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Exam 3: Using Costs in Decision Making

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Question 21

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Currently,most companies consider annual salary costs as:

A) a fixed cost.
B) a variable cost.
C) an opportunity cost.
D) a period cost.

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Question 22

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Are sunk costs considered relevant when choosing among alternatives? Explain.

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No. Amounts that remain the same among a...

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Question 23

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For external reporting,generally accepted accounting principles require that costs be classified as either variable or fixed costs.

Explain when a manager would use cost-volume-profit analysis.

Outsourcing is risk-free to the purchaser of a part because the supplier now has the responsibility of producing the part.

Fair Engineering Company manufactures part QE767 used in several of its engine models. Monthly production costs for 10,000 units are as follows: It is estimated that 20% of the fixed support costs assigned to part QE767 will no longer be incurred if the company purchases the part from the outside supplier. Fair Engineering Company has the option of purchasing the part from an outside supplier at $16 per unit. -The maximum price that Fair Engineering Company should be willing to pay the outside supplier for each unit of part QE767 is:

Cost-volume-profit analysis may be used for single-product and multiproduct analysis but not in a service environment.

Sanchez & Ryan, Inc, sells a single product. This year, 20,000 units were sold resulting in $130,000 of sales revenue, $60,000 of variable costs, and $17,500 of fixed costs. -If sales increase by $19,500 in a year,profits will increase by:

Are relevant revenues and costs the only information needed by managers to select among alternatives? Explain using examples.

Selling price per unit is $60,variable cost per unit is $30,and fixed cost per unit is $20.When this company operates above the break-even point,the sale of one more unit will increase net income by $10.

The most widespread use of cost information is in budgeting.

Which costs are relevant for making decisions that affect the short-term? The long-term? Why?

Cost-volume-profit analysis is used PRIMARILY by management:

Cost-volume-profit analysis assumes all of the following EXCEPT:

When replacing an old machine with a new machine,the book value of the old machine is a relevant cost.

Which of the following costs are NEVER relevant in the decision-making process?

Relevant costs in a make-or-buy decision of a part include:

Sunk costs:

Umberger Manufacturing, Inc., is considering reorganizing its plant into manufacturing cells. The following estimates have been prepared to evaluate the benefits from the reorganization: Inventory carrying costs are estimated to be 10% per year. -As a result of the layout reorganization,incremental manufacturing costs are projected to:

When deciding to accept a one-time-only special order from a wholesaler,management should do all of the following EXCEPT: