ACC 560 Week 6 Quiz – Strayer NEW
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Week 6 Quiz 5:
Chapters 7 and 8
Chapter 7
TRUE-FALSE STATEMENTS
1. An important step in management's decision-making process is to
determine and evaluate possible courses of action.
Ans:, LO: 1, Bloom: K,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking,
AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Strategic Planning
2. In making decisions, management ordinarily considers both
financial and nonfinancial information.
Ans:, LO: 2, Bloom: K,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking,
AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Strategic Planning
3. In incremental analysis, total variable costs will always change
under alternative courses of action, and total fixed costs will always remain
constant.
Ans:, LO: 2, Bloom: C,
Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Strategic/Critical
Thinking, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative
Methods
4. Accountants are mainly involved in developing nonfinancial
information for management's consideration in choosing among alternatives.
Ans:, LO: 2, Bloom: K,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective,
AICPA FN: Decision Modeling, AICPA PC: Interaction, IMA: Decision Analysis
5. Decision-making involves choosing among alternative courses of
action.
Ans:, LO: 2, Bloom: K,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking,
AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Decision Analysis
6. Financial data are developed for a course of action under an
incremental basis and then it is compared to data developed under a
differential basis before a decision is made.
Ans:, LO: 2, Bloom: C,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking,
AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Decision Analysis
7. In incremental analysis, total fixed costs will always remain
constant under alternative courses of action.
Ans:, LO: 2, Bloom: C,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking,
AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Decision Analysis
8. A special one-time order should never be accepted if the unit
sales price is less than the unit variable cost.
Ans:, LO: 3, Bloom: C,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking,
AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
9. If a company has excess capacity and present markets will not be
affected, it would be profitable to accept an order at a special unit price
even though the price is less than the unit variable cost to manufacture the
item.
Ans:, LO: 3, Bloom: C,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking,
AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
10. A company should never accept
an order for its product at less than its regular sales price.
Ans:, LO: 3, Bloom: C,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking,
AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
11. If a company is operating at less than capacity, the incremental
costs of a special order will likely include variable manufacturing costs, but
not fixed costs.
Ans:, LO: 3, Bloom: C,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking,
AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
12. An incremental make-or-buy decision depends solely on which
alternative is the lowest cost alternative.
Ans:, LO: 4, Bloom: C,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking,
AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
13. A decision whether to continue to make a product or buy it
externally depends on the external price and the amount of variable and fixed
costs that can be eliminated assuming no alternative uses of resources.
Ans:, LO: 4, Bloom: C,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking,
AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Quantitative
Methods
14. An opportunity cost is the potential benefit obtained by using
resources in an alternative course of action.
Ans:, LO: 4, Bloom: K,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking,
AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Business Economics
15. If an incremental make or buy analysis indicates that it is
cheaper to buy rather than make an item, management should always make the
decision to choose the lowest cost alternative.
Ans:, LO: 4, Bloom: C,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking,
AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Business Economics
16. In a sell or process further decision, management should process
further as long as the incremental revenues from additional processing exceed
the incremental variable costs.
Ans:, LO: 5, Bloom: C,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking,
AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Business Economics
17. It is always better to sell now rather than process further
because of the time value of money.
Ans:, LO: 5, Bloom: C,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking,
AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Business Economics
18. The basic decision rule in a sell or process further decision
is: process further if the incremental revenue from processing exceeds the
incremental processing costs.
Ans:, LO: 5, Bloom: K,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking,
AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Business Economics
19. In a decision concerning replacing old equipment with new
equipment, the book value of the old equipment can be considered an opportunity
cost.
Ans:, LO: 6, Bloom: C,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking,
AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Business Economics
20. In a decision concerning replacing old equipment with new
equipment, the book value of the old equipment can be considered a sunk cost.
Ans:, LO: 6, Bloom: C,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking,
AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
21. In a decision to retain or replace old equipment, the salvage
value of the old equipment is relevant in incremental analysis.
Ans:, LO: 6, Bloom: C,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking,
AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
22. It is better not to replace old equipment if it is not fully
depreciated.
Ans:, LO: 6, Bloom: C,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking,
AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
23. From a quantitative standpoint, a segment should be eliminated
if its contribution margin is less than the fixed costs that can be eliminated.
Ans:, LO: 7, Bloom: C,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking,
AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Business Economics
24. The elimination of an unprofitable product line may adversely
affect the remaining product lines.
Ans:, LO: 7, Bloom: C,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking,
AICPA FN: Risk Analysis, AICPA PC: Problem Solving, IMA: Business Economics
25. Many of the decisions involving incremental analysis have
qualitative features, but since they are not easily measured they should be
ignored.
