ma'imi:e the contribution margin $er unit of the scarce resource. Answer: TR !
Diff: " Terms: constraint Objective: * AACSB: (thical reasonin!
*+) <anagement should focus on $er unit costs when deciding whether to discontinue a $roduct or not. Answer: #A%&! !'$lanation: <anagement should focus on total costs when deciding whether to discontinue a $roduct or not.
Diff: " Terms: full costs of the &roduct Objective: , AACSB: (thical reasonin!
*,) Avoidable variable and fi'ed costs should be evaluated when deciding whether to discontinue a $roduct, $roduct line, business segment, or customer. Answer: TR !
Diff: " Terms: differential cost Objective: , AACSB: (thical reasonin!
1-
1.
*-) All cor$orate3office allocated costs should be included in relevant3cost analysis. Answer: #A%&! !'$lanation: 5nly costs that will change between alternatives should be considered.
Diff: " Terms: relevant costs Objective: , AACSB: (thical reasonin!
*.) =e$reciation allocated to a $roduct line is a relevant cost when deciding to discontinue that $roduct. Answer: #A%&! !'$lanation: =e$reciation is a sunk cost and never relevant.
Diff: " Terms: relevant costs Objective: , AACSB: Reflective thin in!
*/) A com$any is considering adding a fourth $roduct to use available ca$acity. A relevant factor to consider is that cor$orate costs can now be allocated over four $roducts rather than only three. Answer: #A%&! !'$lanation: 2t a$$ears that cor$orate costs will not change in total, and therefore they are not relevant costs for deciding whether to add a fourth $roduct.
Diff: % Terms: relevant costs Objective:
1/
, AACSB: Reflective thin in!
+0) All variable costs are relevant and all fi'ed costs are irrelevant. Answer: #A%&! !'$lanation: All variable costs are not necessarily relevant and all fi'ed costs are not necessarily irrelevant.
+1) 2n a decision as to whether or not to dro$ a $roduct, fi'ed costs that have been allocated to that $roduct are always relevant. Answer: #A%&! !'$lanation: 2n a decision as to whether or not to dro$ a $roduct, fi'ed costs that have been allocated to that $roduct are generally not relevant.
+") 9hen re$lacing an old machine with a new machine, the $urchase $rice of the new machine is a relevant cost. Answer: TR !
Diff: 1 Terms: relevant costs Objective:
"0
AACSB: Reflective thin in!
"1
+)) 9hen re$lacing an old machine with a new machine, the $urchase $rice of the old machine is a relevant cost. Answer: #A%&! !'$lanation: The original $rice of the old machine is a sunk cost and therefore an irrelevant cost.
Diff: 1 Terms: relevant costs Objective: AACSB: Reflective thin in!
+*) 9hen re$lacing an old machine with a new machine, the book value of the old machine is a relevant cost. Answer: #A%&! !'$lanation: The original $rice of the old machine is a $ast cost and therefore an irrelevant cost.
++) Re$lacing an old machine will increase o$erating income in the long run, but not for this year. A manager may choose not to re$lace the machine if $erformance evaluations are based on $erformance over a single year. Answer: TR !
Diff: " Terms: decision model Objective: . AACSB:
""
(thical reasonin!
+,) <anagers tend to favor alternatives that make their own $erformance look better. Answer: TR !
Diff: " Terms: decision model Objective: . AACSB: (thical reasonin!
+-) %inear $rogramming is a tool that ma'imi:es total contribution margin of a mi' of $roducts with multi$le constraints. Answer: TR !
Diff: 1 Terms: linear &ro!rammin! /012 Objective: A AACSB: Reflective thin in!
+.) A decision model involves: A) only quantitative analyses 4) both quantitative and qualitative analyses >) only qualitative analyses =) a manager;s instinct Answer: 4 ")
Diff: 1 Terms: decision model Objective: 1 AACSB: Reflective thin in!
"*
+/) #eedback regarding $revious actions may affect: A) future $redictions 4) im$lementation of the decision >) the decision model =) All of these answers are correct. Answer: =
Diff: " Terms: decision model Objective: 1 AACSB: Reflective thin in!
,0) 7lace the following ste$s from the five3ste$ decision $rocess in order: A ? <ake $redictions about future costs 4 ? !valuate $erformance to $rovide feedback > ? 2m$lement the decision = ? >hoose an alternative A) =>A4 4) >=A4 >) A=>4 =) =>4A Answer: > "+
,1) The formal $rocess of choosing between alternatives is known as a@n): A) relevant model 4) decision model >) alternative model =) $rediction model Answer: 4
Diff: 1 Terms: decision model Objective: 1 AACSB: Reflective thin in!
",
,") Ruggles >ircuit >om$any manufactures circuit boards for other firms. <anagement is attem$ting to search for ways to reduce manufacturing labor costs and has received a $ro$osal from a consulting com$any to rearrange the $roduction floor ne't year. sing the information below regarding current o$erations and the new $ro$osal, which of the following decisions should management acce$tA Required machine o$erators <aterials3handling workers !m$loyee average $ay (ours worked $er em$loyee A) =o not change the $roduction floor. 4) Rearrange the $roduction floor. >) !ither, because it makes no difference to the em$loyees. =) 2t doesn;t matter because the costs incurred will remain the same. Answer: 4 !'$lanation: 4) >urrent o$erations: + workers B ",100 hours B 6..00 ? 6.*,000 7ro$osal: *.+ workers B ",000 hours B 6/.00 ? 6.1,000
Diff: " Terms: decision model Objective: 1 AACSB: Anal#tical s ills
Currentl" + 1."+ 6. $er hour ",100
#roposed *.+ 1."+ 6/ $er hour ",000
Answer the following questions using the information below: %e4lanc %ighting manufactures small flashlights and is considering raising the $rice by +0 cents a unit for the coming year. 9ith a +03 cent $rice increase, demand is e'$ected to fall by ),000 units. =emand &elling $rice 2ncremental cost $er unit Currentl" "0,000 units 6*.+0 6).00 #ro$ected 1-,000 units 6+.00 6).00 "-
,)) 2f the $rice increase is im$lemented, o$erating $rofit is $roCected to: A) increase by 6*,000 4) decrease by 6*,000 >) increase by 6,,000 =) decrease by 6*,+00 Answer: A !'$lanation: A) D1-,000 B @6+ 3 6))E 3 D"0,000 B @6*.+0 3 6).00)E ? increase of 6*,000
".
,*) 9ould you recommend the +03cent $rice increaseA A) Fo, because demand decreased. 4) Fo, because the selling $rice increases. >) Ges, because contribution margin $er unit increases. =) Ges, because o$erating $rofits increase. Answer: =
,+) 9hen using the five3ste$ decision $rocess, which one of the following ste$s should be done lastA A) 5btain information 4) >hoose an alternative >) !valuation and feedback =) 2m$lementing the decision Answer: >
Diff: " Terms: decision model
"/
1 AACSB: Reflective thin in!
,,) 9hen using the five3ste$ decision $rocess, which one of the following ste$s should be done firstA A) 5btain information 4) >hoose an alternative >) !valuation and feedback =) 2m$lementing the decision Answer: A
,-) #or decision making, a listing of the relevant costs: A) will hel$ the decision maker concentrate on the $ertinent data 4) will only include future costs >) will only include costs that differ among alternatives =) All of these answers are correct. Answer: )0
=
,.) &unk costs: A) are future costs 4) are $ast costs >) have future im$lications =) are relevant to all decisions Answer: 4
Diff: " Terms: sun costs Objective: " AACSB: Reflective thin in!
,/) &unk costs: A) are relevant 4) are differential >) )1
have future im$lications =) are ignored when evaluating alternatives Answer: =

Diff: 1 Terms: relevant costs, sun costs Objective: " AACSB: Reflective thin in!
-0) A com$uter system installed last year is an e'am$le of a@n): A) sunk cost 4) relevant cost >) differential cost =) avoidable cost Answer: A
Diff: 1 Terms: sun costs Objective: " AACSB: 3se of 4nformation Technolo!#
-1) >osts that >AFF5T be changed by any decision made now or in the future are: A) )"
fi'ed costs 4) indirect costs >) avoidable costs =) sunk costs Answer: =
Diff: 1 Terms: sun costs Objective: " AACSB: Reflective thin in!
-") 2n evaluating different alternatives, it is useful to concentrate on: A) variable costs 4) fi'ed costs >) total costs =) relevant costs Answer: =
Diff: 1 Terms: relevant costs Objective: " AACSB:
))
Reflective thin in!
-)) 9hich of the following costs always differ among future alternativesA A) fi'ed costs 4) historical costs >) relevant costs =) variable costs Answer: >
Diff: 1 Terms: relevant costs Objective: " AACSB: Reflective thin in!
-*) 9hich of the following costs are never relevant in the decision3making $rocessA A) fi'ed costs 4) historical costs >) relevant costs =) variable costs Answer: 4
Diff: 1 Terms:
)*
relevant costs Objective: " AACSB: Reflective thin in!
Answer the following questions using the information below: Him;s +3year3old Ieo 7ri:m requires re$airs estimated at 6),000 to make it roadworthy again. (is friend, Hulie, suggested that he should buy a +3year3old used (onda >ivic instead for 6),000 cash. Hulie estimated the following costs for the two cars: Acquisition cost Re$airs Annual o$erating costs @Ias, maintenance, insurance) -+) The cost F5T relevant for this decision is the: A) acquisition cost of the Ieo 7ri:m 4) acquisition cost of the (onda >ivic >) re$airs to the Ieo 7ri:m =) annual o$erating costs of the (onda >ivic Answer: A
Diff: " Terms: relevant costs Objective: " AACSB: Anal#tical s ills
%eo #ri&! 61+,000 6 ),000 6 ",".0
Honda Civic 6),000 6",100
-,) 9hat should Him doA 9hat are his savings in the first yearA A) )+
4uy the (onda >ivicJ 6/,-.0 4) #i' the Ieo 7ri:mJ 6+,+1. >) 4uy the (onda >ivicJ 61.0 =) #i' the Ieo 7ri:mJ 6+,".0 Answer: > !'$lanation: >) Ieo @6),000 K 6",".0) 3 (onda @6),000 K 6",100) ? 61.0 cost savings with the (onda o$tion
),
--) A relevant revenue is a revenue that is a@n): A) $ast revenue 4) future revenue >) in3hand revenue =) earned revenue Answer: 4
Diff: " Terms: relevant revenues Objective: " AACSB: Reflective thin in!
-.) A relevant cost is a cost that is a @n): A) future cost 4) $ast cost >) sunk cost =) non3cash e'$ense Answer: A
Diff: " Terms: relevant costs
)-
-/) Relevant information has all of these characteristics !L>!7T: A) $ast costs are irrelevant 4) all future revenues and e'$enses are relevant >) different alternatives can be com$ared by e'amining differences in total revenue and e'$enses =) qualitative factors should be considered Answer: 4
Diff: " Terms: relevant revenues, relevant costs Objective: " AACSB: Reflective thin in!
.0) 1uantitative factors: A) include financial information, but not nonfinancial information 4) can be e'$ressed in monetary terms >) are always relevant when making decisions =) include em$loyee morale Answer: ).
4
Diff: " Terms: quantitative factors Objective: " AACSB: Reflective thin in!
.1) 1ualitative factors: A) generally are easily measured in quantitative terms 4) are generally irrelevant for decision making >) may include either financial or nonfinancial information =) include customer satisfaction Answer: =
.") (istorical costs are hel$ful: A) for making future $redictions 4) for decision making >) )/
because they are quantitative =) Fone of these answers is correct. Answer: A

