Q&A Hero

Q: What are the four steps of the total cost method of determining a product selling price?

Q: Are relevant costs useful to management in determining long-run pricing decisions?

Q: Good management accounting indicates that projects be evaluated using relevant data. In choosing among alternatives, what factors (considerations) are relevant?

Q: What is the difference between an opportunity cost and a sunk cost?

Q: Presented below are terms preceded by letters (a) through (f) and followed by a list of definitions 1 through 6. Match the letter of the terms with the definitions. Use the space provided preceding each definition. (a) Incremental cost (b) Opportunity cost (c) Out-of-pocket cost (d) Relevant cost (e) Sunk cost (f) Relevant benefits. __________ (1) A cost that requires a current outlay of cash. __________ (2) The incremental revenue generated by selecting a particular course of action over another. __________ (3) An avoidable cost. __________ (4) A cost that cannot be avoided or changed in any way because it arises from a past decision; irrelevant to current and future decisions. __________ (5) An additional cost incurred only if a particular action is taken. __________ (6) The potential benefits of one alternative that are lost by choosing an alternative course of action.

Q: Presented below are terms preceded by letters (a) through (g) and followed by a list of definitions 1 through 7. Match the letter of the term with the definition. Use the space provided preceding each definition. (a) Sales mix (b) Avoidable costs (c) Qualitative decision factors (d) Total cost method (e) Total cost per unit (f) Unavoidable expenses (g) Markup __________ (1) The production and nonproduction costs related to a given unit. __________ (2) Management sets sales price equal to the products total costs plus a desired markup on the product. __________ (3) A desired profit amount. __________ (4) Amounts a company would continue to incur even if the segment in question is eliminated. __________ (5) Worker morale, company image, and reputation. __________ (6) Amounts a company would not incur if the segment in question is eliminated. __________ (7) The combination of products sold by a company.

Q: Hondo Company has a machine with a book value of $50,000 and a five-year remaining life. A new machine is available at a cost of $108,000 and Rocko can also receive $38,000 for trading in the old machine. The new machine will reduce variable manufacturing costs by $14,000 per year over its five-year life. Should the machine be replaced? A. Yes, because income will increase by $14,000 per year. B. Yes, because income will increase by $52,000 immediately. C. No, because the company will be $108,000 worse off. D. No, because the income will decrease by $14,000 per year. E. Hondo will not be better or worse off by replacing the machine.

Q: Rocko Inc. has a machine with a book value of $50,000 and a five-year remaining life. A new machine is available at a cost of $85,000 and Rocko can also receive $38,000 for trading in the old machine. The new machine will reduce variable manufacturing costs by $14,000 per year over its five-year life. Should the machine be replaced? A. Yes, because income will increase by $14,000 per year. B. Yes, because income will increase by $23,000 in total. C. No, because the company will be $23,000 worse off in total. D. No, because the income will decrease by $14,000 per year. E. Rocko will be not be better or worse off by replacing the machine.

Q: Barley Enterprises Inc. expects its three departments to yield the following income for next year: Dept. D Dept. E Dept. F Sales $5,000 $10,000 $4,000 Expenses Avoidable 3,000 2,000 5,000 Unavoidable 4,000 4,000 1,000 Total expenses 7,000 6,000 6,000 Net income (loss) $(2,000) $4,000 $(2,000) Which of the following statements is true regarding Flowers business segments? A. If Dept. F is eliminated, overall profit will increase by $2,000. B. Overall profit will decline no matter which of these segments is eliminated. C. If Dept. E is eliminated, overall profit will decline $4,000. D. If Dept. D is eliminated, overall profit will decrease by $2,000. E. Eliminating Dept. F will reduce overall profit more than eliminating Dept. D.

Q: Flower Enterprises Inc. expects its three departments to yield the following income for next year: Dept. F Dept. G Dept. H Sales $9,000 $10,000 $8,000 Expenses Avoidable 3,000 2,000 5,000 Unavoidable 4,000 6,000 1,000 Total expenses 7,000 8,000 6,000 Net income (loss) $2,000 $2,000 $2,000 Which of the following statements is true regarding Flowers business segments? A. If Dept. F is eliminated, overall profit will decline $5,000. B. Overall profit will decline by $2,000 if any one of these segments is eliminated. C. If Dept. G is eliminated, overall profit will decline $8,000. D. If Dept. H is eliminated, overall profit will increase $3,000. E. Eliminating Dept. H will reduce overall profit more than eliminating Dept. F.