Ans:, LO: 7, Bloom: C,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking,
AICPA FN: Risk Analysis, AICPA PC: Problem Solving, IMA: Business Economics
26. Accounting
contributes to management's decision-making process through internal reports
that review the actual impact of the decision.
Ans:, LO: 1, Bloom: K,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking,
AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Decision Analysis
27. The
process used to identify the financial data that change under alternative
courses of action is called allocation of limited resources.
Ans:, LO: 2, Bloom: K,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN:
Risk Analysis, AICPA PC: Problem Solving, IMA: Decision Analysis
28. If
a company is operating at full capacity, the incremental costs of a special
order will likely include fixed manufacturing costs.
Ans:, LO: 3, Bloom: C,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN:
Risk Analysis, AICPA PC: Problem Solving, IMA: Business Economics
29. The
basic decision rule in a sell or process further decision is: sell without further processing as long as
the incremental revenue from processing exceeds the incremental processing
costs.
Ans:, LO: 5, Bloom: K,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking,
AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Business Economics
30. In
deciding on the future status of an unprofitable segment, management should
recognize that net income could decrease by eliminating the unprofitable
segment.
Ans:, LO: 7, Bloom: C,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN:
Decision Modeling, AICPA PC: Problem Solving, IMA: Business Economics
MULTIPLE
CHOICE QUESTIONS
31. A major accounting contribution to the managerial
decision-making process in evaluating possible courses of action is to
a. assign responsibility for the decision.
b. provide relevant revenue and cost data about
each course of action.
c. determine the amount of money that should be
spent on a project.
d. decide which actions that management should
consider.
Ans:, LO: 1, Bloom: K,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective,
AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Decision Analysis
32. Which of the following stages of the
management decision-making process is improperly sequenced?
a. Evaluate possible courses of action Make
decision.
b. Assign responsibility for the decision
Identify the problem.
c. Identify the problem Determine possible
courses of action.
d. Assign responsibility for decision
Determine possible courses of action.
Ans:, LO: 1, Bloom: K,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking,
AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Decision Analysis
33. Internal reports that review the actual
impact of decisions are prepared by
a. department heads.
b. the controller.
c. management accountants.
d. factory workers.
Ans: LO: 1, Bloom: K,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective,
AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Performance Measurement
34. Which of the following steps in the
management decision-making process does not
generally involve the managerial accountant?
a. Determine possible courses of action
b. Make the appropriate decision based on
relevant data
c. Prepare internal reports that review the
impact of decisions
d. None of these
Ans:, LO: 1, Bloom: K,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective,
AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Decision Analysis
35. Which is the first step in the
management decision-making process?
a. Determine and evaluate possible courses of
action.
b. Review results of the decision.
c. Identify the problem and assign
responsibility.
d. Make a decision.
Ans: LO: 1, Bloom: K, Difficulty:
Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN:
Decision Modeling, AICPA PC: Problem Solving, IMA: Decision Analysis
36. Which of the following will always be a relevant cost?
a. Sunk cost
b. Fixed cost
c. Variable cost
d. Opportunity cost
Ans: LO: 2, Bloom: K,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective,
AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Decision Analysis
37. Costs that will differ between
alternatives and influence the outcome of a decision are
a. sunk costs.
b. unavoidable costs.
c. relevant costs.
d. product costs.
Ans: LO: 2, Bloom: K,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective,
AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Decision Analysis
38. A revenue that differs between
alternatives and makes a difference in decision-making is called a(n)
a. sales revenue.
b. incremental revenue.
c. unavoidable revenue.
d. irrelevant revenue.
Ans: LO: 2, Bloom: K,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective,
AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Decision Analysis
39. Alvarez Company is considering the
following alternatives:
Alternative
A Alternative B
Revenues $50,000 $60,000
Variable costs 30,000 30,000
Fixed costs 10,000 16,000
What is the
incremental profit?
a. $10,000
b. $0
c. $6,000
d. $4,000
Ans: LO: 2, Bloom: AP,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective,
AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Decision Analysis
40. Which
of the following is an irrelevant cost?
a. An avoidable cost
b. An incremental cost
c. A sunk cost
d. An opportunity cost
Ans: LO: 2, Bloom: K,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective,
AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Decision Analysis
41. Relevant
costs are always
a. fixed costs.
b. variable costs.
c. avoidable costs.
d. sunk costs.
Ans: LO: 2, Bloom: K, Difficulty:
Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN:
Decision Modeling, AICPA PC: Problem Solving, IMA: Decision Analysis
42. The process of evaluating financial data that change under
alternative courses of action is called
a. double entry analysis.
b. contribution margin analysis.
c. incremental analysis.
d. cost-benefit analysis.
Ans: LO: 2, Bloom: K,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective,
AICPA FN: Risk Analysis, AICPA PC: Problem Solving, IMA: Decision Analysis
43. Nonfinancial information that management might evaluate in
making a decision would not include
a. employee turnover.
b. contribution margin.
c. the environment.
d. the corporate profile in the community.
Ans:, LO: 2, Bloom: C,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective,
AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Business Economics
44. Incremental analysis is synonymous with
a. difficult analysis.
b. differential analysis.
c. gross profit analysis.
d. derivative analysis.
Ans:, LO: 2, Bloom: K,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN:
Decision Modeling, AICPA PC: Problem Solving, IMA: Decision Analysis
45. In incremental analysis,
a. only costs are analyzed.
b. only revenues are analyzed.
c. both costs and revenues may be analyzed.
d. both costs and revenues that stay the same
between alternate courses of action will be analyzed.
Ans: LO: 2, Bloom: C,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN:
Decision Modeling, AICPA PC: Problem Solving, IMA: Decision Analysis
46. Incremental analysis is most useful
a. in developing relevant information for
management decisions.
b. in choosing between capital budgeting
methods.
c. in evaluating the master budget.
d. as a replacement technique for variance
analysis.
Ans:LO: 2, Bloom: C,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN:
Decision Modeling, AICPA PC: Problem Solving, IMA: Decision Analysis
47. The source of data to serve as inputs in
incremental analysis is generated by
a. market analysts.
b. engineers.
c. accountants.
d. all of these.
Ans: LO: 2, Bloom: K,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN:
Decision Modeling, AICPA PC: Problem Solving, IMA: Information Management
48. Which of the following is not a true statement?
a. Incremental analysis might also be referred
to as differential analysis.
b. Incremental analysis is the same as CVP
analysis.
c. Incremental analysis is useful in making
decisions.
d. Incremental analysis focuses on decisions
that involve a choice among alternative courses of action.
Ans:, LO: 2, Bloom: K,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN:
Decision Modeling, AICPA PC: Problem Solving, IMA: Decision Analysis
49. Incremental analysis would not be appropriate for
a. a make or buy decision.
b. an allocation of limited resource decision.
c. elimination of an unprofitable segment.
d. analysis of manufacturing variances.
Ans: LO: 2, Bloom: C,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN:
Decision Modeling, AICPA PC: Problem Solving, IMA: Decision Analysis
50. Incremental analysis would be appropriate for
a. acceptance of an order at a special price.
b. a retain or replace equipment decision.
c. a sell or process further decision.
d. all of these.
Ans: LO: 2, Bloom: C,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN:
Decision Modeling, AICPA PC: Problem Solving, IMA: Decision Analysis
51. Which of the following is a true statement
about cost behaviors in incremental analysis?
1. Fixed costs
will not change between alternatives.
2. Fixed costs may change between alternatives.
3. Variable costs will always change between alternatives.
a. 1
b. 2
c. 3
d. 2 and 3
Ans:, LO: 2, Bloom: C,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN:
Decision Modeling, AICPA PC: Problem Solving, IMA: Decision Analysis
52. A company is considering the following
alternatives:
Alternative 1 Alternative 2
Revenues $120,000 $120,000
Variable
costs 60,000 70,000
Fixed costs 35,000 35,000
Which of the following are relevant in choosing
between the alternatives?
a. Variable costs
b. Revenues
c. Fixed costs
d. Variable costs and fixed costs
Ans:LO: 2, Bloom: C,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN:
Decision Modeling, AICPA PC: Problem Solving, IMA: Decision Analysis
53. It costs Garner Company $12 of
variable and $5 of fixed costs to produce one bathroom scale which normally
sells for $35. A foreign wholesaler offers to purchase 3,000 scales at $15
each. Garner would incur special shipping costs of $1 per scale if the order
were accepted. Garner has sufficient unused capacity to produce the 3,000
scales. If the special order is accepted, what will be the effect on net
income?
a. $6,000 increase
b. $6,000 decrease
c. $9,000 decrease
d. $45,000 increase
Ans:LO: 3, Bloom: AN,
Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Resource Management,
AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Decision Analysis
54. Baden Company manufactures a product with a unit variable cost
of $100 and a unit sales price of $176. Fixed manufacturing costs were $480,000
when 10,000 units were produced and sold. The company has a one-time
opportunity to sell an additional 1,000 units at $140 each in a foreign market
which would not affect its present sales. If the company has sufficient
capacity to produce the additional units, acceptance of the special order would
affect net income as follows:
a. Income would decrease by $8,000.
b. Income would increase by $8,000.
c. Income would increase by $140,000.
d. Income would increase by $40,000.