.)) 9hen making decisions: A) quantitative factors are the most im$ortant 4) qualitative factors are the most im$ortant >) a$$ro$riate weight must be given to both quantitative and qualitative factors =) both quantitative and qualitative factors are unim$ortant Answer: >
Diff: " Terms: qualitative factors, quantitative factors Objective: " AACSB: (thical reasonin!
.*) !m$loyee morale at =os &antos, 2nc., is very high. This ty$e of information is known as a: A) *0
qualitative factor 4) quantitative factor >) nonmeasurable factor =) financial factor Answer: A
Diff: 1 Terms: qualitative factors Objective: " AACSB: Reflective thin in!
.+) Roberto owns a small body sho$. (is maCor costs include labor, $arts, and rent. 2n the decision3making $rocess, these costs are considered to be: A) fi'ed 4) qualitative factors >) quantitative factors =) variable Answer: >
Diff: 1 Terms: qualitative factors Objective: "
*1
*"
.,) 5ne3time3only s$ecial orders should only be acce$ted if: A) incremental revenues e'ceed incremental costs 4) differential revenues e'ceed variable costs >) incremental revenues e'ceed fi'ed costs =) total revenues e'ceed total costs Answer: A
Diff: % Terms: one'time'onl# s&ecial order, incremental revenue Objective: " AACSB: Reflective thin in!
.-) 9hen deciding to acce$t a one3time3only s$ecial order from a wholesaler, management should do all of the following !L>!7T: A) analy:e $roduct costs 4) consider the s$ecial order;s im$act on future $rices of their $roducts >) determine whether e'cess ca$acity is available =) verify $ast design costs for the $roduct Answer: =
Diff: % Terms: one'time'onl# s&ecial order
*)
..) 9hen there is e'cess ca$acity, it makes sense to acce$t a one3time3only s$ecial order for less than the current selling $rice when: A) incremental revenues e'ceed incremental costs 4) additional fi'ed costs must be incurred to accommodate the order >) the com$any $lacing the order is in the same market segment as your current customers =) it never makes sense Answer: A
Diff: % Terms: one'time'onl# s&ecial order, incremental cost, incremental revenue Objective: " AACSB: Reflective thin in!
./) #ull cost of the $roduct is: A) the sum of fi'ed costs in all the business functions of the value chain 4) the sum of variable costs in all the business functions of the value chain >) the sum of all variable and fi'ed costs in all the business functions of the value chain =) the sum of all costs in the value chain minus marketing costs Answer: **
>
Diff: % Terms: full costs of the &roduct Objective: " AACSB: Reflective thin in!
*+
Answer the following questions using the information below: 9elch <anufacturing is a$$roached by a !uro$ean customer to fulfill a one3time3only s$ecial order for a $roduct similar to one offered to domestic customers. 9elch <anufacturing has e'cess ca$acity. The following $er unit data a$$ly for sales to regular customers: 5ariable costs: =irect materials =irect labor <anufacturing su$$ort <arketing costs 6i)ed costs: <anufacturing su$$ort <arketing costs Total costs <arku$ @+0M) Targeted selling $rice /0) 9hat is the full cost of the $roduct $er unitA A) 6110 4) 61-0 >) 6"++ =) 6.+ Answer: 4 !'$lanation: 4) 6*0 K 6"0 K 6)+ K 61+ K 6*+ K 61+ ? 61-0
Diff: % Terms: full costs of the &roduct Objective: " AACSB: Anal#tical s ills
6*0 "0 )+ 1+ *+ 1+ 1-0 .+ 6"++
/1) *,
9hat is the contribution margin $er unitA A) 6.+ 4) 6110 >) 61*+ =) 6"++ Answer: > !'$lanation: >) 6"++ 3 @6*0 K 6"0 K 6)+ K 61+) ? 61*+
Diff: % Terms: one'time'onl# s&ecial order Objective: " AACSB: Anal#tical s ills
*-
/") #or 9elch <anufacturing, what is the minimum acce$table $rice of this s$ecial orderA A) 6110 4) 61*+ >) 61-0 =) 6"++ Answer: A !'$lanation: A) 6*0 K 6"0 K 6)+ K 61+ ? 6110
/)) 9hat is the change in o$erating $rofits if the one3time3only s$ecial order for 1,000 units is acce$ted for 61.0 a unit by 9elchA A) 6-0,000 increase in o$erating $rofits 4) 610,000 increase in o$erating $rofits >) 610,000 decrease in o$erating $rofits =) 6-+,000 decrease in o$erating $rofits Answer: *.
A !'$lanation: A) 61.0 3 @6*0 K 6"0 K 6)+ K 61+) ? 6-0J 1,000 B 6-0 ? 6-0,000 increase
/*) Rat:laff >om$any has a current $roduction level of "0,000 units $er month. nit costs at this level are: =irect materials =irect labor 8ariable overhead #i'ed overhead <arketing 3 fi'ed <arketingNdistribution 3 variable 60."+ 0.*0 0.1+ 0."0 0."0 0.*0
>urrent monthly sales are 1.,000 units. Him >om$any has contacted Rat:laff >om$any about $urchasing 1,+00 units at 6".00 each. >urrent sales would not be affected by the one3time3only s$ecial order, and variable marketingNdistribution costs would not be incurred on the s$ecial order. 9hat is Rat:laff >om$any;s change in o$erating $rofits if the s$ecial order is acce$tedA A) 6*00 increase in o$erating $rofits 4) 6*00 decrease in o$erating $rofits >) 61,.00 increase in o$erating $rofits =) 61,.00 decrease in o$erating $rofits Answer: > !'$lanation: >) <anufacturing cost $er unit ? 60."+ K 60.*0 K 60.1+ ? 60..0 1,+00 B @6".00 3 60..0) ? 61,.00 increase
Diff: % Terms:
*/
one'time'onl# s&ecial order Objective: " AACSB: Anal#tical s ills
+0
/+) 4lack Tool >om$any has a $roduction ca$acity of 1,+00 units $er month, but current $roduction is only 1,"+0 units. The manufacturing costs are 6,0 $er unit and marketing costs are 61, $er unit. =oug (all offers to $urchase "+0 units at 6-, each for the ne't five months. &hould 4lack acce$t the one3time3only s$ecial order if only absor$tion3costing data are availableA A) Ges, good customer relations are essential. 4) Fo, the com$any will only break even. >) Fo, since only the em$loyees will benefit. =) Ges, since o$erating $rofits will most likely increase. Answer: = !'$lanation: =) &ince the 6,0 absor$tion cost $er unit is most likely not all variable costs and since the entire 61, $er unit of marketing costs may not be incurred, o$erating $rofits will most likely increase.
Answer the following questions using the information below: Irant;s Oitchens is a$$roached by <s. Tammy 9ang, a new customer, to fulfill a large one3time3only s$ecial order for a $roduct similar to one offered to regular customers. The following $er unit data a$$ly for sales to regular customers: =irect materials =irect labor 8ariable manufacturing su$$ort #i'ed manufacturing su$$ort Total manufacturing costs <arku$ @,0M) Targeted selling $rice 6*++ )00 *+ 100 /00 +*0 61**0
Irant;s Oitchens has e'cess ca$acity. <s. 9ang wants the cabinets in cherry rather than oak, so direct material costs will increase by 6)0 $er unit. /,) +1
#or Irant;s Oitchens, what is the minimum acce$table $rice of this one3time3only s$ecial orderA A) 6.)0 4) 6/)0 >) 6-.+ =) 61,**0 Answer: A !'$lanation: A) 6*++ K 6)00 K 6*+ K 6)0 ? 6.)0
Diff: " Terms: one'time'onl# s&ecial order Objective: " AACSB: Anal#tical s ills
+"
/-) 5ther than $rice, what other items should Irant;s Oitchens consider before acce$ting this one3time3only s$ecial orderA A) reaction of shareholders 4) reaction of e'isting customers to the lower $rice offered to <s. 9ang >) demand for cherry cabinets =) $rice is the only consideration Answer: 4
Diff: " Terms: one'time'onl# s&ecial order, qualitative factors Objective: " AACSB: Anal#tical s ills
/.) 2f <s. 9ang wanted a long3term commitment for su$$lying this $roduct, this analysis: A) would definitely be different 4) may be different >) would not be different =) does not contain enough information to determine if there would be a difference Answer: A
Diff: " Terms: one'time'onl# s&ecial order
+)
" AACSB: Anal#tical s ills
//) An e'am$le of a quantitative factor for the decision3making $rocess is: A) customer satisfaction 4) em$loyee morale >) $roduct quality =) manufacturing overhead Answer: =
Diff: 1 Terms: quantitative factors Objective: " AACSB: Reflective thin in!
100) 2f there was limited ca$acity, all of the following amounts would change !L>!7T: A) o$$ortunity costs 4) differential costs >) variable costs =) the minimum acce$table $rice Answer: +*
>
Diff: % Terms: constraint Objective: % AACSB: Reflective thin in!
++
Answer the following questions using the information below: Forthwoods manufactures rustic furniture. The cost accounting system estimates manufacturing costs to be 6/0 $er table, consisting of .0M variable costs and "0M fi'ed costs. The com$any has sur$lus ca$acity available. 2t is Forthwoods; $olicy to add a +0M marku$ to full costs. 101) Forthwoods is invited to bid on a one3time3only s$ecial order to su$$ly 100 rustic tables. 9hat is the lowest $rice Forthwoods should bid on this s$ecial orderA A) 6,,)00 4) 6-,"00 >) 6/,000 =) 61),+00 Answer: 4 !'$lanation: 4) 6/0 B .0M B 100 tables ? 6-,"00
10") A large hotel chain is currently e'$anding and has decided to decorate all new hotels using the rustic style. Forthwoods 2ncor$orated is invited to submit a bid to the hotel chain. 9hat is the lowest $rice $er unit Forthwoods should bid on this long3term orderA A) 6,) 4) 6-" >) +,
6/0 =) 61)+ Answer: = !'$lanation: =) 6/0 K @6/0 B +0M) ? 61)+

+-
10)) >ochran >or$oration has a $lant ca$acity of 100,000 units $er month. nit costs at ca$acity are: =irect materials =irect labor 8ariable overhead #i'ed overhead <arketingfi'ed <arketingNdistributionvariable 6*.00 ,.00 ).00 1.00 -.00 ).,0
>urrent monthly sales are /+,000 units at 6)0.00 each. &u:ie, 2nc., has contacted >ochran >or$oration about $urchasing ",000 units at 6"*.00 each. >urrent sales would not be affected by the one3time3only s$ecial order. 9hat is >ochran;s change in o$erating $rofits if the one3time3only s$ecial order is acce$tedA A) 61*,.00 increase 4) 61-,"00 increase >) 6"",000 increase =) 6)),"00 increase Answer: A !'$lanation: A) @6*.00 K 6,.00 K 6).00 K 6).,0) ? 61,.,0 @6"*.00 3 61,.,0) B ",000 ? 61*,.00 increase
10*) The sum of all the costs incurred in a $articular business function @for e'am$le, marketing) is called the: A) business function cost 4) +.
full $roduct cost >) gross $roduct cost =) multi$roduct cost Answer: A
Diff: 1 Terms: business function costs Objective: " AACSB: Reflective thin in!
10+) The sum of all costs incurred in all business functions in the value chain @$roduct design, manufacturing, marketing, and customer service, for e'am$le) is known as the: A) business cost 4) full $roduct cost >) gross $roduct cost =) multi$roduct cost Answer: 4
Diff: 1 Terms: full costs of the &roduct Objective: " AACSB: Reflective thin in!
+/
,0
10,) An e'am$le of a qualitative factor for the decision3making $rocess is: A) customer satisfaction 4) units sold >) material cost =) labor hours incurred Answer: A
Diff: " Terms: qualitative factors Objective: " AACSB: (thical reasonin!
10-) 5utsourcing is: A) $urchasing goods and services internally 4) never a viable o$tion >) more desirable than insourcing =) $urchasing goods and services from outside vendors Answer: =
Diff: " Terms: outsourcin!
,1
10.) 2nsourcing is: A) $urchasing goods and services internally 4) $urchasing goods and services from outside vendors >) more e'$ensive than outsourcing =) less e'$ensive than outsourcing Answer: A
Diff: " Terms: insourcin! Objective: " AACSB: Reflective thin in!
10/) 7roblems that should be avoided when identifying relevant costs include all of the following !L>!7T: A) assuming all variable costs are relevant 4) assuming all fi'ed costs are irrelevant >) using unit costs that do not se$arate variable and fi'ed com$onents =) using total costs that se$arate variable and fi'ed com$onents Answer: ,"
=
110) The 4!&T way to avoid misidentification of relevant costs is to focus on: A) e'$ected future costs that differ among the alternatives 4) historical costs >) unit fi'ed costs =) total unit costs Answer: A
111) #actors used to decide whether to outsource a $art include: A) the su$$lier;s cost of direct materials 4) if the su$$lier is reliable >) ,)
the original cost of equi$ment currently used for $roduction of that $art =) $ast design costs used to develo$ the current com$osition of the $art Answer: 4
Diff: " Terms: outsourcin!, ma e'or'bu# decision Objective: " AACSB: Reflective thin in!
11") Relevant costs of a make3or3buy decision include all of the following !L>!7T: A) fi'ed salaries that will not be incurred if the $art is outsourced 4) current direct material costs of the $art >) s$ecial machinery for the $art that has no resale value =) material3handling costs that can be eliminated Answer: >
Diff: % Terms: relevant costs, outsourcin!, ma e'or'bu# decision Objective: " AACSB: Reflective thin in!
11)) 9hich of following are risks of outsourcing the $roduction of a $artA A) ,*
un$redictable quality 4) unreliable delivery >) unscheduled $rice increases =) All of these answers are correct. Answer: =
Diff: 1 Terms: outsourcin!, ma e'or'bu# decision Objective: " AACSB: Reflective thin in!
11*) 9hich of the following minimi:e the risks of outsourcingA A) the use of short3term contracts that s$ecify $rice 4) the res$onsibility for on3time delivery is now the res$onsibility of the su$$lier >) building close relationshi$s with the su$$lier =) All of these answers are correct. Answer: >
Diff: % Terms: outsourcin!, ma e'or'bu# decision Objective: " AACSB:
,+
Reflective thin in!
,,
11+) The cost to $roduce 7art A was 610 $er unit in "0L) and in "0L* it has increased to 611 $er unit. 2n "0L*, &u$$lier LGP has offered to su$$ly 7art A for 6/ $er unit. #or the make3or3buy decision: A) incremental revenues are 6" $er unit 4) incremental costs are 61 $er unit >) net relevant costs are 61 $er unit =) differential costs are 6" $er unit Answer: =
Diff: " Terms: outsourcin!, ma e'or'bu# decision Objective: " AACSB: Anal#tical s ills
11,) 9hen evaluating a make3or3buy decision, which of the following does F5T need to be consideredA A) alternative uses of the $roduction ca$acity 4) the original cost of the $roduction equi$ment >) the quality of the su$$lier;s $roduct =) the reliability of the su$$lier;s delivery schedule Answer: 4
Diff: " Terms:
,-
outsourcin!, ma e'or'bu# decision Objective: " AACSB: Reflective thin in!
11-) #or make3or3buy decisions, a su$$lier;s ability to deliver the item on a timely basis is considered a@n): A) qualitative factor 4) relevant cost >) differential factor =) o$$ortunity cost Answer: A
Diff: 1 Terms: outsourcin!, ma e'or'bu# decision Objective: " AACSB: Reflective thin in!
11.) The incremental costs of $roducing one more unit of $roduct include all of the following !L>!7T: A) direct materials 4) direct labor >) variable overhead costs =) ,.
fi'ed overhead costs Answer: =

