Ans Doc184


1. The cost of a computer system installed last year is an example of:
a sunk cost
a relevant cost
a differential cost
an avoidable cost
2. In evaluating different alternatives, it is useful to concentrate on:
variable costs
fixed costs
total costs
relevant costs
3. Relevant costs in a make-or-buy decision of a part include:
setup overhead costs for the manufacture of the product using the outsourced part
currently used manufacturing capacity that has alternative uses when part is outsourced
annual plant insurance costs that will remain the same
corporate office costs that will be allocated differently
4. When there is excess capacity, it makes sense to accept a one-time-only special order for less than the current selling price when:
incremental revenues exceed incremental costs
additional fixed costs must be incurred to accommodate the order
the company placing the order is in the same market segment as your current customers
None of the above is correct.
5. When deciding whether to discontinue a segment of a business, managers should focus on:
equipment used by the segment that could become idle
reallocation of corporate costs
how total costs differ among alternatives
operating income per unit of the discontinued segment
6. Costs are relevant to a particular decision if they:
are variable costs
are fixed costs
differ across, the decision alternatives being considered
remain unchanged across the alternatives being considered
7. The following information applies to Questions 7 and 8.
Jim’s 5-year-old Geo Prizm requires repairs estimated at $3,000 to make it roadworthy again. His friend, Julie, suggested that he should buy a 5-year-old used Honda Civic instead for $3,000 cash. Julie estimated the following costs for the two cars:
Geo Prizm Honda Civic
Acquisition cost $15,000 $3,000
Repairs $ 3,000 —
Annual operating costs
(Gas, maintenance, insurance) $ 2,280 $2,100
The cost(s) NOT relevant for this decision is(are):
the acquisition cost of the Geo Prizm
the acquisition cost of the Honda Civic
the repairs to the Geo Prizm
the annual operating costs of the Honda Civic
8. What should Jim do? What are his savings in the first year?
Buy the Honda Civic; $9,780
Fix the Geo Prizm; $5,518
Buy the Honda Civic; $180
Fix the Geo Prizm; $5,280
Geo ($3,000 + $2,280) – Honda ($3,000 + $2,100) = $180 cost savings with the Honda option
9. Employee morale at Dos Santos, Inc., is very high. This type of information is known as:
a qualitative factor
a quantitative factor
a differential factor
an opportunity cost
10. Which of following are risks of outsourcing the production of a part?
poor quality
late delivery
unscheduled price increases
All of the above are risks of outsourcing.
11. Characteristics of a process layout include:
continuous processing
long production paths
small amounts of inventory
no work-in-process storage areas
12. Characteristics of a product layout include:
raw materials and purchased parts are delivered directly to the production line where they are needed
low-volume production
a U-shaped layout
small batches of unique products
13. The theory of constraints:
emphasizes long-term optimization
maintains that carefully managing production bottlenecks will increase operating income
helps managers make special one-time decisions
suggests that some component parts should be outsourced
The following information applies to Questions 14 and 15.
Skate Magic manufactures three different product lines, Model TS, Model AY, and Model GG. Considerable market demand exists for all models. The following per unit data apply:
Model TS Model AY Model GG
Selling price $100 $120 $140
Direct materials 12 12 12
Direct labor ($12 per hour) 24 24 48
Variable support costs ($4 per machine-hour) 8 16 16
Fixed support costs 20 20 20
Which model has the greatest contribution margin per unit?
Model TS
Model AY
Model GG
both Models TS and AY
15. Which model has the greatest contribution margin per machine-hour?
Model TS
Model AY
Model GG
both Models YA and GG
16. If there is excess capacity, which model is the most profitable to produce?
Model TS
Model AY
Model GG
both Models TS and AY
Model AY since it has the greatest contribution margin per unit
17. High levels of inventory result in all EXCEPT:
high moving, handling, and storage costs
increased product obsolescence and damage
increased financing costs
idle facilities
18. Characteristics of just-in-time manufacturing include all of the following except:
the ability to process items in large batches
making a product only when the customer requires it
no work-in-process inventories
a problem anywhere can stop production
19. Inspection costs of purchased parts and materials are examples of:
Prevention costs
Appraisal costs
Internal failure costs
External failure costs
20. Warranty costs are an example of:
prevention costs
appraisal costs
internal failure costs
external failure costs