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Exam 13: Relevant Information for Special Decisions

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Question 51

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Indicate whether each of the following statements is true or false.

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Question 52

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Outdoor Living Company has just received a special order for 500 hammocks. Outdoor Living has sufficient idle capacity to accept the order. Accepting the order will increase Outdoor Living's variable manufacturing costs. Variable selling and administrative costs would be unaffected. What is the minimum price that Outdoor Living should accept for the special order?

A) A price equivalent to the hammock's variable manufacturing cost per unit
B) A price equivalent to the hammock's unit contribution margin
C) The same price that Outdoor Living charges its existing customers
D) None of the above.

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Question 53

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Relevant costs are frequently called unavoidable costs.

Relevant costs are often referred to as:

Natalie purchased a concert ticket recently for $50. She is trying to decide whether to drive, take a taxi, or ride the public transit bus. The cost of driving to the concert is a sunk cost because Natalie purchased her car several years ago.

The cost that is avoided when a company eliminates a single item of a product or service is a:

Hancock Company manufactures and sells two lines of furniture, case goods and upholstery. During the most recent accounting period, the Case Goods and Upholstery Divisions sold 15,000 and 2,000 units, respectively. The company's most recent financial statements are shown below: (Do not round intermediate calculations.) If unit sales for both divisions increased 10%, the company would report which of the following?

Which costs are relevant for equipment replacement decisions?

A potential danger from outsourcing is that a company may become too dependent on the supplier.

Which of the following statements is true?

For purposes of decision making, avoidable costs are costs that:

Bates Company plans to add a new item to its line of consumer product offerings. Two possible products are under consideration. Each unit of Product A costs $6 to produce and has a contribution margin of $3, while each unit of Product B costs $12 and has a contribution margin of $4. What is the differential revenue for this decision?

Select the correct statement regarding relevant costs and revenues.

All of the following statements describe qualities of relevance except:

Easton Company makes and sells scooters. Easton incurred the following costs in its most recent fiscal year: Easton can currently purchase the scooters it makes from another company. If the company purchases the scooters, Easton would still continue to use its own logo, sales staff, and advertising programs. Which of the following costs would be classified as a unit-level cost?

Gibbs Corporation makes indoor gas fireplaces. A standard fireplace includes unit-level materials, labor, and overhead costs. In addition, the company incurs product-level engineering and advertising costs. The sales staff is paid a 5% commission on each fireplace sold. A sales representative has been in contact with a building developer who wants to buy 20 fireplaces only if he can buy them at amount lower than Gibbs' selling price. Which of the following costs would be relevant to this special order decision?

Pilot Motors Corporation is an automobile manufacturer. The company produces its own motors, tires, and other automobile parts. Pilot has the opportunity to purchase tires from another manufacturer instead of producing the tires in its own facility. This type of decision is typically known as a(n) :

Differential revenues are expected future revenues that vary between the alternatives under consideration.

Qualitative information is only relevant for decision making if it can be quantified.

ServicePro provides two kinds of services. During the most recent accounting period, the two service lines produced the following operating results: If the company stops providing Service 2: