Question 1

A boat, costing $108,000 and uninsured, was wrecked the very first day it was used. It can either be disposed of for $11,000 cash and be replaced with a similar boat costing $110,000, or rebuilt for $98,000 and be brand new as far as operating characteristics and looks are concerned. A relevant cost analysis of the decision to replace the boat shows:

Accepted Answer

A)  A cost equivalence between the two decision options.
B)  An $11,000 net advantage associated with the decision to fix the old boat.
C)  A $1,000 cost advantage associated with the decision to fix the old boat.
D)  A $21,000 cost advantage associated with the decision to fix the old boat.
E)  A $2,000 cost advantage associated with the decision to purchase a new boat.

Question 2

Sunk costs:

Accepted Answer

A)  Are substitutes for opportunity costs.
B)  In and of themselves are not relevant to decision making.
C)  Are, by definition, relevant to decision making.
D)  Are fixed costs.
E)  Are relevant to long-run but generally not to short-run decisions.

Question 3

The costs described in situations I and IV above are:

Accepted Answer

A)  Prime costs.
B)  Sunk costs.
C)  Discretionary costs.
D)  Relevant costs.
E)  Opportunity costs.

Question 4

Quirch Inc. manufactures machine parts for aircraft engines. The CEO, Chucky Valters, was considering an offer from a subcontractor who would provide 2,400 units of product PQ107 for Valters for a price of $150,000. If Quirch does not purchase these parts from the subcontractor it must produce them in-house with the following costs:  In addition to the above costs, if Quirch produces part PQ107, it would also have a retooling and design cost of $9,800. The relevant costs of producing 2,400 units of product PQ107 are:

Accepted Answer

A)  $149,000.
B)  $129,800.
C)  $150,000.
D)  $164,200.
E)  $148,300.

Question 5

One of the behavioral problems with relevant cost analysis is the overemphasis on:

Accepted Answer

A)  Short-term goals.
B)  Unit fixed costs.
C)  Opportunity costs.
D)  Long-term strategic goals.
E)  Goal congruency issues.

Question 6

In deciding whether to drop or keep a product line, all of the following are relevant to the decision EXCEPT:

Accepted Answer

A)  The level of unavoidable fixed costs.
B)  The segment margin generated by the product line.
C)  Demand interdependencies across product lines of the company.
D)  Effect of the decision on overall company morale.
E)  Whether dropping the product line today would eliminate future options for growth and expansion.

Question 7

Copeland Inc. produces X-547 in a joint manufacturing process. The company is studying whether to sell X-547 at the split-off point or upgrade the product to become Xylene. The following information has been gathered: (1)  Selling price per pound of X-547.
(2)  Variable manufacturing costs of the upgrade process.
(3)  Avoidable fixed costs of the upgrade process.
(4)  Selling price per pound of Xylene.
(5)  Joint manufacturing costs to produce X-547.
Which of the items should be reviewed when making the upgrade decision?

Accepted Answer

A)  1, 2, and 4
B)  1, 2, 3, and 4
C)  1, 2, 3, 4, and 5
D)  1, 2, 4, and 5
E)  2, 3

Question 8

The decision to keep or drop products or services involves strategic consideration of all the following except:

Accepted Answer

A)  Potential impact on remaining products or services.
B)  Impact on employee morale.
C)  Impact on organizational effectiveness.
D)  Growth potential of the firm.
E)  The desired inventory levels of the product.

Question 9

Special sales orders:

Accepted Answer

A)  Are frequent.
B)  Typically come directly from the customer rather than normal sales or distribution channels.
C)  Commonly represent a large part of a firm's overall business.
D)  Can never be profitable to a firm in the short run.
E)  Generally speaking do not involve long-term pricing considerations.

Question 10

The shadow price in a linear programming model is:

Accepted Answer

A)  Interesting from a mathematical standpoint, but not useful from an accounting standpoint.
B)  Equal to the current market price for an additional unit of the related resource.
C)  The price one would be willing to pay for an additional unit of the scarce resource.
D)  Greater than the market price for the related resource.
E)  Zero for a binding constraint.

Question 11

Based solely on a relevant cost analysis, which of the three products should be manufactured by Walman beyond the split-off point?

Accepted Answer

A)  Only X
B)  Only Y
C)  Only Z
D)  Only Y and Z
E)  All three products: X, Y and Z

Question 12

Southern Company packages and sells nuts in cans. Pecans, cashews, Brazil nuts, hazelnuts, and peanuts are packaged individually as well in combinations and mixtures. Southern wants to package the nuts so that it can maximize its operating profit while considering market demand. In addition, there are limited supplies for some types of nuts. The technique that Southern should employ is:

Accepted Answer

A)  Statistical analysis.
B)  Correlation and regression analysis.
C)  Discounted cash flow (DCF)  analysis.
D)  Transportation algorithms.
E)  Linear programming.

Question 13

A cost is not relevant for decision making if it:

Accepted Answer

A)  Does not differ for each option available to the decision maker.
B)  Changes from period to period.
C)  Is a future cost.
D)  Is a mixed cost.
E)  Is a fixed cost.