Diff: " Terms: incremental cost Objective: " AACSB: Reflective thin in!
,/
11/) =irect materials 6*0, direct labor 610, variable overhead costs 6)0, and fi'ed overhead costs 6"0. 2n the short term, the incremental cost of one unit is: A) 6)0 4) 6+0 >) 6.0 =) 6100 Answer: >
Diff: " Terms: incremental cost Objective: " AACSB: Anal#tical s ills
1"0) nit cost data can <5&T mislead decisions by: A) not com$uting fi'ed overhead costs 4) com$uting labor and materials costs only >) com$uting administrative costs =) not com$uting unit costs at the same out$ut level Answer: =
Diff: 1 Terms:
-0
full costs of the &roduct Objective: " AACSB: Reflective thin in!
1"1) &chmidt &ewing >om$any incor$orates the services of =eb;s &ewing. &chmidt $urchases $re3cut dresses from =eb;s. This is $rimarily known as: A) insourcing 4) outsourcing >) relevant costing =) sunk costing Answer: 4
Diff: 1 Terms: outsourcin! Objective: " AACSB: Reflective thin in!
1"") 7earce &ign >om$any manufactures signs from direct materials to the finished $roduct. This is considered: A) insourcing 4) outsourcing >) relevant costing =) -1
sunk costing Answer: A

Diff: 1 Terms: insourcin! Objective: " AACSB: Reflective thin in!
-"
1")) 9hich of the following would F5T be considered in a make3or3buy decisionA A) fi'ed costs that will no longer be incurred 4) variable costs of $roduction >) $otential rental income from s$ace occu$ied by the $roduction area =) unchanged su$ervisory costs Answer: =
Diff: " Terms: ma e'or'bu# decision Objective: " AACSB: Reflective thin in!
Answer the following questions using the information below: Oonrade;s !ngine >om$any manufactures $art T!*+, used in several of its engine models. <onthly $roduction costs for 1,000 units are as follows: =irect materials =irect labor 8ariable overhead costs #i'ed overhead costs Total costs 6 *0,000 10,000 )0,000 "0,000 6100,000
2t is estimated that 10M of the fi'ed overhead costs assigned to T!*+, will no longer be incurred if the com$any $urchases T!*+, from the outside su$$lier. Oonrade;s !ngine >om$any has the o$tion of $urchasing the $art from an outside su$$lier at 6.+ $er unit. 1"*) 2f Oonrade;s !ngine >om$any acce$ts the offer from the outside su$$lier, the monthly avoidable costs @costs that will no longer be incurred) total: A) 6 .",000 4) 6 /.,000 -)
>) 6 +0,000 =) 6100,000 Answer: A !'$lanation: A) 6*0,000 K 610,000 K 6)0,000 K @6"0,000 B 10M) ? 6.",000
Diff: " Terms: ma e'or'bu# decision, outsourcin! Objective: " AACSB: Anal#tical s ills
1"+) 2f Oonrade;s !ngine >om$any $urchases 1,000 T!*+, $arts from the outside su$$lier $er month, then its monthly o$erating income will: A) increase by 6",000 4) increase by 6.0,000 >) decrease by 6),000 =) decrease by 6.+,000 Answer: > !'$lanation: >) Avoidable costs 6.",000 3 @6.+ B 1,000 units) ? decrease of 6),000
Diff: " Terms:
-*
ma e'or'bu# decision, outsourcin! Objective: " AACSB: Anal#tical s ills
-+
1",) The ma)imum $rice that Oonrade;s !ngine >om$any should be willing to $ay the outside su$$lier is: A) 6.0 $er T!*+, $art 4) 6." $er T!*+, $art >) 6/. $er T!*+, $art =) 6100 $er T!*+, $art Answer: 4 !'$lanation: 4) Avoidable costs 6.",000 N 1,000 units ? 6." $er $art
Diff: " Terms: ma e'or'bu# decision, outsourcin! Objective: " AACSB: Anal#tical s ills
Answer the following questions using the information below: &chmidt >or$oration $roduces a $art that is used in the manufacture of one of its $roducts. The costs associated with the $roduction of 10,000 units of this $art are as follows: =irect materials =irect labor 8ariable factory overhead #i'ed factory overhead Total costs 5f the fi'ed factory overhead costs, 6)0,000 is avoidable. 1"-) 7hil >om$any has offered to sell 10,000 units of the same $art to &chmidt >or$oration for 61. $er unit. Assuming there is no other use for the facilities, &chmidt should: A) 6 *+,000 ,+,000 )0,000 -0,000 6"10,000
-,
make the $art, as this would save 6) $er unit 4) buy the $art, as this would save 6) $er unit >) buy the $art, as this would save the com$any 6)0,000 =) make the $art, as this would save 61 $er unit Answer: = !'$lanation: =) Avoidable costs total 61-0,000 ? 6*+,000 K 6,+,000 K 6)0,000 K 6)0,000. 61. 3 @61-0,000N10,000) ? 61
Diff: % Terms: ma e'or'bu# decision, outsourcin! Objective: " AACSB: Anal#tical s ills
1".) Assuming no other use of their facilities, the highest $rice that &chmidt should be willing to $ay for 10,000 units of the $art is: A) 6"10,000 4) 61*0,000 >) 61-0,000 =) 61.0,000 Answer: > !'$lanation: >) --
6*+,000 K 6,+,000 K 6)0,000 K 6)0,000 ? 61-0,000

Diff: % Terms: ma e'or'bu# decision, outsourcin! Objective: " AACSB: Anal#tical s ills
1"/) Relevant costs in a make3or3buy decision of a $art include: A) setu$ overhead for the manufacture of the $roduct using the outsourced $art 4) currently used manufacturing ca$acity that has alternative uses >) annual $lant insurance costs that will remain the same =) cor$orate office costs that will be allocated differently Answer: 4
Diff: % Terms: ma e'or'bu# decision, outsourcin!, relevant costs Objective: % AACSB: Reflective thin in!
1)0) 2f (orsley >or$oration doesn;t use one of its limited resources in the best $ossible way, the lost contribution to income could be called a@n): A) variable cost 4) fi'ed cost -.
>) o$$ortunity cost =) sunk cost Answer: >