Q: A company expects its three departments to yield the following income for next year: Dept. A Dept. B Dept. C Sales $6,000 $5,000 6,800 Expenses Avoidable 2,000 1,000 4,000 Unavoidable 1,500 3,000 2,500 Total expenses 3,500 4,000 6,500 Net income (loss) $2,500 $1,000 $300 Compute the change to the companys total net income if Dept. C is eliminated. A. $300 decrease B. $300 increase C. $2,800 decrease D. $2,800 increase E. $6,800 decrease

Q: A company expects its three departments to yield the following income for next year: Dept. Q Dept. R Dept. S Sales $6,000 $7,000 $8,000 Expenses Avoidable 2,000 3,000 4,000 Unavoidable 1,500 2,500 4,500 Total expenses 3,500 5,500 8,500 Net income (loss) $2,500 $1,500 $(500) Compute the change to the companys total net income if Dept. S is eliminated. A. $500 increase B. $500 decrease C. $4,000 increase D. $4,000 decrease E. $3,500 decrease

Q: What decision rule should be followed when deciding if a business segment should be eliminated? A. Segments generating a net loss should always be eliminated. B. Segments with revenues that are more than avoidable expenses should be considered for elimination. C. Segments with revenues that are more than unavoidable expenses should be considered for elimination. D. Segments with revenues that are less than avoidable expenses should be considered for elimination. E. Segments with revenues that are less than unavoidable expenses should be considered for elimination.

Q: Bath Company has a limited amount of direct material available for products 111 and 222. Each unit of 111 has a contribution margin of $5 and each unit of 222 has a contribution margin of $25. A unit of 222 uses four times as much direct material as a unit of 111. What is Baths most profitable sales mix, assuming there is unlimited demand for either product? A. Make all 222. B. Make all 111. C. Make equal number of units of 111 and 222. D. Make four times as many 111 as 222. E. Make four times as many 222 as 111.

Q: Teeco Systems Inc. has a limited amount of direct material available for products 1A1 and 2B2. Each unit of 1A1 has a contribution margin of $12 and each unit of 2B2 has a contribution margin of $30. A unit of 2B2 uses three times as much direct material as a unit of 1A1. What is Teecos most profitable sales mix, assuming there is unlimited demand for either product? A. Make all 2B2. B. Make all 1A1. C. Make equal number of units of 1A1 and 2B2. D. Make three times as many 1A1 as 2B2. E. Make three times as many 2B2 as 1A1.

Q: The Mad Hatter Company owns a machine that manufactures two types of chimney caps. Production time is .20 hours for cap A and .40 hours for cap B. The machines capacity is 2,000 hours per year. Both products are sold to a single customer who has agreed to buy all of the companys output up to a maximum of 1,000 units of cap A and 6,000 units of cap B. Selling prices and variable costs per unit are shown below. Based on this information, what is the Mad Hatters most profitable sales mix? Cap A Cap B Selling price per unit $80 $60 Variable costs per unit 53 42 A. 10,000 units of cap A. B. 5,000 units of cap B. C. 1,000 units of cap A and 5,000 units of cap B. D. 1,000 units of cap A and 6,000 units of cap B. E. 1,000 units of cap A and 4,500 units of cap B.

Q: Bandy Corporation owns a machine that manufactures lawn games. Production time for the croquet set is 10 units per hour and for the volley ball game is 8 units per hour. The machines capacity is 1,500 hours per year. Both products are sold to a single customer who has agreed to buy all of the companys output up to a maximum of 4,000 croquet sets and 10,000 volleyball games. Selling prices and variable costs per unit are shown below. Based on this information, what is Bandy Corporations most profitable sales mix? Croquet Set Volleyball Game Selling price per unit $75 $62 Variable costs per unit 42 25 A. 15,000 croquet sets. B. 12,000 volleyball games. C. 4,000 croquet sets and 10,000 volleyball games. D. 4,000 croquet sets and 8,800 volleyball games. E. 2,500 croquet sets and 10,000 volleyball games.

Q: A company has already incurred a $55,000 cost in partially producing its three products. Their selling prices when partially and fully processed are shown in the following table with the additional costs necessary to finish their processing. Based on this information, should any products be processed further? Product Unfinished Selling Price Finished Selling Price Further Processing Costs A $72 $108 $35 B 83 124 42 C 94 141 45 A. All of these products should be processed further. B. None of these products should be processed further. C. Products A and B should be processed further. D. Products B and C should be processed further. E. Products A and C should be processed further.

Q: A company has already incurred a $15,000 cost in partially producing its three products. Their selling prices when partially and fully processed are shown in the following table with the additional costs necessary to finish their processing. Based on this information, should any products be processed further? Product Unfinished Selling Price Finished Selling Price Further Processing Costs A $750 $ 875 $130 B 850 1,000 155 C 950 1,200 255 A. All of these products should be processed further. B. None of these products should be processed further. C. Only product A should be processed further. D. Only product B should be processed further. E. Only product C should be processed further.

Q: A company has already incurred a $24,000 cost in partially producing its two products. Their selling prices when partially and fully processed are shown in the following table with the additional costs necessary to finish their processing. Based on this information, should any products be processed further? Product Unfinished Selling Price Finished Selling Price Further Processing Costs A $900 $1,000 $65 B 600 675 76 A. Both product A and product B should be processed further. B. Neither product A nor product B should be processed further. C. Only product B should be processed further. D. Only product A should be processed further. E. A processing further decision cannot be made from the available data.

Q: A company has already incurred a $12,000 cost in partially producing its two products. Their selling prices when partially and fully processed are shown in the following table with the additional costs necessary to finish their processing. Based on this information, should any products be processed further? Product Unfinished Selling Price Finished Selling Price Further Processing Costs A $700 $775 $65 B 800 888 89 A. Both product A and product B should be processed further. B. Neither product A nor product B should be processed further. C. Only product B should be processed further. D. Only product A should be processed further. E. A processing further decision cannot be made from the available data.

Q: Roxie Company has 17,500 units of its sole product that it produced last year at a cost of $45 each. This years model is superior to last years and the 17,500 units cannot be sold for their regular selling price of $80 each. Roxie has two alternatives for these items: (1) they can be sold to a wholesaler for $35 each, or (2) they can be reworked at a total cost of $450,000 and then sold for $60 each. The company has enough idle capacity to rework these items without affecting any new production. Which choice would increase the companys profits the most? A. Reworking, because profit will increase by $600,000 more than scrapping. B. Scrapping, because profit will increase by $612,500 more than reworking. C. Reworking, because profit will increase by $12,500 more than scrapping. D. Scrapping, because profit will increase by $12,500 more than reworking. E. Reworking because profit will increase by $450,000 more than scrapping.

Q: Sandlewood Company has 15,000 units of its sole product that it produced last year at a cost of $43 each. This years model is superior to last years and the 15,000 units cannot be sold for their regular selling price of $80 each. Sandlewood has two alternatives for these items: (1) they can be sold to a wholesaler for $30 each, or (2) they can be reworked at a total cost of $400,000 and then sold for $60 each. The company has enough idle capacity to rework these items without affecting any new production. Which choice would increase the companys profits the most? A. Reworking, because profit will increase by $500,000 more than scrapping. B. Scrapping, because profit will increase by $450,000 more than reworking. C. Reworking, because profit will increase by $50,000 more than scrapping. D. Scrapping, because profit will increase by $50,000 more than reworking. E. Reworking because profit will increase by $450,000 more than scrapping.