Question 14

In a manufacturing environment the best short-term profit-maximizing approach would be to:

Accepted Answer

A)  Maximize unit gross profit times the number of units sold.
B)  Minimize variable cost per unit times the number of units produced.
C)  Minimize fixed overhead (i.e., fixed manufacturing support)  cost per unit by producing to capacity.
D)  Maximize the contribution margin per unit times the number of units sold.
E)  Maximize sales volume time selling price.

Question 15

For short-run product-mix decisions, relevant costs (for the seller)  include short-run _________ costs plus any ____________ costs.

Accepted Answer

A)  direct material; direct labor.
B)  variable; opportunity.
C)  fixed; differential.
D)  support; distribution.
E)  capital; opportunity.

Question 16

The best way to allocate scare resources to attain a specific objective, such as the maximization of operating income, is:

Accepted Answer

A)  Relevant costing.
B)  Responsibility accounting.
C)  Simple regression (OLS)  analysis.
D)  Operations management.
E)  Linear programming.

Question 17

Apex Manufacturing Corporation is considering a significant shift in the mix of products it manufactures. The costs associated with current and proposed production schedules are shown below by category:  The proposed production will require a one-time purchase of equipment costing $180,000. No change in selling or administrative cost from their present levels is expected.
Required:
1. What type of relevant cost analysis would be appropriate in this situation (special order, make-lease-buy, etc.)? Why?
2. What role does depreciation and equipment purchase cost play in this decision?
3. What is the minimum amount that revenue would have to increase per month to justify the proposed production schedule? Ignore taxes and the time value of money

Accepted Answer

.
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Question 18

In deciding whether to accept or a reject a special sales order, which of the following costs are likely relevant to the decision?

Accepted Answer

A)  Depreciation expense on manufacturing equipment.
B)  A portion of facilities-level costs.
C)  A portion of batch-level costs.
D)  Total batch-level costs.
E)  An allocated share of fixed manufacturing support costs.

Question 19

The mathematical tool used to determine the optimum short-term product (or service)  mix is:

Accepted Answer

A)  Linear regression (i.e., ordinary least-squares)  analysis.
B)  Linear programming.
C)  Linear ratio analysis.
D)  Pareto optimality analysis.
E)  Nonlinear cost-benefit analysis.

Question 20

The costs described in situations 1 and 4 above are:

Accepted Answer

A)  Prime costs.
B)  Sunk costs.
C)  Discretionary costs.
D)  Relevant costs.
E)  Fully-absorbed costs.

Exam 11: Decision Making With a Strategic Emphasis

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The costs described in situations 1 and 4 above are:

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The mathematical tool used to determine the optimum short-term product (or service) mix is:

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Special sales orders:

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A cost is not relevant for decision making if it:

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One of the behavioral problems with relevant cost analysis is the overemphasis on:

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The decision to keep or drop products or services involves strategic consideration of all the following except:

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Correct Answer
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Based solely on a relevant cost analysis, which of the three products should be manufactured by Walman beyond the split-off point?

Correct Answer
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Sunk costs:

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In deciding whether to drop or keep a product line, all of the following are relevant to the decision EXCEPT:

Correct Answer
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In deciding whether to accept or a reject a special sales order, which of the following costs are likely relevant to the decision?

Correct Answer
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The best way to allocate scare resources to attain a specific objective, such as the maximization of operating income, is:

Correct Answer
verified

In a manufacturing environment the best short-term profit-maximizing approach would be to:

Correct Answer
verified

Correct Answer
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For short-run product-mix decisions, relevant costs (for the seller) include short-run _ costs plus any ____ costs.

Correct Answer
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The costs described in situations I and IV above are:

Correct Answer
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Correct Answer
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The shadow price in a linear programming model is:

Correct Answer
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Exam 11: Decision Making With a Strategic Emphasis

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Correct Answerverified.Answer may varyFeedback: 1. Either a ...View AnswerShow Answer

The costs described in situations 1 and 4 above are:

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The mathematical tool used to determine the optimum short-term product (or service) mix is:

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Special sales orders:

Correct AnswerverifiedShow Answer

A cost is not relevant for decision making if it:

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One of the behavioral problems with relevant cost analysis is the overemphasis on:

Correct AnswerverifiedShow Answer

The decision to keep or drop products or services involves strategic consideration of all the following except:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Based solely on a relevant cost analysis, which of the three products should be manufactured by Walman beyond the split-off point?

Correct AnswerverifiedShow Answer

Sunk costs:

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In deciding whether to drop or keep a product line, all of the following are relevant to the decision EXCEPT:

Correct AnswerverifiedShow Answer

In deciding whether to accept or a reject a special sales order, which of the following costs are likely relevant to the decision?

Correct AnswerverifiedShow Answer

The best way to allocate scare resources to attain a specific objective, such as the maximization of operating income, is:

Correct AnswerverifiedShow Answer

In a manufacturing environment the best short-term profit-maximizing approach would be to:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

For short-run product-mix decisions, relevant costs (for the seller) include short-run _________ costs plus any ____________ costs.

Correct AnswerverifiedShow Answer

The costs described in situations I and IV above are:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The shadow price in a linear programming model is:

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Correct Answer
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Correct Answer
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.
Answer may vary
Feedback: 1. Either a ...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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For short-run product-mix decisions, relevant costs (for the seller) include short-run _ costs plus any ____ costs.

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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