Diff: 1 Terms: o&&ortunit# cost Objective: % AACSB: Reflective thin in!
1)1) 9hen a firm has constrained ca$acity as o$$osed to sur$lus ca$acity, o$$ortunity costs will be: A) lower 4) the same >) greater =) variable Answer: >
Diff: " Terms: o&&ortunit# cost, constraint Objective: % AACSB: Reflective thin in!
1)") -/
5$$ortunity costs: A) result in a cash outlay 4) only are considered when selecting among alternatives >) are recorded in the accounting records =) should be ma'imi:ed for the best decision Answer: 4
.0
1))) 5$$ortunity cost@s): A) of a resource with e'cess ca$acity is :ero 4) should be ma'imi:ed by organi:ations >) are recorded as an e'$ense in the accounting records =) are most im$ortant to financial accountants Answer: A
1)*) QQQQQQQQ would be a consideration in a make3or3buy decision. A) !'cess ca$acity 4) Rental income from unused facilities >) 8ariable factory overhead =) All of the above are correct. Answer: =
Diff: " Terms: ma e'or'bu# decision
.1
% AACSB: Reflective thin in!
1)+) 2f a com$any has e'cess ca$acity, the most it would $ay for buying a $roduct that it currently makes would be the: A) total variable cost of $roducing the $roduct 4) market value less the usual marku$ on the $roduct >) total cost of $roducing the $roduct =) market value of the $roduct Answer: A
Diff: " Terms: ma e'or'bu# decision Objective: % AACSB: Reflective thin in!
1),) #or make3or3buy decisions, relevant costs include: A) direct material costs $lus direct labor costs 4) incremental costs $lus o$$ortunity costs >) differential costs $lus fi'ed costs =) incremental costs $lus differential costs Answer: ."
4
Diff: % Terms: ma e'or'bu# decision, outsourcin!, o&&ortunit# cost, incremental cost Objective: % AACSB: Reflective thin in!
.)
1)-) The o$$ortunity cost of holding significant inventory includes: A) the interest forgone on an alternative investment 4) additional insurance costs >) additional storage costs =) All of these answers are correct. Answer: A
Answer the following questions using the information below: &te$hans >or$oration currently manufactures a subassembly for its main $roduct. The costs $er unit are as follows: =irect materials =irect labor 8ariable overhead #i'ed overhead Total 6 1.00 10.00 +.00 ..00 6"*.00
4ill >om$any has contacted &te$hans with an offer to sell them +,000 of the subassemblies for 6"".00 each. &te$hans will eliminate 6"+,000 of fi'ed overhead if it acce$ts the $ro$osal. 1).) 9hat are the relevant costs for &te$hansA A) 61*0,000 4) 61"+,000 >) .*
610+,000 =) 6.0,000 Answer: > !'$lanation: >) D@61 K 610 K 6+) B +,000 K 6"+,000E ? 610+,000
Diff: " Terms: ma e'or'bu# decision, outsourcin! Objective: % AACSB: Anal#tical s ills
1)/) &hould &te$hans make or buy the subassembliesA 9hat is the difference between the two alternativesA A) 4uyJ savings ? 6"0,000 4) 4uyJ savings ? 6+0,000 >) <akeJ savings ? 6,0,000 =) <akeJ savings ? 6+,000 Answer: = !'$lanation: =) >ost to buy: +,000 B 6"" ? 6110,000 >ost to make: 6110,000 3 D@61 K 610 K 6+) B +,000 K 6"+,000E ? 6+,000J make the subassemblies
Diff: % Terms: ma e'or'bu# decision, outsourcin! Objective:
.+
% AACSB: Anal#tical s ills
.,
1*0) A recent college graduate has the choice of buying a new auto for 6"0,000 or investing the money for four years with a ,M e'$ected annual rate of return. 2f the graduate decides to $urchase the auto, the 4!&T estimate of the o$$ortunity cost of that decision is: A) 61,"00 4) 6*,.00 >) 6"0,000 =) :ero since there is no o$$ortunity cost for this decision Answer: 4 !'$lanation: 4) 6"0,000 B ,M B * years ? 6*,.00 cost of the o$$ortunity not chosen.
Diff: " Terms: o&&ortunit# cost Objective: % AACSB: Anal#tical s ills
1*1) A su$$lier offers to make 7art A for 6-0. Hansen >om$any has relevant costs of 6.0 a unit to manufacture 7art A. 2f there is e'cess ca$acity, the o$$ortunity cost of buying 7art A from the su$$lier is: A) 0 4) 610,000 >) 6-0,000 =)
.-
indeterminable Answer: A
Diff: " Terms: ma e'or'bu# decision, outsourcin!, o&&ortunit# cost Objective: % AACSB: Anal#tical s ills
1*") Hensen >om$any has relevant costs of 6.0 $er unit to manufacture 7art A. A current su$$lier offers to make 7art A for 6-0 $er unit. 2f ca$acity is constrained, the o$$ortunity cost of buying 7art A from the su$$lier is: A) 0 4) 610,000 >) 6-0,000 =) indeterminable Answer: = !'$lanation: =) 2nformation regarding alternative uses for the ca$acity would determine the o$$ortunity cost.
Diff: " Terms: ma e'or'bu# decision, outsourcin!, o&&ortunit# cost Objective: % AACSB: Anal#tical s ills
1*)) =etermining which $roducts should be $roduced when the $lant is o$erating at full ca$acity is referred to as: ..
A) an outsourcing analysis 4) $roduction scheduling analysis >) a $roduct3mi' decision =) a short3run focus decision Answer: >
Diff: 1 Terms: &roduct'mi) decisions Objective: * AACSB: Reflective thin in!
./
1**) 7roduct mi' decisions: A) have a long3run focus 4) hel$ determine how to ma'imi:e o$erating $rofits >) focus on selling $rice $er unit =) All of these answers are correct. Answer: 4
Diff: " Terms: &roduct'mi) decisions Objective: * AACSB: Reflective thin in!
1*+) >onstraints may include: A) the availability of direct materials in manufacturing 4) linear square feet of dis$lay s$ace for a retailer >) direct labor in the service industry =) All of these answers are correct. Answer: =
Diff: 1 Terms: constraint
/0
* AACSB: Reflective thin in!
1*,) 9ith a constraining resource, managers should choose the $roduct with the: A) lowest contribution margin $er unit of the constraining resource 4) highest sales $rice >) highest contribution margin $er unit of the constraining resource =) highest gross $rofit Answer: >
Diff: 1 Terms: constraint, &roduct'mi) decisions Objective: * AACSB: Reflective thin in!
1*-) #or determining the best mi' of $roducts, the one with the %!A&T amount of influence is: A) the market $rice of the $roducts 4) cor$orate office costs allocated to each $roduct >) the use of ca$acity resources =) contribution margins Answer: /1
4
Diff: % Terms: constraint, &roduct'mi) decisions Objective: * AACSB: Reflective thin in!
1*.) 2n $roduct3mi' decisions: A) always focus on ma'imi:ing total contribution margin 4) focus on the $roduct with the greatest contribution margin $er machine3hour >) focus on the full costs of the $roduct =) never focus on the short3term, but include only long3term considerations Answer: A
Diff: % Terms: &roduct'mi) decisions Objective: * AACSB: Reflective thin in!
Answer the following questions using the information below: 4raun;s 4rakes manufactures three different $roduct lines, <odel L, <odel G, and <odel P. >onsiderable market demand e'ists for all models. The following $er unit data a$$ly: &elling $rice =irect materials =irect labor @61" $er hour) 8ariable su$$ort costs @6* $er machine3hour) #i'ed su$$ort costs Model ' 6+0 , 1" * 10 Model ( 6,0 , 1" . 10 /" Model ) 6-0 , "* . 10
1*/) 9hich model has the greatest contribution margin $er unitA A) <odel L 4) <odel G >) <odel P =) <odels L and G Answer: 4 !'$lanation: 4) <odel L6+0 3 6, 3 61" 3 6* ? 6". <odel G6,0 3 6, 3 61" 3 6. ? 6)* highest <odel P 6-0 v 6, 3 6"* 3 6. ? 6)"
Diff: " Terms: &roduct'mi) decisions Objective: * AACSB: Anal#tical s ills
1+0) 9hich model has the greatest contribution margin $er machine3hourA A) <odel L 4) <odel G >) <odel P =)
/)
<odels G and P Answer: A !'$lanation: A) <odel L6+0 3 6, 3 61" 3 6* ? 6". highest <odel G6,0 3 6, 3 61" 3 6. ? 6)* <odel P 6-0 v 6, 3 6"* 3 6. ? 6)"
Diff: " Terms: &roduct'mi) decisions, constraint Objective: * AACSB: Anal#tical s ills
/*
1+1) 2f there is e'cess ca$acity, which model is the most $rofitable to $roduceA A) <odel L 4) <odel G >) <odel P =) <odels L and G Answer: 4 !'$lanation: 4) <odel G since it has the greatest contribution margin $er unit <odel L6+0 3 6, 3 61" 3 6* ? 6". <odel G6,0 3 6, 3 61" 3 6. ? 6)* highest <odel P 6-0 v 6, 3 6"* 3 6. ? 6)"
Diff: % Terms: &roduct'mi) decisions Objective: * AACSB: Anal#tical s ills
1+") 2f there is a machine breakdown, which model is the most $rofitable to $roduceA A) <odel L 4) <odel G >) <odel P =) /+
<odels G and P Answer: A !'$lanation: A) <odel L since it has the greatest contribution margin $er machine3hour <odel L6+0 3 6, 3 61" 3 6* ? 6". highest <odel G6,0 3 6, 3 61" 3 6. ? 6)* <odel P 6-0 v 6, 3 6"* 3 6. ? 6)"
Diff: % Terms: &roduct'mi) decisions, constraint Objective: * AACSB: Anal#tical s ills
1+)) (ow can %isa 4raun encourage her sales$eo$le to $romote the more $rofitable modelA A) 7ut all sales $ersons on salary. 4) 7rovide higher sales commissions for higher $riced items. >) 7rovide higher sales commissions for items with the greatest contribution margin $er constrained resource. =) 4oth 4 and > are correct. Answer: >
Diff: " Terms: &roduct'mi) decisions, constraint Objective: * AACSB: Reflective thin in!
/,
Answer the following questions using the information below: (elmer;s Rockers manufactures two models, &tandard and 7remium. 9eekly demand is estimated to be 100 units of the &tandard <odel and -0 units of the 7remium <odel. The following $er unit data a$$ly: >ontribution margin $er unit Fumber of machine3hours required 1+*) The contribution $er machine3hour is: A) 61. for &tandard, 6"0 for 7remium 4) 6+* for &tandard, 6.0 for 7remium >) 61+ for &tandard, 61, for 7remium =) 6, for &tandard, 6+ for 7remium Answer: = !'$lanation: =) &tandard 61. N ) ? 6,J 7remium 6"0 N * ? 6+
*tandard 61. )
#re!iu! 6"0 *
1++) 2f there are */, machine3hours available $er week, how many rockers of each model should Him (elmer $roduce to ma'imi:e $rofitsA A) 100 units of &tandard and */ units of 7remium 4) -" units of &tandard and -0 units of 7remium /-
>) 100 units of &tandard and -0 units of 7remium =) .+ units of &tandard and ,0 units of 7remium Answer: A !'$lanation: A) &tandard @100 units B )mh) K 7remium @*/ units B * mh) ? */, machine3hours of the constrained resource
1+,) 2f there are ,00 machine3hours available $er week, how many rockers of each model should Him (elmer $roduce to ma'imi:e $rofitsA A) 100 units of &tandard and */ units of 7remium 4) -" units of &tandard and -0 units of 7remium >) 100 units of &tandard and -0 units of 7remium =) .+ units of &tandard and ,0 units of 7remium Answer: > !'$lanation: >) &tandard @100 units B )mh) K 7remium @-0 units B * mh) ? +.0 machine3hours for the current demand
Diff: " Terms: &roduct'mi) decisions, constraint Objective:
/.
* AACSB: Anal#tical s ills
//
Answer the following questions using the information below: Raines >om$any manufactures three si:es of kitchen a$$liances: small, medium, and large. 7roduct information is $rovided below. *!all Mediu! +arge nit selling $rice 61+0 6"+0 6+00 nit costs: 8ariable manufacturing @,0) @1"0) @"00) #i'ed manufacturing @*0) @+0) @1"0) 8ariable selling and administrative @)0) @)0) @)0) nit $rofit 6 "0 6 +0 61+0 =emand in units <achine3hours $er unit 100 "0 1"0 *0 100 100
The ma'imum machine3hours available are ,,000 $er week. 1+-) 9hat is the contribution margin $er machine3hour for a large chairA A) 6+.00 4) 6).00 >) 6".-0 =) 61..0 Answer: > !'$lanation: >) 6+00 3 6"00 3 6)0 ? 6"-0 6"-0 N 100 ? 6".-0
1+.) 9hich of the three $roduct models should be $roduced first if management incor$orates a short3run $rofit ma'imi:ing strategyA 100
A) small chairs 4) medium chairs >) large chairs =) either medium or large chairs Answer: A !'$lanation: A) &mall <edium %arge @61+0 3 6,0 3 6)0) ? 6,0 N "0 ? 6).00 highest @6"+0 3 61"0 3 6)0) ? 6100 N *0 ? 6".+0 @6+00 3 6"00 3 6)0) ? 6"-0 N 100 ? 6".-0
101
1+/) (ow many of each $roduct should be $roduced $er month using the short3run $rofit ma'imi:ing strategyA *!all Mediu! +arge A) 0 4) 100 >) 100 =) 100 Answer: 4 !'$lanation: 4) &mall @100 B "0) K %arge @*0 B 100) ? ,,000 total machine3hours
1"0
1"
*0
100
"0
*0
1,0) #avata >or$oration manufactures two $roducts, AA and >>. The following information was available: &elling $rice $er unit 8ariable cost $er unit Total fi'ed costs AA 6))" >> 6", "" 61.,000
2f #avata >or$oration could $roduce and sell either 10,000 units of AA or +,000 units of >> at full ca$acity, it should $roduce and sell: A) 10,000 units of AA and none of >> 4)
10"
),000 units of >> and ,,000 units of AA >) +,000 units of >> and none of AA =) *,000 units of AA and +,000 units of >> Answer: A !'$lanation: A) 10,000 B @6)-36)") ? 6+0,000
1,1) 9hen deciding whether to discontinue a segment of a business, managers should focus on: A) equi$ment used by that segment that could become idle 4) reallocation of cor$orate costs >) how total costs differ among alternatives =) o$erating income $er unit of the discontinued segment Answer: >
Diff: % Terms: differential revenue, differential cost Objective: , AACSB:
10)
Reflective thin in!
10*
1,") 9hen deciding whether to discontinue a segment of a business, relevant costs include all of the following !L>!7T: A) fi'ed su$ervision costs that can be eliminated 4) variable marketing costs $er unit of $roduct sold >) cost of goods sold =) future administrative costs that will continue Answer: =
1,)) <olly, 2nc. is considering eliminating one of its $roduct lines. The fi'ed costs currently allocated to the $roduct line will be allocated to other $roduct lines u$on discontinuance. 9hat financial effects occur if the $roduct line is discontinuedA A) net income will decrease by the amount of the contribution margin of the $roduct line being discontinued 4) the com$any;s total fi'ed costs will increase >) total fi'ed costs will decrease by the amount of the $roduct line;s fi'ed costs =) net income will decrease by the amount of the $roduct line;s fi'ed costs Answer: A
Diff: " Terms:
10+
relevant costs Objective: , AACSB: Reflective thin in!
1,*) =iscontinuing un$rofitable $roducts will increase $rofitability: A) if the resources no longer required by the discontinued $roduct can be eliminated 4) if ca$acity constraints are adCusted >) automatically =) when a large $ortion of the fi'ed costs are unavoidable Answer: A
Diff: " Terms: relevant revenues, relevant costs Objective: , AACSB: Reflective thin in!
10,
1,+) A segment has the following data: &ales 8ariable costs #i'ed costs 6,00,000 )"0,000 )10,000
9hat will be the incremental effect on net income if this segment is eliminated, assuming the fi'ed costs will be allocated to $rofitable segmentsA A) 6)0,000 increase 4) 6)10,000 decrease >) 6".0,000 decrease =) 6"/0,000 decrease Answer: > !'$lanation: >) 6,00,000 R 6)"0,000 ? 6".0,000 decrease
Diff: " Terms: relevant costs Objective: , AACSB: Anal#tical s ills
1,,) >amera >orner is considering eliminating <odel A!" from its camera line because of losses over the $ast quarter. The $ast three months of information for <odel A!" are summari:ed below: &ales @1,000 units) <anufacturing costs: =irect materials =irect labor @61+ $er hour) 5verhead 5$erating loss 6)00,000 1+0,000 ,0,000 100,000 @610,000)
5verhead costs are -0M variable and the remaining )0M is de$reciation of s$ecial equi$ment for model A!" that has no resale value. 10-
2f <odel A!" is dro$$ed from the $roduct line, o$erating income will: A) increase by 610,000 4) decrease by 6"0,000 >) increase by 6)0,000 =) decrease by 610,000 Answer: 4 !'$lanation: 4) 6)00,000 3 61+0,000 3 6,0,000 3 6-0,000 ? 6"0,000 This $roduct contributes 6"0,000 toward cor$orate $rofits, therefore, discontinuing this $roduct will decrease o$erating income by 6"0,000.
Diff: % Terms: relevant revenues, relevant costs Objective: , AACSB: Anal#tical s ills
10.
Answer the following questions using the information below: The management accountant for <artha;s 4ook &tore has $re$ared the following income statement for the most current year: Cook,ook -ravel .ook Classics -otal &ales 6,0,000 6100,000 6*0,000 6"00,000 >ost of goods sold ),,000 ,+,000 "0,000 1"1,000 >ontribution margin "*,000 )+,000 "0,000 -/,000 5rder and delivery $rocessing 1.,000 "1,000 .,000 *-,000 Rent @$er sq. foot used) ",000 1,000 ),000 ,,000 Allocated cor$orate costs -,000 -,000 -,000 "1,000 >or$orate $rofit 6 @),000) 6 ,,000 6 ",000 6 +,000 1,-) 2f the cookbook $roduct line had been discontinued $rior to this year, the com$any would have re$orted: A) greater cor$orate $rofits 4) the same amount of cor$orate $rofits >) less cor$orate $rofits =) resulting $rofits cannot be determined Answer: > !'$lanation: >) 6,0,000 3 6),,000 3 61.,000 3 6",000 ? 6*,000 The cookbook $roduct line contributed 6*,000 toward cor$orate $rofits. 9ithout the cookbooks, cor$orate $rofits would be 6*,000 less than currently re$orted.
1,.) 2f the travel book line had been discontinued, cor$orate $rofits for the current year would have decreased by: A)
10/
6)+,000 4) 61*,000 >) 61),000 =) 6,,000 Answer: > !'$lanation: >) 6100,000 3 6,+,000 3 6"1,000 3 61,000 ? 61),000
110
Answer the following questions using the information below: =enly >om$any has three $roducts, A, 4, and >. The following information is available: &ales 8ariable costs >ontribution margin #i'ed costs: Avoidable navoidable 5$erating income 1,/) =enly >om$any is thinking of dro$$ing 7roduct > because it is re$orting a loss. Assuming =enly dro$s 7roduct > and does not re$lace it, o$erating income will: A) increase by 6",*00 4) increase by 6),000 >) decrease by 6),000 =) decrease by 6+,*00 Answer: > !'$lanation: >) 6"*,000 3 61+,000 3 6,,000 ? 6),000. 7roduct > contributes 6),000 toward cor$orate $rofits. 9ithout 7roduct >, o$erating income would be 6),000 less than currently re$orted.
#roduct A 6,0,000 ),,000 "*,000 /,000 ,,000 6 /,000
#roduct . 6/0,000 *.,000 *",000 1.,000 /,000 61+,000
#roduct C 6"*,000 1+,000 /,000 ,,000 +,*00 6 @",*00)
1-0) Assuming 7roduct > is discontinued and the s$ace formerly used to $roduce 7roduct > is rented for 61",000 $er year, o$erating income will: A) 111
increase by 6,,,00 4) increase by 6/,000 >) increase by 61",000 =) increase by 61*,*00 Answer: 4 !'$lanation: 4) 61",000 3 6),000 ? 6/,000
Diff: % Terms: relevant revenues, relevant costs, o&&ortunit# cost Objective: , AACSB: Anal#tical s ills
11"
Answer the following questions using the information below: <elodee;s 7reserves currently makes Cams and Cellies and a variety of decorative Cars used for $ackaging. An outside su$$lier has offered to su$$ly all of the needed decorative Cars. #or this make3or3buy decision, a cost analysis revealed the following avoidable unit costs for the decorative Cars: =irect materials =irect labor nit3related su$$ort costs 4atch3related su$$ort costs 7roduct3sustaining su$$ort costs #acility3sustaining su$$ort costs Total cost $er Car 1-1) The relevant cost $er Car is: A) 60.". $er Car 4) 60.). $er Car >) 60.-" $er Car =) 61.00 $er Car Answer: = !'$lanation: =) All avoidable costs are relevant for this decision.
Diff: " Terms: relevant costs Objective: ", , AACSB: Anal#tical s ills
60."+ 0.0) 0.10 0.1" 0."" 0.". 61.00
1-") The ma'imum $rice that <elodee;s 7reserves should be willing to $ay for the decorative Cars is: A)
11)
60.". $er Car 4) 60.). $er Car >) 60.-" $er Car =) 61.00 $er Car Answer: = !'$lanation: =) >onsidering only quantitative factors, the com$any should not $ay more than the avoidable costs of 61.00 $er Car. There may be qualitative factors that are also im$ortant.
Diff: " Terms: relevant costs Objective: ", , AACSB: Anal#tical s ills
1-)) >osts are relevant to a $articular decision if they: A) are variable costs 4) are fi'ed costs >) differ across the alternatives being considered =) remain unchanged across the alternatives being considered Answer: >
Diff: " Terms: relevant costs
11*
11+
1-*) 9hen deciding to lease a new cutting machine or continue using the old machine, the following costs are relevant !L>!7T the: A) 6+0,000 cost of the old machine 4) 6"0,000 cost of the new machine >) 610,000 selling $rice of the old machine =) 6),000 annual savings in o$erating costs if the new machine is $urchased Answer: A
Diff: " Terms: relevant costs Objective: AACSB: Reflective thin in!
1-+) #or machine3re$lacement decisions, de$reciation is a cost that is: A) not relevant 4) differential >) incremental =) variable Answer: A
Diff: 1 Terms: relevant costs
11,
1-,) QQQQQQQQ is relevant in a decision to re$lace equi$ment. A) >ost of old equi$ment 4) 4ook value of old equi$ment >) Accumulated de$reciation on old equi$ment =) #uture maintenance costs of old equi$ment Answer: =
1--) 2n a decision to kee$ or re$lace e'isting equi$ment, QQQQQQQQ is a false statement. A) the book value of the old equi$ment is irrelevant 4) the dis$osal value of the old equi$ment is irrelevant >) the cost of the new equi$ment is relevant =) de$reciation on the new equi$ment is relevant Answer: 11-
4
11.
1-.) A com$any decided to re$lace an old machine with a new machine. 9hich of the following is considered a relevant costA A) the book value of the old equi$ment 4) de$reciation e'$ense on the old equi$ment >) the loss on the dis$osal of the old equi$ment =) the current dis$osal $rice of the old equi$ment Answer: =
1-/) 9hat role does a trade3in allowance on old equi$ment $lay in a decision to retain or re$lace equi$mentA A) it is relevant since it increases the cost of the new equi$ment 4) it is not relevant since it reduces the cost of the old equi$ment >) it is not relevant to the decision since it does not im$act the cost of the new equi$ment =) it is relevant since it reduces the cost of the new equi$ment Answer: =
Diff: 1 Terms: relevant costs, relevant revenues
11/
Answer the following questions using the information below: #lowers #or !veryone is considering re$lacing its e'isting delivery van with a new one. The new van can offer considerable savings in o$erating costs. 2nformation about the e'isting van and the new van follow: 5riginal cost Annual o$erating cost Accumulated de$reciation >urrent salvage value of the e'isting van Remaining life &alvage value in 10 years Annual de$reciation 1.0) &unk costs include: A) the original cost of the e'isting van 4) the original cost of the new van >) the current salvage value of the e'isting van =) the annual o$erating cost of the new van Answer: A
Diff: " Terms: sun costs Objective: AACSB: Reflective thin in!
/0isting van 6100,000 6 )+,000 6 ,0,000 6 *+,000 10 years 60 6 *,000
1e2 van 61.0,000 6 "0,000 10 years 60 6 1.,000
1"0
1.1) Relevant costs for this decision include: A) the original cost of the e'isting van 4) accumulated de$reciation >) the current salvage value =) the salvage value in 10 years Answer: >
Diff: " Terms: relevant costs Objective: AACSB: Reflective thin in!
1.") 2f #lowers #or !veryone re$laces the e'isting delivery van with the new one, over the ne't 10 years o$erating income will: A) decrease by 61.0,000 4) increase by 61+0,000 >) decrease by 61+0,000 =) Fone of these answers is correct. Answer: 4 !'$lanation: 4) 1"1
Few van @6"0,000 B 10 years) 3 !'isting van @6)+,000 B 10 years) ? 61+0,000 less in o$erating costs, which results in a 61+0,000 increase in o$erating income.
Diff: % Terms: relevant revenues, relevant costs Objective: AACSB: Anal#tical s ills
Answer the following questions using the information below: #rederick, 2nc., is considering re$lacing a machine. The following data are available: 3ld Machine 6*+,000 10 + 6"+,000 6.,000 0 6-,000 Replace!ent Machine 6)+,000 + 0 0 6*,000
5riginal cost seful life in years >urrent age in years 4ook value =is$osal value now =is$osal value in + years Annual cash o$erating costs 1.))
9hich of the data $rovided in the table is a sunk costA A) the annual cash o$erating costs of the old machine 4) the annual cash o$erating costs of the re$lacement machine >) the dis$osal value of the old machine =) the original cost of the old machine Answer: =
Diff: " Terms: sun costs Objective: AACSB:
1""
Anal#tical s ills
1")
1.*) #or the decision to kee$ the old machine, the relevant costs of kee$ing the old machine total: A) 6,0,000 4) 6)+,000 >) 6*-,000 =) 6-",000 Answer: 4 !'$lanation: 4) 6-,000 B + ? 6)+,000
Diff: % Terms: relevant costs Objective: AACSB: Anal#tical s ills
1.+) The difference between kee$ing the old machine and re$lacing the old machine is: A) 6)-,000 in favor of kee$ing the old machine 4) 61",000 in favor of kee$ing the old machine >) 6)-,000 in favor of re$lacing the old machine =) 61",000 in favor of re$lacing the old machine Answer: 1"*
4 !'$lanation: 4) Few D6)+,000 K @+ B 6*,000)E 3 5ld D6.,000 K @+ B 6-,000)E ? 61",000

Diff: % Terms: relevant costs Objective: AACSB: Anal#tical s ills
1.,) The difference between the original cost of an asset and the accumulated de$reciation is known as the: A) historical cost 4) market value >) book value =) de$reciable cost Answer: >
1.-) <anagers tend to favor the alternative that makes their $erformance look best. Therefore, they tend to focus on: A) how to im$lement the chosen alternative 1"+
4) the measures used in the decision model >) the measures used in the $erformance evaluation model =) gathering the required information Answer: >
Diff: " Terms: decision model Objective: . AACSB: (thical reasonin!
1",
1..) 2f management takes a multi$le3year view in the decision model and Cudges success according to the current year;s results, a $roblem will occur in the: A) decision model 4) $erformance evaluation model >) $roduction evaluation model =) quantitative model Answer: 4
Diff: " Terms: decision model Objective: . AACSB: Reflective thin in!
1./) To$ management faces a $ersistent challenge to make sure that the $erformance evaluation model of lower level managers is: A) focused on short3term $erformance 4) based solely on quantitative factors >) consistent with the decision model =) not consistent with the decision model Answer: =
Diff: " Terms:
1"-
decision model Objective: . AACSB: Reflective thin in!
1/0) The three ste$s involved in linear $rogramming include all of the following !L>!7T: A) determining the obCective 4) determining the basic relationshi$ >) com$uting the o$timal solution =) determining the relevant and irrelevant costs Answer: =
Diff: " Terms: linear &ro!rammin! /012 Objective: . AACSB: Reflective thin in!
1/1) 2n linear $rogramming, the goals of management are e'$ressed in: A) an obCective function 4) constraints >) o$erating $olicies =) 1".
business functions Answer: A