Q: Wave-Zone Company has 10,000 units of its sole product that it produced last year at a cost of $50 each. This years model is superior to last years and the 10,000 units cannot be sold for their regular selling price of $75 each. Wave-Zone has two alternatives for these items: (1) they can be sold to a wholesaler for $5 each, or (2) they can be reworked at a total cost of $190,000 and then sold for $22.50 each. The company has enough idle capacity to rework these items without affecting any new production. Which choice would increase the companys profits the most? A. Reworking, because profit will increase by $35,000 more than scrapping. B. Scrapping, because profit will increase by $50,000 more than reworking. C. Reworking, because profit will increase by $15,000 more than scrapping. D. Scrapping, because profit will increase by $15,000 more than reworking. E. Reworking because profit will increase by $50,000 more than scrapping.

Q: Altertech Inc. manufactures a product that contains a circuit board. The company has always purchased this circuit board from a supplier for $32 each. Altertech recently upgraded its own manufacturing capabilities and now has enough excess capacity (including trained workers) to begin manufacturing the circuit board instead of buying it. The company prepared the following per unit cost projections of making the circuit board, assuming that overhead is allocated to the part at the normal predetermined overhead rate of 110% of direct labor cost. Direct materials $2 Direct labor 20 Overhead (fixed and variable) 22 Total $44 The required volume of output to produce the circuit boards will not require any incremental fixed overhead. Incremental variable overhead cost is $3 per circuit board. What is the effect on income if Altertech decides to make the circuit boards? A. Income will decrease by $7 per unit. B. Income will increase by $7 per unit. C. Income will increase by $12 per unit. D. Income will decrease by $12 per unit. E. Income will increase by $10 per unit.

Q: Wilder Inc. manufactures a product that contains a small computer chip. The company has always purchased this computer chip from a supplier for $110 each. Wilder recently upgraded its own manufacturing capabilities and now has enough excess capacity (including trained workers) to begin manufacturing the computer chip instead of buying it. The company prepared the following per unit cost projections of making the computer chip, assuming that overhead is allocated to the part at the normal predetermined overhead rate of 150% of direct labor cost. Direct materials $32 Direct labor 40 Overhead (fixed and variable) 60 Total $132 The volume of output to produce the computer chip will not require any incremental fixed overhead. Incremental variable overhead cost is $42 per computer chip. What is the effect on income if Wilder decides to make the computer chips? A. Income will decrease by $4 per unit. B. Income will increase by $4 per unit. C. Income will increase by $38 per unit. D. Income will decrease by $38 per unit. E. Income will increase by $44 per unit.

Q: Derby Inc. manufactures a product which contains a small part. The company has always purchased this motor from a supplier for $125 each. Derby recently upgraded its own manufacturing capabilities and now has enough excess capacity (including trained workers) to begin manufacturing the motor instead of buying it. The company prepared the following per unit cost projections of making the motor, assuming that overhead is allocated to the part at the normal predetermined overhead rate of 150% of direct labor cost. Direct materials $38 Direct labor 50 Overhead (fixed and variable) 75 Total $163 The required volume of output to produce the motors will not require any incremental fixed overhead. Incremental variable overhead cost is $21 per motor. What is the effect on income if Derby decides to make the motors? A. Income will decrease by $16 per unit. B. Income will increase by $16 per unit. C. Income will increase by $23 per unit. D. Income will decrease by $23 per unit. E. Income will increase by $39 per unit.

Q: Paz Inc. manufactures a product that contains a small motor. The company has always purchased this motor from a supplier for $55 each. Paz recently upgraded its own manufacturing capabilities and now has enough excess capacity (including trained workers) to begin manufacturing the motor instead of buying it. The company prepared the following per unit cost projections of making the motor, assuming that overhead is allocated to the part at the normal predetermined overhead rate of 150% of direct labor cost. Direct materials $16 Direct labor 20 Overhead (fixed and variable) 30 Total $66 The required volume of output to produce the motors will not require any incremental fixed overhead. Incremental variable overhead cost is $21 per motor. What is the effect on income if Paz decides to make the motors? A. Income will decrease by $2 per unit. B. Income will increase by $2 per unit. C. Income will increase by $11 per unit. D. Income will decrease by $11 per unit. E. Income will increase by $19 per unit.

Q: Termus Industries is operating at 85% of its manufacturing capacity of 50,000 product units per year. A customer has offered to buy an additional 4,000 units at $25 each and sell them outside the country so as not to compete with Termus. The following data are available: Costs at 85% capacity: Per Unit Total Direct materials $10.00 $425,000 Direct labor 00 340,000 Overhead (fixed and variable) 13.00 552,500 Totals $31.00 $1,317,500 In producing 4,000 additional units, fixed overhead costs would remain at their current level but incremental variable overhead costs of $4 per unit would be incurred. What is the effect on income if Termus accepts this order? A. Income will decrease by $6 per unit. B. Income will increase by $6 per unit. C. Income will increase by $7 per unit. D. Income will decrease by $3 per unit. E. Income will increase by $3 per unit.

Q: Costs at 75% capacity: Per Unit Total Direct materials $12.00 $1,260,000 Direct labor 00 945,000 Overhead (fixed and variable) 15.00 1,575,000 Totals $36.00 $3,780,000 In producing 20,000 additional units, fixed overhead costs would remain at their current level but incremental variable overhead costs of $6 per unit would be incurred. What is the effect on income if Wade accepts this order? A. Income will decrease by $4 per unit. B. Income will increase by $4 per unit. C. Income will increase by $5 per unit. D. Income will decrease by $5 per unit. E. Income will increase by $11 per unit.

Q: A company expects to produce and sell 20,000 units of a single product. Management desires a 22% return on assets of $3,000,000. The following additional company information is available: Variable costs (per unit) Production costs $105 Nonproduction costs $9 Fixed costs (in total) Overhead $350,000 Nonproduction $120,000 Compute selling price per unit given that markup percentage equals desired profit divided by total costs. A. $137.50 B. $33.00 C. $170.50 D. $114.00 E. $122.50

Q: A company expects to produce and sell 15,000 units of a single product. Management desires a 15% return on assets of $2,000,000. The following additional company information is available: Variable costs (per unit) Production costs $65 Nonproduction costs $7 Fixed costs (in total) Overhead $97,000 Nonproduction $23,000 Compute selling price per unit given that markup percentage equals desired profit divided by total costs. A. $80 B. $100 C. $20 D. $72 E. $92

Q: A company expects to produce and sell 9,000 units of a single product. Management desires an 18% return on assets of $1,750,000. The following additional company information is available: Variable costs (per unit) Production costs $79 Nonproduction costs $5 Fixed costs (in total) Overhead $279,000 Nonproduction $90,000 Compute markup per unit. Assume that markup percentage equals desired profit divided by total costs. A. $35 B. $84 C. $110 D. $125 E. $160

Q: A company expects to produce and sell 8,000 units of a single product. Management desires a 20% return on assets of $1,520,000. The following additional company information is available: Variable costs (per unit) Production costs $78 Nonproduction costs $22 Fixed costs (in total) Overhead $110,000 Nonproduction $40,000 Compute markup per unit. Assume that markup percentage equals desired profit divided by total costs. A. $118.75 B. $156.75 C. $91.75 D. $38.00 E. $100.00

Q: A company expects to produce and sell 7,000 units of a single product. The following additional company information is available: Variable costs (per unit) Production costs $20 Nonproduction costs $3 Fixed costs (in total) Overhead $175,000 Nonproduction $14,000 Compute this companys total cost per unit. A. $23 B. $45 C. $27 D. $50 E. $5

Q: Assume that Charlies Brownies expects to produce and sell 5,000 units of a single product, a gift box containing an assortment of brownies that showcases the companys many flavors. The following additional company information is available: Variable costs (per unit) Production costs $30 Nonproduction costs $2 Fixed costs (in total) Overhead $100,000 Nonproduction $5,000 Compute Charlies Brownies total cost per unit. A. $32 B. $50 C. $53 D. $3 E. $21

Q: Assume markup percentage equals desired profit divided by total costs. What is the correct calculation to determine the dollar amount of the markup per unit? A. Total cost times markup percentage. B. Total cost per unit times markup percentage per unit. C. Total cost per unit divided by markup percentage per unit. D. Markup percentage per unit divided by total cost per unit. E. Markup percentage divided by total cost.

Q: Which of the following should be classified as production costs? A. Direct materials and selling costs. B. Direct labor and administrative costs. C. Manufacturing overhead and selling and administrative costs. D. Direct materials, direct labor, and selling and administrative costs. E. Direct materials, direct labor, and manufacturing overhead.

Q: To determine a product selling price based on the total cost method, management should include: A. Total production and nonproduction costs plus a markup. B. Total production and nonproduction costs only. C. Total production costs plus a markup. D. Total nonproduction costs plus a markup. E. Only a markup.

Q: Thompson Company had the following results of operations for the past year: Sales (16,000 units at $10) $160,000 Direct materials and direct labor $96,000 Overhead (20% variable) 16,000 Selling and administrative expenses (all fixed) 32,000 (144,000 ) Operating income $ 16,000 A foreign company (whose sales will not affect Thompson's market) offers to buy 4,000 units at $7.50 per unit. In addition to variable manufacturing costs, selling these units would increase fixed overhead by $600 and selling and administrative costs by $300. If Thompson accepts the offer, its profits will: A. Increase by $30,000 B. Increase by $ 6,000 C. Decrease by $ 6,000 D. Increase by $ 5,200 E. Increase by $ 4,300

Q: A company has the choice of either selling 750 defective units as scrap or rebuilding them. They have already spent $14 per unit making these items. The company could sell the defective units as they are for $8 per unit. Alternatively, it could rebuild them with incremental costs of $3 per unit for materials, $3per unit for labor, and $1per unit for overhead, and then sell the rebuilt units for $15.00 each. What should the company do? A. Sell the units as scrap. B. Rebuild the units. C. It does not matter because both alternatives have the same result. D. Neither sell nor rebuild because both alternatives produce a loss. Instead, the company should store the units permanently. E. Throw the units away.

Q: A company has the choice of either selling 500 defective units as scrap or rebuilding them. The company could sell the defective units as they are for $7.00 per unit. Alternatively, it could rebuild them with incremental costs of $2.00 per unit for materials, $3per unit for labor, and $1 per unit for overhead, and then sell the rebuilt units for $15 each. What should the company do? A. Sell the units as scrap. B. Rebuild the units. C. It does not matter because both alternatives have the same result. D. Neither sell nor rebuild because both alternatives produce a loss. Instead, the company should store the units permanently. E. Throw the units away.

Q: A company has the choice of either selling 1,000 defective units as scrap or rebuilding them. The company could sell the defective units as they are for $4.00 per unit. Alternatively, it could rebuild them with incremental costs of $1.00 per unit for materials, $2.00 per unit for labor, and $1.50 per unit for overhead, and then sell the rebuilt units for $8.00 each. What should the company do? A. Sell the units as scrap. B. Rebuild the units. C. It does not matter because both alternatives have the same result. D. Neither sell nor rebuild because both alternatives produce a loss. Instead, the company should store the units permanently. E. Throw the units away.

Q: Textel is thinking about having one of its products manufactured by a subcontractor. Currently, the cost of manufacturing 1,000 units follows: Direct material $45,000 Direct labor 30,000 Factory overhead (1/3 is variable) 98,000 If Textel can buy 1,000 units from a subcontractor for $100,000, it should: A. Make the product because current factory overhead is less than $100,000. B. Make the product because the cost of direct material plus direct labor of manufacturing is less than $100,000. C. Buy the product because the total incremental costs of manufacturing are greater than $100,000. D. Buy the product because total fixed and variable manufacturing costs are greater than $100,000 E. Make the product because factory overhead is a sunk cost.

Q: If Teague wishes to earn $1,250 on the special order, the size of the order would need to be: A. 4,500 units B. 2,250 units C. 1,125 units D. 625 units E. 300 units

Q: Should the company accept the special order? A. No, because additional production would exceed capacity. B. No, because incremental costs exceed incremental revenue. C. Yes, because incremental revenue exceeds incremental costs. D. Yes, because incremental costs exceed incremental revenues. E. No, because the incremental revenue is too low.

Q: If Parker wishes to earn $1,250 on the special order, the size of the order would need to be: A. 4,500 units. B. 2,250 units C. 1,125 units D. 625 units E. 300 units

Q: Should the company accept the special order? A. No, because additional production would exceed capacity. B. No, because incremental costs exceed incremental revenue. C. Yes, because incremental revenue exceeds incremental costs D. Yes, because incremental costs exceed incremental revenues E. No, because the incremental revenue is too low.

Q: If Special Export is processed further into Prime Cat Food and Feline Surprise, the total gross profit would be: A. $68,000 B. $78,000 C. $96,000 D. $98,000 E. $100,000

Q: The net advantage (incremental income) of processing Special Export further into Prime and Feline Surprise would be: A. $98,000 B. $96,000 C. $8,000 D. $6,000 E. $2,000

Q: Marcus processes four different products that can either be sold as is or processed further. Listed below are sales and additional cost data: Sales Value Sales with No Further Additional Processing Value after Further Product Processing Costs Processing Acta $1,350 $900 $2,700 Corda 450 225 630 Fando 900 450 1,800 Limo 90 45 180 Which product(s) should not be processed further? A. Acta. B. Corda. C. Fando. D. Limo. E. None of the products should be processed further.

Q: Beta Inc. can produce a unit of Zed for the following costs: Direct material $ 10 Direct labor 20 Overhead 50 Total costs per unit $80 An outside supplier offers to provide Beta with all the Zed units it needs at $58 per unit. If Beta buys from the supplier, it will still incur 40% of its overhead. Beta should: A. Buy Zed since the relevant cost to make it is $60. B. Make Zed since the relevant cost to make it is $60. C. Buy Zed since the relevant cost to make it is $80. D. Make Zed since the relevant cost to make it is $30. E. Buy Zed since the relevant cost to make it is $30.

Q: Alpha Co. can produce a unit of Beta for the following costs: Direct material $ 8 Direct labor 24 Overhead 40 Total costs per unit $72 An outside supplier offers to provide Alpha with all the Beta units it needs at $60 per unit. If Alpha buys from the supplier, Alpha will still incur 40% of its overhead. Alpha should: A. Buy Beta since the relevant cost to make it is $72. B. Make Beta since the relevant cost to make it is $56. C. Buy Beta since the relevant cost to make it is $48. D. Make Beta since the relevant cost to make it is $48. E. Buy Beta since the relevant cost to make it is $56.

Q: Product X requires 10 machine hours per unit to be produced, Product Y requires only 6 machine hours per unit, and the company's productive capacity is limited to 240,000 machine hours. Product A sells for $32 per unit and has variable costs of $12 per unit. Product B sells for $24 per unit and has variable costs of $7 per unit. Assuming the company can sell as many units of either product as it produces, the company should: A. Produce only Product X. B. Produce only Product Y. C. Produce equal amounts of X and Y. D. Produce X and Y in the ratio of 62.5% X to 37.5% Y. E. Produce X and Y in the ratio of 40% X and 60% Y.

Q: Product A requires five machine hours per unit to be produced, Product B requires only three machine hours per unit, and the company's productive capacity is limited to 240,000 machine hours. Product A sells for $16 per unit and has variable costs of $6 per unit. Product B sells for $12 per unit and has variable costs of $5 per unit. Assuming the company can sell as many units of either product as it produces, the company should: A. Produce only Product A. B. Produce only Product B. C. Produce equal amounts of A and B. D. Produce A and B in the ratio of 62.5% A to 37.5% B. E. Produce A and B in the ratio of 40% A and 60% B.

Q: Patrick Corporation inadvertently produced 10,000 defective personal radios. The radios cost $8 each to produce. A salvage company will purchase the defective units as they are for $3 each. Patrick's production manager reports that the defects can be corrected for $5 per unit, enabling them to be sold at their regular market price of $12.50. Patrick should: A. Sell the radios for $3 per unit. B. Correct the defects and sell the radios at the regular price. C. Sell the radios as they are because repairing them will cause their total cost to exceed their selling price. D. Sell 5,000 radios to the salvage company and repair the remainder. E. Throw the radios away.