Ans: LO: 3, Bloom: AN,
Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Resource Management,
AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Decision Analysis
55. In incremental analysis,
a. costs are not relevant if they change between
alternatives.
b. all costs are relevant if they change between
alternatives.
c. only fixed costs are relevant.
d. only variable costs are relevant.
Ans:, LO: 3, Bloom: C,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN:
Decision Modeling, AICPA PC: Problem Solving, IMA: Decision Analysis
56. If a plant is operating at full capacity and receives a one-time
opportunity to accept an order at a special price below its usual price, then
a. only variable costs are relevant.
b. fixed costs are not relevant.
c. the order will likely be accepted.
d. the order will likely be rejected.
Ans: LO: 3, Bloom: C,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN:
Decision Modeling, AICPA PC: Problem Solving, IMA: Business Economics
57. Miley, Inc. has excess capacity. Under what situations should
the company accept a special order for less than the current selling price?
a. Never
b. When additional fixed costs must be incurred
to accommodate the order
c. When the company thinks it can use the
cheaper materials without the customer's knowledge
d. When incremental revenues exceed incremental
costs
Ans: LO: 3, Bloom: C,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN:
Decision Modeling, AICPA PC: Problem Solving, IMA: Business Economics
58. If a company must expand capacity to accept
a special order, it is likely that there will be
a. an increase in unit variable costs.
b. no increase in fixed costs.
c. an increase in variable and fixed costs per
unit.
d. an increase in fixed costs.
Ans: LO: 3, Bloom: C,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN:
Decision Modeling, AICPA PC: Problem Solving, IMA: Business Economics
59. Which of the following is true if a company can accept a special
order without affecting its regular sales and is within plant capacity?
a. Net income will not be affected.
b. Net income will increase if the special sales
price per unit exceeds the unit variable costs.
c. Net income will decrease.
d. Additional fixed costs will probably be
incurred.
Ans:, LO: 3, Bloom: C,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN:
Decision Modeling, AICPA PC: Problem Solving, IMA: Business Economics
60. If a company anticipates that other sales
will be affected by the acceptance of a special order, then
a. lost sales should be considered in the
incremental analysis.
b. lost sales should not be considered in the
incremental analysis.
c. the order should not be accepted.
d. the order will only be accepted if the plant
is below capacity.
Ans:LO: 3, Bloom: C,
Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN:
Decision Modeling, AICPA PC: Problem Solving, IMA: Business Economics
61. Martin Company incurred the following costs for 70,000 units:
Variable costs $420,000
Fixed costs
392,000
Martin has received a special order from a foreign
company for 3,000 units. There is sufficient capacity to fill the order without
jeopardizing regular sales. Filling the order will require spending an
additional $6,300 for shipping.
If Martin wants to break even on the order, what should
the unit sales price be?
a. $6.00
b. $8.10
c. $11.60
d. $13.70
Ans:, LO: 3, Bloom: AP,
Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Resource Management,
AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Business Economics
62. Martin Company incurred the following costs
for 70,000 units:
Variable costs $420,000
Fixed costs
392,000
Martin has received a special
order from a foreign company for 3,000 units. There is sufficient capacity to
fill the order without jeopardizing regular sales. Filling the order will
require spending an additional $6,300 for shipping.
If Martin wants to earn $6,000
on the order, what should the unit price be?
a. $9.70
b. $15.70
c. $8.00
d. $10.10
Ans: LO: 3, Bloom: AP,
Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Resource Management,
AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Business Economics
63. Canosta, Inc. determined that it must expand its capacity to
accept a special order. Which situation is likely?
a. Unit variable costs will increase.
b. Fixed costs will not be relevant.
c. Both variable and fixed costs will be
relevant.
d. The company should accept the order.
Ans: LO: 3, Bloom: C,
Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Resource Management,
AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Business Economics
64. A company is within plant capacity. It is
contemplating whether a special order should be accepted. The order will not
impact regular sales. If the company accepts the special order, what will
occur?
a. Incremental costs will not be affected.
b. Net income will increase if the special sales
price per unit exceeds the unit variable costs.
c. There are no incremental revenues.
d. Both fixed and variable costs will increase.
Ans:, LO: 3, Bloom: C,
Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Resource Management,
AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Business Economics
65. Argus Company anticipates that other sales
will be affected by the acceptance of a special order. What should the company
do?
a. Reject the order.
b. Consider the opportunity cost of lost sales
in the incremental analysis.
c. Accept the order.
d. Accept the order if the plant is below
capacity.
Ans:, LO: 3, Bloom: C,
Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Resource Management,
AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Business Economics
66. It costs Lannon Fields $28 of variable
costs and $12 of allocated fixed costs to produce an industrial trash can that
sells for $60. A buyer in Mexico offers to purchase 3,000 units at $36 each.
Lannon Fields has excess capacity and can handle the additional production.
What effect will acceptance of the offer have on net income?
a. Decrease $12,000
b. Increase $12,000
c. Increase $108,000
d. Increase $24,000
Ans: LO: 3, Bloom: AP,
Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Resource Management,
AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Business Economics
67. A factory is operating at less than 100% capacity. Potential
additional business will not use up the remainder of the plant capacity. Given
the following list of costs, which one should be ignored in a decision to
produce additional units of product?
a. Variable selling expenses
b. Fixed factory overhead
c. Direct labor
d. Contribution margin of additional units
Ans:, LO: 3, Bloom: K,
Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Resource Management,
AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Business Economics
68. A
company is contemplating the acceptance of a special order. The order would not
affect regular sales and could be filled without exceeding plant capacity.
However, a new stamping machine would have to be purchased in order to stamp
the customer’s name on the product. Which of the following is likely?
a. Total variable costs will be irrelevant.
b. Only variable costs will be relevant.
c. Only fixed costs will be relevant.
d. Both variable and fixed costs will be
relevant.
Ans: LO: 3, Bloom: C,
Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Resource Management,
AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Business Economics
69. A
company contemplating the acceptance of a special order has the following unit
cost behavior, based on 10,000 units:
Direct materials $ 4
Direct labor 10
Variable
overhead 8
Fixed overhead 6
A foreign
company wants to purchase 2,000 units at a special unit price of $25. The
normal price per unit is $40. In addition, a special stamping machine will have
to be purchased for $4,000 in order to stamp the foreign company’s name on the
product. The incremental income (loss) from accepting the order is
a. $6,000.
b. $2,000.
c. $(6,000).
d. $(2,000).
Ans:, LO: 3, Bloom: AP,
Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Resource Management,
AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Business Economics
70. A
company’s unit costs based on 100,000 units are:
Variable
costs $75
Fixed costs 30
The normal unit
sales price per unit is $165. A special order from a foreign company has been
received for 5,000 units at $135 a unit. In order to fulfill the order, 3,000
units of regular sales would have to be foregone.
The opportunity cost associated with
this order is
a. $225,000.
b. $495,000.
c. $270,000.
d. $405,000.
Ans: LO: 3, Bloom: AP,
Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Resource Management,
AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Business Economics
71. A
company’s unit costs based on 100,000 units are:
Variable
costs $75
Fixed costs 30
The normal unit
sales price per unit is $165. A special order from a foreign company has been
received for 5,000 units at $135 a unit. In order to fulfill the order, 3,000
units of regular sales would have to be foregone.
The
incremental profit (loss) from accepting the order would be
a. $30,000.
b. $(150,000).
c. $180,000.
d. $(90,000).
Ans:LO: 3, Bloom: AP,
Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Resource Management,
AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Business Economics
72. Able
Company’s unit manufacturing cost is:
Variable
Costs $50
Fixed Costs 25
A special order
for 2,000 units has been received from a foreign company. The unit price
requested is $55. The normal unit price is $80. If the order is accepted, unit
variable costs will increase by $2 for additional freight costs. If the order
is accepted, incremental profit (loss) will be
a. $(46,000).
b. $6,000.
c. $(40,000).
d. $10,000.
Ans:, LO: 3, Bloom: AP,
Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Resource Management,
AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Business Economics
73. In
the analysis concerning the acceptance or rejection of a special order, which
items are relevant?
a. Variable costs only
b. Fixed costs only
c. Variable costs and fixed costs
d. Variable costs and unavoidable costs
Ans: LO: 3, Bloom: C,
Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Resource Management,
AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Business Economics
74. What
of the following would not be
relevant in a make-or-buy decision?
a. Unavoidable variable costs
b. Incremental fixed costs
c. Opportunity costs
d. Avoidable fixed cost
Ans:LO: 4, Bloom: K,
Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Resource Management,
AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Business Economics
75. Which of the following is not a qualitative factor to be considered in a make-or-buy
decision?
a. Possible lost jobs from buying outside
b. Supplier’s ability to satisfy quality
standards
c. Incremental benefit from buying outside
d. Supplier’s ability to meet production
schedule
Ans: LO: 4, Bloom: C,
Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Resource Management,
AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Business Economics
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