Diff: 1 Terms: linear &ro!rammin! /012 Objective: . AACSB: Reflective thin in!
1"/
1/") A mathematical inequality or equality that must be a$$eased is known as a@n): A) obCective function 4) constraint >) o$erating $olicy =) business function Answer: 4
Diff: " Terms: linear &ro!rammin! /012, constraint Objective: . AACSB: Reflective thin in!
1)0
1/)) >om$uter 7roducts $roduces two keyboards, Regular and &$ecial. Regular keyboards have a unit contribution margin of 61"., and &$ecial keyboards have a unit contribution margin of 6-"0. The demand for Regulars e'ceeds >om$uter 7roduct;s $roduction ca$acity, which is limited by available machine3hours and direct manufacturing labor3hours. The ma'imum demand for &$ecial keyboards is .0 $er month. <anagement desires a $roduct mi' that will ma'imi:e the contribution toward fi'ed costs and $rofits. =irect manufacturing labor is limited to 1,,00 hours a month and machine3hours are limited to 1,"00 a month. The Regular keyboards require "0 hours of labor and . machine3hours. &$ecial keyboards require )* labor3hours and "0 machine3hours. %et R re$resent Regular keyboards and & re$resent &$ecial keyboards. The correct set of equations for the keyboard $roduction $rocess is: A) <a'imi:e: >onstraints: %abor3hours: <achine3hours: &$ecial: Regular: 4) <a'imi:e: >onstraints: %abor3hours: <achine3hours: &$ecial: Regular: >) <a'imi:e: >onstraints: %abor3hours: <achine3hours: &$ecial: Regular: =) <a'imi:e: >onstraints: %abor3hours: <achine3hours: &$ecial: Regular: Answer: A
Diff: % Terms: linear &ro!rammin! /012, constraint Objective:
61".R K 6-"0& "0R K )*& S 1,,00 .R K "0& S 1,"00 & S .0 &T0 RT0
61".R K 6-"0& "0R K )*& T 1,,00 .R K "0& TS 1,"00 & T .0 &T0 RT0
6-"0& K 61".R "0R K .& S 1,,00 )*R K "0& S 1,"00 & S .0 &T0 RT0
61".R K 6-"0& "0R K )*& S 1,,00 .R K "0& S 1,"00 & T .0 &S0 RS0
1)1
. AACSB: 3se of 4nformation Technolo!#
1)"
1/*) #luty >or$oration manufactures a $roduct that has two $arts, A and 4. 2t is currently considering two alternative $ro$osals related to these $arts. The first $ro$osal is for buying 7art A. This would free u$ some of the $lant s$ace for the manufacture of more of 7art 4 and assembly of the final $roduct. The $roduct vice $resident believes the additional $roduction of the final $roduct can be sold at the current market $rice. Fo other changes in manufacturing would be needed. The second $ro$osal is for buying new equi$ment for the $roduction of 7art 4. The new equi$ment requires fewer workers and uses less $ower to o$erate. The old equi$ment has a net dis$osal value of :ero. Re4uired5 Tell whether the following items are relevant or irrelevant for each $ro$osal. Treat each $ro$osal inde$endently. a. b. c. d. e. f. g. h. i. C. k. Total variable manufacturing overhead, 7art A Total variable manufacturing overhead, 7art 4 >ost of old equi$ment for manufacturing 7art 4 >ost of new equi$ment for manufacturing 7art 4 Total variable selling and administrative costs &ales revenue of the $roduct Total variable costs of assembling final $roducts Total direct manufacturing materials, 7art A Total direct manufacturing materials, 7art 4 Total direct manufacturing labor, 7art A Total direct manufacturing labor, 7art 4 Answer: 1ro&osal 1 R R 2 2 R R R R R R R
Diff: " Terms: relevant revenues, relevant costs Objective: " AACSB: Anal#tical s ills
a. b. c. d. e. f. g. h. i. C. k.
1ro&osal " 2 R 2 R 2 2 2 2 2 2 R
1))
1/+) A'le and 9heel <anufacturing is a$$roached by a !uro$ean customer to fulfill a one3time3only s$ecial order for a $roduct similar to one offered to domestic customers. The following $er unit data a$$ly for sales to regular customers: =irect materials =irect labor 8ariable manufacturing su$$ort #i'ed manufacturing su$$ort Total manufacturing costs <arku$ @+0M) Targeted selling $rice 6)) 1+ "* +" 1"* ," 61.,
A'le and 9heel <anufacturing has e'cess ca$acity. Re4uired5 a. b. c. d. e. 9hat is the full cost of the $roduct $er unitA 9hat is the contribution margin $er unitA 9hich costs are relevant for making the decision regarding this one3time3only s$ecial orderA 9hyA #or A'le and 9heel <anufacturing, what is the minimum acce$table $rice of this one3time3only s$ecial orderA #or this one3time3only s$ecial order, should A'le and 9heel <anufacturing consider a $rice of 6100 $er unitA 9hy or why notA Answer:
a. 61"* b. 611* ? &elling $rice 61., 3 8ariable costs @6)) K 61+ K 6"*). c. Relevant costs for decision making are those costs that differ between alternatives, which in this situation are the incremental costs. The incremental costs total 6-" ? 8ariable costs @6)) K 61+ K 6"*). d. The minimum acce$table $rice is 6-" ? 8ariable costs @6)) K 61+ K 6"*), which are the incremental costs in the short tem. e. Ges, because this $rice is greater than the minimum acce$table $rice of this s$ecial order determined in @d).
Diff: " Terms: one'time'onl# s&ecial order, relevant revenues, relevant costs Objective: " AACSB: Anal#tical s ills
1)*
1/,) &ilver %ake >abinets is a$$roached by <s. Henny Phang, a new customer, to fulfill a large one3time3only s$ecial order for a $roduct similar to one offered to regular customers. The following $er unit data a$$ly for sales to regular customers: =irect materials =irect labor 8ariable manufacturing su$$ort #i'ed manufacturing su$$ort Total manufacturing costs <arku$ @,0M) Targeted selling $rice 6100 1"+ ,0 -+ ),0 "1, 6+-,
&ilver %ake >abinets has e'cess ca$acity. <s. Phang wants the cabinets in cherry rather than oak, so direct material costs will increase by 6)0 $er unit. Re4uired5 a. b. c. #or &ilver %ake >abinets, what is the minimum acce$table $rice of this one3time3only s$ecial orderA 5ther than $rice, what other items should &ilver %ake >abinets consider before acce$ting this one3time3only s$ecial orderA (ow would the analysis differ if there was limited ca$acityA Answer:
a. 6)1+ ? 8ariable costs @6100 K 61"+ K 6,0) K 6)0 additional cost for cherry. b. &ilver %ake >abinets should also consider the im$act on current customers when these customers hear that another customer was offered a discounted $rice, and the im$act on the com$etition and if they might choose to meet the discounted $rice. c. >urrently, the incremental costs total 6)1+. 2f additional ca$acity is needed to $rocess this order, these incremental costs will increase by the cost of adding ca$acity.
Diff: % Terms: one'time'onl# s&ecial order, relevant costs Objective: " AACSB: Anal#tical s ills
1)+
1/-) 1uiett Truck manufactures $art 94") used in several of its truck models. 10,000 units are $roduced each year with $roduction costs as follows: =irect materials =irect manufacturing labor 8ariable su$$ort costs #i'ed su$$ort costs Total costs 6 *+,000 1+,000 )+,000 "+,000 61"0,000
1uiett Truck has the o$tion of $urchasing $art 94") from an outside su$$lier at 611."0 $er unit. 2f 94") is outsourced, *0M of the fi'ed costs cannot be immediately converted to other uses. a. b. c. =escribe avoidable costs. 9hat amount of the 94") $roduction costs is avoidableA &hould 1uiett Truck outsource 94")A 9hy or why notA 9hat other items should 1uiett Truck consider before outsourcing any of the $arts it currently manufacturesA Answer:
a. Avoidable costs are those costs eliminated when a $art, $roduct, $roduct line, or business segmented is discontinued. Avoidable $roduction costs for 94") total 6110,000, which are all but the 610,000 @6"+,000 B *0M) of fi'ed costs that cannot be immediately converted to other uses. b. 4ased on the financial considerations given, 1uiett Truck should F5T outsource 94") because the 611",000 @10,000 units B 611."0 $er $art) outsourced cost is greater than the 6110,000 reduction in annual $roduction costs. 2n other words, the outsourcing would cost 1uiett Truck an additional 6",000 annually. c. 5ther factors to consider include the su$$lier;s ability to meet e'$ected quality and delivery standards, and the likelihood of su$$liers increasing $rices of com$onents in the future.
1),
1/.) &outhwestern >om$any needs 1,000 motors in its manufacture of automobiles. 2t can buy the motors from Hin' <otors for 61,"+0 each. &outhwestern;s $lant can manufacture the motors for the following costs $er unit: =irect materials =irect manufacturing labor 8ariable manufacturing overhead #i'ed manufacturing overhead Total 6 +00 "+0 "00 )+0 61,)00
2f &outhwestern buys the motors from Hin', -0M of the fi'ed manufacturing overhead a$$lied will not be avoided. Re4uired5 a. b. a. &hould the com$any make or buy the motorsA 9hat additional factors should &outhwestern consider in deciding whether or not to make or buy the motorsA Answer: Cost to bu# the &art: @1,000 B 61,"+0) Relevant costs to ma e: 8ariable costs: =irect materials @1,000 B 6+00) =irect manufacturing. labor @1,000 B 6"+0) 8ariable manufacturing overhead @1,000 B 6"00) Total Avoidable fi'ed costs: @6)+0 B 1,000 B 0.)0) Savin!s if &art is manufactured 61,"+0,000 6+00,000 "+0,000 "00,000 /+0,000 10+,000
1,0++,000 6 1/+,000
b. U U U U U
<anagement should consider several qualitative factors in deciding whether to make or buy the motors. $ualit# controls Deliver# Re&utation Term 6acilities
Diff: " Terms:
The com$any;s ability to manufacture quality motors versus that of the su$$lier. >an they make them when needed versus Hin' delivering them when neededA 9hat is the overall re$utation of Hin'A 2s Hin' willing to make long3term commitments for delivery of the motorsA 9hat are the o$$ortunity costs of using the s$ace and equi$ment to manufacture other itemsA
relevant costs, qualitative factors Objective: " AACSB: Anal#tical s ills
1)-
1//) >ollier 4icycles has been manufacturing its own wheels for its bikes. The com$any is currently o$erating at 100M ca$acity, and variable manufacturing overhead is charged to $roduction at the rate of )0M of direct labor cost. The direct materials and direct labor cost $er unit to make the wheels are 61.+0 and 61..0, res$ectively. Formal $roduction is "00,000 wheels $er year. A su$$lier offers to make the wheels at a $rice of 6* each. 2f the bicycle com$any acce$ts this offer, all variable manufacturing costs will be eliminated, but the 6*",000 of fi'ed manufacturing overhead currently being charged to the wheels will have to be absorbed by other $roducts. Re4uired5 a. b. 7re$are an incremental analysis for the decision to make or buy the wheels. &hould >ollier 4icycles buy the wheels from the outside su$$lierA Hustify your answer. Answer: <ake 6)00,000 ),0,000 303 6-,.,000 4uy 303 303 10.,000 .00,000 6.00,000 303
a. =irect materials @"00,000 B 61.+0) =irect labor @"00,000 B 61..0) 8ariable manufacturing costs @6),0,000 B )0M) 7urchase $rice @"00,000 B 6*) Total annual cost
b. The wheels should continue to be manufactured by >ollier 4icycles. The com$any;s net income would decrease 6)",000 by $urchasing the wheels.
Diff: " Terms: ma e'or'bu# decision Objective: " AACSB: Anal#tical s ills
1).
"00) Oirkland >om$any manufactures a $art for use in its $roduction of hats. 9hen 10,000 items are $roduced, the costs $er unit are: =irect materials =irect manufacturing labor 8ariable manufacturing overhead #i'ed manufacturing overhead Total 60.,0 ).00 1."0 1.,0 6,.*0
<ike >om$any has offered to sell to Oirkland >om$any 10,000 units of the $art for 6,.00 $er unit. The $lant facilities could be used to manufacture another item at a savings of 6/,000 if Oirkland acce$ts the offer. 2n addition, 61.00 $er unit of fi'ed manufacturing overhead on the original item would be eliminated. Re4uired5 a. b. a. 9hat is the relevant $er unit cost for the original $artA 9hich alternative is best for Oirkland >om$anyA 4y how muchA Answer: =irect materials =irect manufacturing labor 8ariable manufacturing overhead Avoidable fi'ed manufacturing. overhead Total relevant $er unit costs Make 7urchase $rice &avings in s$ace =irect materials =irect mfg. labor 8ariable overhead #i'ed overhead saved Totals
Diff: " Terms: ma e'or'bu# decision Objective: ",%,* AACSB: Anal#tical s ills
60.,0 ).00 1."0 1.00 6+..0 .u" 6,0,000 @/,000) / ect o .u"ing 6@,0,000) /,000 ,,000 )0,000 1",000 10,000 6-,000
b.
6,,000 )0,000 1",000 6*.,000 @10,000) 6*1,000
The best alternative is to buy the $art.
1)/
"01) %ewis Auto >om$any manufactures a $art for use in its $roduction of automobiles. 9hen 10,000 items are $roduced, the costs $er unit are: =irect materials =irect manufacturing labor 8ariable manufacturing overhead #i'ed manufacturing overhead Total 6 1" ,0 "* )" 61".
<onty >om$any has offered to sell %ewis Auto >om$any 10,000 units of the $art for 61"0 $er unit. The $lant facilities could be used to manufacture another $art at a savings of 61.0,000 if %ewis Auto acce$ts the su$$lier;s offer. 2n addition, 6"0 $er unit of fi'ed manufacturing overhead on the original $art would be eliminated. Re4uired5 a. b. a. 9hat is the relevant $er unit cost for the original $artA 9hich alternative is best for %ewis Auto >om$anyA 4y how muchA Answer: =irect materials =irect manufacturing labor 8ariable manufacturing overhead Avoidable fi'ed manufacturing overhead Total relevant $er unit costs Make 7urchase $rice &avings in s$ace =irect materials =irect manufacturing labor 8ariable overhead #i'ed overhead saved Totals
Diff: " Terms: ma e'or'bu# decision Objective: ", %, * AACSB: Anal#tical s ills
61" ,0 "* "0 611, .u" 61,"00,000 @1.0,000) / ect o .u"ing 6@1,"00,000) 1.0,000 1"0,000 ,00,000 "*0,000 "00,000 61*0,000
b.
61"0,000 ,00,000 "*0,000 6/,0,000 @"00,000) 6."0,000
The best alternative is to buy the $art.
1*0
"0") Forton;s <ufflers manufactures three different $roduct lines, <odel L, <odel G, and <odel P. >onsiderable market demand e'ists for all models. The following $er unit data a$$ly: Model ' Model ( Model ) &elling $rice 6.0 6/0 6100 =irect materials )0 )0 )0 =irect labor @610 $er hour) 1+ 1+ "0 8ariable su$$ort costs @6+ $er machine3hour) + 10 10 #i'ed su$$ort costs "0 "0 "0 a. b. c. d. e. a. #or each model, com$ute the contribution margin $er unit. #or each model, com$ute the contribution margin $er machine3hour. 2f there is e'cess ca$acity, which model is the most $rofitable to $roduceA 9hyA 2f there is a machine breakdown, which model is the most $rofitable to $roduceA 9hyA (ow can Forton encourage her sales $eo$le to $romote the more $rofitable modelA Answer:
The contribution margin $er unit is: 6)0 for <odel L @6.0 3 6)0 3 61+ 3 6+), 6)+ for <odel G @6/0 3 6)0 3 61+ 3 610), and 6*0 for <odel P @6100 3 6)0 3 6"0 3 610). b. The contribution margin $er machine3hour is 6)0 for <odel L @6)0 contribution margin N 1.0 machine3hour $er unit), 61-.+0 for <odel G @6)+ N ".0), and 6"0 for <odel P @6*0 N ".0). c. 9hen there is e'cess ca$acity, <odel G is the most $rofitable because it has the greatest contribution margin $er unit. d. 9hen there are machine3hour ca$acity constraints, <odel L is the most $rofitable because it has the greatest contribution margin $er constrained resource. e. To encourage sales $ersons to $romote s$ecific $roducts, Forton may want to $rovide marketing incentives such as higher sales commissions for $roducts contributing the most to $rofits. Forton may also want to educate sales$eo$le about the effects of constrained resources.
1*1
"0)) (ackerott >amera is considering eliminating <odel A!1 from its camera line because of losses over the $ast quarter. The $ast three months of information for model A!1 is summari:ed below: &ales @1,000 units) <anufacturing costs: =irect materials =irect labor @61+ $er hour) &u$$ort 5$erating loss 6"+0,000 1*0,000 )0,000 100,000 @6"0,000)
&u$$ort costs are -0M variable and the remaining )0M is de$reciation of s$ecial equi$ment for model A!1 that has no resale value. &hould (ackerott >amera eliminate <odel A!1 from its $roduct lineA 9hy or why notA Answer: Fo, (ackerott >amera should not eliminate <odel A!1 from its $roduct line because it contributes 610,000 toward fi'ed costs and $rofits. &ales @1,000 units) <anufacturing costs: =irect materials =irect labor 8ariable su$$ort @6100,000 B -0M) >ontribution margin
Diff: " Terms: &roduct'mi) decisions Objective: , AACSB: Anal#tical s ills
6"+0,000 1*0,000 )0,000 -0,000 610,000
1*"
"0*) The management accountant for the >hocolate &;more >om$any has $re$ared the following income statement for the most current year: &ales >ost of goods sold >ontribution margin =elivery and ordering costs Rent @$er sq. foot used) Allocated cor$orate costs >or$orate $rofit Chocolate 6*0,000 ",,000 1*,000 ",000 ),000 +,000 6*,000 3ther Cand" 6"+,000 1+,000 10,000 ),000 ),000 +,000 6@1,000) 6udge 6)+,000 1/,000 1,,000 ",000 ",000 +,000 6-,000 -otal 6100,000 ,0,000 *0,000 -,000 .,000 1+,000 610,000
a. =o you recommend discontinuing the 5ther >andy $roduct lineA 9hy or why notA b. 2f the >hocolate $roduct line had been discontinued, cor$orate $rofits for the current year would have decreased by what amountA Answer: a. Fo, 2 would not recommend discontinuing the 5ther >andy $roduct line because this $roduct line contributes 6*,000 towards cor$orate costs and $rofits. 6"+,000 3 61+,000 3 6),000 3 6),000 ? 6*,000 9ithout the 5ther >andy $roduct line, cor$orate $rofits would be 6*,000 less than currently re$orted. b. 2f the >hocolate $roduct line were discontinued, cor$orate $rofits would immediately decrease by 6/,000. 6*0,000 3 6",,000 3 6",000 3 6),000 ? 6/,000
Diff: % Terms: &roduct'mi) decisions Objective: , AACSB: Anal#tical s ills
1*)
"0+) >linton >om$any sells two items , $roduct A and $roduct 4. The com$any is considering dro$$ing $roduct 4. 2t is e'$ected that sales of $roduct A will increase by *0+ as a result. =ro$$ing $roduct 4 will allow the com$any to cancel its monthly equi$ment rental costing 6100 $er month. The other e'isting equi$ment will be used for additional $roduction of $roduct A. 5ne em$loyee earning 6"00 $er month can be terminated if $roduct 4 $roduction is dro$$ed. >linton;s other fi'ed costs are allocated and will continue regardless of the decision made. A condensed, budgeted monthly income statement with both $roducts follows: &ales =irect materials =irect labor !qui$ment rental 5ther allocated overhead 5$erating income 7roduct A 610,000 ",+00 ",000 )00 1,000 6 *,"00 7roduct 4 6 .,000 ",000 1,"00 ",,00 ",100 6 100 Total 61.,000 *,+00 ),"00 ",/00 ),100 6 *,)00
Re4uired5 7re$are an incremental analysis to determine the financial effect of dro$$ing $roduct 4. Answer: 2ncremental change in revenue: 7roduct A increase in sales 610,000 B *0M 7roduct 4 decrease in sales 2ncremental decrease in revenue 2ncremental change in variable costs: =irect materials: 7roduct A increase 6",+00 B *0M 7roduct 4 decrease =irect labor: 7roduct A increase 6",000 B *0M 7roduct 4 decrease 2ncremental decrease in variable costs !qui$ment rental deduction 2ncremental decrease in $rofits if $roduct 4 is dro$$ed
Diff: % Terms: relevant costs, relevant revenues Objective: , AACSB: Anal#tical s ills
6*,000 @.,000) @6*,000) @1,000) ",000 @.00) "00 *00 100 @6),+00)
1**
"0,) 7at, a 7i::eria manager, re$laced the convection oven Cust si' months ago. Today, Turbo 5vens <anufacturing announced the availability of a new convection oven that cooks more quickly with lower o$erating e'$enses. 7at is considering the $urchase of this faster, lower3o$erating cost convection oven to re$lace the e'isting one they recently $urchased. &elected information about the two ovens is given below: 5riginal cost Accumulated de$reciation >urrent salvage value Remaining life Annual o$erating e'$enses =is$osal value in + years /0isting 6,0,000 6 +,000 6*0,000 + years 610,000 60 1e2 -ur,o 3ven 6+0,000 + years 6 -,+00 60
Re4uired5 a. 9hat costs are sunkA b. 9hat costs are relevantA c. 9hat are the net cash flows over the ne't + years assuming the 7i::eria $urchases the new convection ovenA d. 9hat other items should 7at, as manager of the 7i::eria, consider when making this decisionA Answer: a. b. &unk costs include the original cost of the e'isting convection oven and the accom$anying accumulated de$reciation. Relevant costs include: Acquisition cost of the new Turbo oven >urrent dis$osal value of the e'isting convection oven Annual o$erating e'$enses for the e'isting and the new Turbo oven Fet cash flows over + years with the new Turbo oven: Cash inflo7: =ecrease in annual o$erating e'$enses @6",+00 B +) &ale of the e'isting oven Cash outflo7: Acquisition of the new Turbo oven 8et cash inflo7 /outflo72 d. 6 1",+00 *0,000 @+0,000) 6 ",+00
c.
5ther items the manager should consider when making this decision include: U The Turbo oven;s reliability and efficiency is still unknown since it is a brand3new $roduct. U 2f the Turbo oven bakes faster as it claims, the 7i::eria may be able to increase sales due to the quicker baking time. U After $urchasing another oven Cust si' months $rior, to$ management should consider the Turbo oven o$tion, but instead may question the decision3making ability of 7at, the current manager.
Diff: " Terms: relevant costs, sun costs Objective: AACSB: Anal#tical s ills
1*+
"0-) %ocal &teel >onstruction >om$any $roduces two $roducts, steel and wood beams. &teel beams have a unit contribution margin of 6"00, and wood beams have a unit contribution margin of 61+0. The demand for steel beams e'ceeds %ocal &teel >onstruction >om$any;s $roduction ca$acity, which is limited by available direct labor and machine3hours. The ma'imum demand for wood beams is /0 $er week. <anagement desires that the $roduct mi' should ma'imi:e the weekly contribution toward fi'ed costs and $rofits. =irect manufacturing labor is limited to ),000 hours a week and 1,000 hours is all that the com$any;s outdated machines can run a week. The steel beams require 1"0 hours of labor and ,0 machine3hours. 9ood beams require 1+0 labor hours and 1"0 machine3 hours. Re4uired5 #ormulate the obCective function and constraints necessary to determine the o$timal $roduct mi'. Answer: & ? steel beams <a'imi:e: >onstraints: 9 ? wood beams 6"00& K 61+09 %abor hours: <achine3hours: 9ood beams: &teel beams: 1"0& K 1+09 S ),000 ,0& K 1"09 S 1,000 9 S /0 9 T 0 &T0
Diff: " Terms: linear &ro!rammin! /012 Objective: A AACSB: Anal#tical s ills
"0.) The te'tbook discusses a five3ste$ decision $rocess. 4riefly e'$lain each of the five ste$s. Answer: The five ste$ decision $rocess is @a) obtain information, @b) make $redictions, @c) choose an alternative, @d) im$lement the decision, and @e) evaluate $erformance to $rovide feedback. 5btaining information involves collecting all data $ertinent to the decision situation, both quantitative and qualitative, and determining which information is relevant to the decision, and determining which alternatives are being considered. <aking $redictions involves using the information obtained above and attem$ting to $redict what the future costs and benefits will be for each of the various alternatives. >hoosing an alternative involves com$aring the $redicted benefits of each alternative with each of the $redicted costs @as well as other non3quantitative factors), and selecting an alternative that ma'imi:es the difference between the e'$ected benefits and the e'$ected costs. 2m$lementing the decision involves actually doing the alternative selected above and making all the necessary changes in o$erations to su$$ort the decision. !valuating the $erformance of the decision involves learning from the results of the decision and seeing which $redictions were accurate and determining how to avoid any difficulties encountered in either the decision3$rocess or the im$lementation.
Diff: "
1*,
Terms: decision model Objective: 1 AACSB: Reflective thin in!
1*-
"0/) !'$lain what revenues and costs are relevant when choosing among alternatives. Answer: #uture amounts that differ among alternatives are considered relevant. Amounts that remain the same among alternatives do not add useful information for selecting an alternative, and therefore, are not considered relevant for decision making.
Diff: " Terms: relevant costs, relevant revenues Objective: " AACSB: Reflective thin in!
"10) !'$lain why sunk costs are not considered relevant when choosing among alternatives. Answer: Amounts that remain the same among alternatives do not add useful information for selecting an alternative, and therefore, are not considered relevant for decision making. &unk costs by definition are those costs that have already been committed, cannot be changed, and will never differ among alternatives.
Diff: " Terms: sun costs, relevant costs Objective: " AACSB: Reflective thin in!
"11) Assume you are a so$homore in college and are committed to earning an undergraduate degree. Gour current decision is whether to finish college in four consecutive years or take a year off and work for some e'tra cash. a. 2dentify at least two revenues or costs that are relevant to making this decision. !'$lain why each is relevant. b. 2dentify at least two costs that would be considered sunk costs for this decision. c. >omment on at least one qualitative consideration for this decision. Answer: a. Relevant revenuesNcosts are those that differ between the alternatives of continuing with college or taking a year off from college and working. Relevant costs for continuing your college education without a break include: 1. !arnings lost ne't year due to the hours you are not able to work because of classes and homework. ". As a result of graduating a year earlier, higher wages will be earned a year earlier as well. b. &unk costs for this decision include: 1. Amounts $aid for college tuition and books during the $ast two years. ". Amounts committed for college tuition and books for the remaining two years. c. A qualitative consideration would include having different activities and $riorities than your friends who are students, graduating later than students who started college the same time you did, and retaining information over the year off from school.
Diff: "
1*.
Terms: relevant costs, o&&ortunit# cost, qualitative factors Objective: " AACSB: Reflective thin in!
1*/
"1") A restaurant is deciding whether it wants to u$date its image or not. 2t currently has a co:y a$$eal with an outdated dVcor that is still in good condition, menus and car$et that need to be re$laced anyway, and loyal customers. 2dentify for the restaurant management a. those costs that are relevant to this decision, b. those costs that are not differential, c. and qualitative considerations. Answer: #or the decision of whether to u$date the restaurant;s image: a. Relevant costs include a one3time cost of the renovation for the u$dated image, and a change in future sales which includes an increase in sales due to the u$dated image, decrease in sales due to loss of that co:y a$$eal, and loss of sales due to being closed or having a limited serving area during renovation. b. >osts that are not differential include re$lacing the menus and the car$et since they need to be re$laced whether the image is u$dated or not. c. 1ualitative considerations include whether the restaurant will lose that co:y a$$eal it currently has, if the restaurant needs to be closed for renovations it may result in loss of customers, and new customers may not be the ty$e of customer they want to attract.
Diff: " Terms: relevant costs, qualitative factors, differential cost Objective: " AACSB: Reflective thin in!
"1)) Are relevant revenues and relevant costs the only information needed by managers to select among alternativesA !'$lain using e'am$les. Answer: Fo, relevant revenues and costs $rovide a financial analysis but do not take into consideration qualitative im$lications. 2n a make3or3 buy decision, e'am$les of qualitative issues include the su$$lier;s ability to meet e'$ected quality and delivery standards, and the likelihood that su$$liers increase $rices of the com$onents in the future.
Diff: " Terms: relevant costs, relevant revenues Objective: " AACSB: Reflective thin in!
"1*) nder what conditions might a manufacturing firm sell a $roduct for less than its long3term $riceA 9hyA Answer: 1+0
The $rice for a short3term order may be less than the $rice offered to a long3term customer. 2f a firm has e'cess ca$acity that is sitting idle, it is more $rofitable for the firm to acce$t a s$ecial order for a $rice below the long3run $rice than it is to let the ca$acity sit idle. 2n addition, the firm may use this strategy for market $enetration and to obtain greater market share.
Diff: " Terms: one'time'onl# s&ecial order Objective: " AACSB: Reflective thin in!
1+1
"1+) #or short3term $ricing decisions, what costs are relevant when there is available sur$lus ca$acityA 9hen there is no available sur$lus ca$acityA Answer: #or both situations the relevant costs are the future incremental costs. (owever, when there is limited ca$acity the incremental costs will be greater because they will include the costs of adding ca$acity or the o$$ortunity costs of alternative manufacturing choices.
Diff: " Terms: one'time'onl# s&ecial order, incremental cost Objective: % AACSB: Reflective thin in!
"1,) (ow does a manager go about choosing which of three $roducts to $roduce and sell when each $roduct uses a single machine with a limited ca$acityA Answer: <anagement should attem$t to ma'imi:e out$ut from the machine which is the limited resource. This involves ma'imi:ing the contribution margin $er unit of the scarce resource. #irst of all, management needs to determine the contribution margin of each of the three $roducts. Then, the time that it takes to $roduce a unit of each of the three $roducts should be determined. Then, a contribution margin $er machine hour can be calculated. The first $roduct that should be $roduced is the one with the highest contribution margin $er machine hour.
Diff: " Terms: &roduct'mi) decisions, incremental cost Objective: * AACSB: Reflective thin in!
"1-) =oggie =inner, 2nc., currently manufactures three different ty$es of scientifically balanced dog food. The firm is considering eliminating one of the three $roducts. 9hat factors should be taken into account in making this decisionA Answer: 2n deciding whether or not to eliminate a $roduct, the firm should determine if costs that can be eliminated will e'ceed the revenues that will be lost. The firm needs to classify the costs into those costs which will be eliminated and therefore are relevant, and which costs will continue even if the $roduct is deleted. >osts that often continue are those costs which have been allocated rather than incurred directly by the $roduct. The firm must also look to see if any other $roducts may be harmed by the elimination of the $roduct. <aybe the $roducts are com$lements, and loss of one sale will result in loss of another. The firm should consider whether another $roduct;s sales might increase if the $roduct is deleted, which could be an o$$ortunity to earn more contribution from another area. >an the firm use the s$ace freed u$ for some other $ur$ose that could generate additional inflows, which is an o$$ortunity costA The firm must also look at how its re$utation among its customers for selling a full line of $roducts might be damaged as a result of this decision.
Diff: " Terms:
1+"
&roduct'mi) decisions Objective: , AACSB: Reflective thin in!
"1.) 9hy is the book value of old equi$ment irrelevant to the equi$ment re$lacement decisionA Answer: The book value of old equi$ment is made u$ of the cost and accumulated de$reciation, both of which are sunk costs and therefore irrelevant.
Diff: " Terms: relevant costs, sun costs Objective: AACSB: Reflective thin in!
1+)
"1/) (ow can conflicts arise between the decision model and the $erformance evaluation model used to evaluate managersA 7rovide an e'am$le of this ty$e of conflict. Answer: &ince managers will act in their self interest, they will make decisions that make their own $erformance look best. At times, this does not lead to the best decision for the firm. An e'am$le of this situation might include evaluating a managers $erformance on short3term results, when the firm would like decisions made that would ma'imi:e long term $erformance.
Diff: " Terms: decision model Objective: . AACSB:
Reflective thinking
1+*

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Cost Accounting, 13e (Horngren et al.) Chapter 11 Decision Making and Relevant In or!

Reflective thin in!

&unk costs are $ast costs that are unavoidable. Answer: TR !

1") A sunk cost can never be relevant. Answer: TR !

1)) 1uantitative factors are always e'$ressed in numerical terms. Answer: TR !

quantitative factors Objective: " AACSB: Reflective thin in!

Reflective thin in!

Reflective thin in!

Reflective thin in!

" AACSB: Reflective thin in!

" AACSB: Reflective thin in!

, AACSB: Reflective thin in!

AACSB: Reflective thin in!

Diff: 1 Terms: decision model Objective: 1 AACSB: Reflective thin in!

Currentl" + 1."+ 6. $er hour ",100

#roposed *.+ 1."+ 6/ $er hour ",000

1 AACSB: Reflective thin in!

,/) &unk costs: A) are relevant 4) are differential >) )1

have future im$lications =) are ignored when evaluating alternatives Answer: =

Reflective thin in!

relevant costs Objective: " AACSB: Reflective thin in!

%eo #ri&! 61+,000 6 ),000 6 ",".0

Honda Civic 6),000 6",100

" AACSB: Reflective thin in!

because they are quantitative =) Fone of these answers is correct. Answer: A

AACSB: Reflective thin in!

" AACSB: Reflective thin in!

6*0 "0 )+ 1+ *+ 1+ 1-0 .+ 6"++

one'time'onl# s&ecial order Objective: " AACSB: Anal#tical s ills

" AACSB: Anal#tical s ills

6/0 =) 61)+ Answer: = !'$lanation: =) 6/0 K @6/0 B +0M) ? 61)+

" AACSB: Reflective thin in!

11)) 9hich of following are risks of outsourcing the $roduction of a $artA A) ,*

Reflective thin in!

outsourcin!, ma e'or'bu# decision Objective: " AACSB: Reflective thin in!

fi'ed overhead costs Answer: =

sunk costing Answer: A

ma e'or'bu# decision, outsourcin! Objective: " AACSB: Anal#tical s ills

6*+,000 K 6,+,000 K 6)0,000 K 6)0,000 ? 61-0,000

>) o$$ortunity cost =) sunk cost Answer: >

% AACSB: Reflective thin in!

% AACSB: Anal#tical s ills

* AACSB: Reflective thin in!

* AACSB: Anal#tical s ills

Reflective thin in!

relevant costs Objective: , AACSB: Reflective thin in!

#roduct A 6,0,000 ),,000 "*,000 /,000 ,,000 6 /,000

#roduct . 6/0,000 *.,000 *",000 1.,000 /,000 61+,000

#roduct C 6"*,000 1+,000 /,000 ,,000 +,*00 6 @",*00)

60."+ 0.0) 0.10 0.1" 0."" 0.". 61.00

AACSB: Reflective thin in!

AACSB: Reflective thin in!

AACSB: Reflective thin in!

/0isting van 6100,000 6 )+,000 6 ,0,000 6 *+,000 10 years 60 6 *,000

1e2 van 61.0,000 6 "0,000 10 years 60 6 1.,000

4 !'$lanation: 4) Few D6)+,000 K @+ B 6*,000)E 3 5ld D6.,000 K @+ B 6-,000)E ? 61",000

decision model Objective: . AACSB: Reflective thin in!

business functions Answer: A

. AACSB: 3se of 4nformation Technolo!#

relevant costs, qualitative factors Objective: " AACSB: Anal#tical s ills

6,,000 )0,000 1",000 6*.,000 @10,000) 6*1,000

The best alternative is to buy the $art.

61"0,000 ,00,000 "*0,000 6/,0,000 @"00,000) 6."0,000

60 "0 )+ 1+ + 1+ 1-0 .+ 6"++

#roduct . 6/0,000 .,000 ",000 1.,000 /,000 61+,000

#roduct C 6",000 1+,000 /,000 ,,000 +,00 6 @",*00)

/0isting van 6100,000 6 )+,000 6 ,0,000 6 +,000 10 years 60 6 ,000

6,,000 )0,000 1",000 6.,000 @10,000) 61,000