Q: A company is considering a new project that will cost $19,000. This project would result in additional annual revenues of $6,000 for the next five years. The $19,000 cost is an example of a(n): A. Sunk cost B. Fixed cost C. Incremental cost D. Uncontrollable cost E. Opportunity cost

Q: A company paid $400,000 five years ago for a specialized machine that has no salvage value and is being depreciated at the rate of $40,000 per year. The company is considering using the machine in a new project that will have incremental revenues of $48,000 per year and annual cash expenses of $30,000. In analyzing the new project, the $40,000 depreciation on the machine is an example of a(n): A. Incremental cost B. Opportunity cost C. Variable cost D. Sunk cost E. Out-of-pocket cost

Q: A company paid $200,000 10 years ago for a specialized machine that has no salvage value and is being depreciated at the rate of $10,000 per year. The company is considering using the machine in a new project that will have incremental revenues of $28,000 per year and annual cash expenses of $20,000. In analyzing the new project, the $10,000 depreciation on the machine is an example of a(n): A. Incremental cost B. Opportunity cost C. Variable cost D. Sunk cost E. Out-of-pocket cost

Q: A cost that cannot be avoided or changed because it arises from a past decision, and is irrelevant to future decisions, is called a(n): A. Uncontrollable cost B. Incremental cost C. Opportunity cost D. Out-of-pocket cost E. Sunk cost

Q: A cost that requires a current and/or future outlay of cash, and is usually an incremental cost, is a(n): A. Out-of-pocket cost B. Sunk cost C. Opportunity cost D. Operating cost E. Uncontrollable cost

Q: The potential benefit of one alternative that is lost by choosing another is known as a(n): A. Alternative cost B. Sunk cost C. Out-of-pocket cost D. Differential cost E. Opportunity cost

Q: An additional cost that is incurred only if a particular action is taken is a(n): A. Period cost B. Pocket cost C. Discount cost D. Incremental cost E. Sunk cost.

Q: An opportunity cost: A. Is an unavoidable cost. B. Requires a current outlay of cash. C. Results from past managerial decisions. D. Is the lost benefit of choosing an alternative course of action. E. Is irrelevant in decision making.

Q: When considering whether a business segment should be eliminated, unavoidable expenses are amounts that will continue even if a given segment is eliminated.

Q: To maximize profit when a constrained resource exists, management should produce the sales mix that has the highest contribution margin per unit of scarce resource.

Q: Sales mix refers to the combination of products sold by a company.

Q: A company has already incurred a $600 cost in partially producing its two products. Their selling prices when partially and fully processed are shown in the following table with the additional costs necessary to finish their processing. Based on this information, the company should process both products further. Product Unfinished Selling Price Finished Selling Price Further Processing Costs A $425 $500 $70 B 375 400 20

Q: A company has already incurred a $100 cost in partially producing its two products. Their selling prices when partially and fully processed are shown in the table below with the additional costs necessary to finish their processing. Based on this information, the company should process only product A further. Product Unfinished Selling Price Finished Selling Price Further Processing Costs A $200 $300 $120 B 75 130 45

Q: Costs already incurred in manufacturing the units of a product that do not meet quality standards are relevant costs in a scrap or rework decision.

Q: Employee morale, timeliness of delivery, and the reactions of customers are examples of nonfinancial factors that should be considered when making a managerial decision.

Q: Additional power for operating machines, extra supplies, and added cleanup costs are examples of incremental overhead costs.

Q: Contribution margin lost from a decline in sales is an opportunity cost.

Q: If accepting additional business would cause existing sales to decline, the offer should always be declined.

Q: Additional costs incurred if a company pursues a certain course of action are sunk costs.

Q: The total cost method determines a selling price equal to a products total costs plus a desired profit on the product.

Q: The decision to accept an additional volume of business should be based on a comparison of the revenue from the additional business with the sunk costs of producing that revenue.

Q: If a company has the capacity to produce either 10,000 units of Product X or 10,000 units of Product Y, and the markets for both products are unlimited, the company should commit 100% of its capacity to the product that has the higher contribution margin.

Q: The decision to accept additional business should be based on a comparison of the incremental (differential) costs of the added production with the additional revenues to be received.

Q: In a make or buy decision, management should focus on costs that are constant under the two alternatives.