Question 1

The shadow price of a slack variable in a linear programming solution that maximises the total contribution margin reflects

Accepted Answer

A)   The amount of excess capacity available for the associated constraint
B)   The decrease in contribution margin that occurs if a unit of the associated product is produced
C)   The contribution margin returned by the firm's profitable product
D)   The increase in contribution margin that would occur if another unit of the constrained resource were available

Question 2

In deciding whether to manufacture a part or buy it from an outside supplier, which of the following is an irrelevant cost?

Accepted Answer

A)   Direct labor
B)   Variable overhead
C)   Fixed overhead that will be avoided if the part is purchased from an outside supplier
D)   Fixed overhead that will continue even if the part is purchased from an outside supplier

Question 3

Accuracy of cost estimates is one of the uncertainties in this type of decision.

Accepted Answer

A)   I and II only
B)   I and III only
C)   II and III only
D)   I, II, and III

Question 4

If financial statement data are used to evaluate a decision to discontinue a business

Accepted Answer

A)   Average costs are often mistakenly included as relevant information
B)   Average costs are often correctly included as relevant information
C)   Qualitative factors are irrelevant
D)   Financial statement data is useless in this decision-making context

Question 5

Separable costs are

Accepted Answer

A)   costs incurred after the split-off point to process products further
B)   costs incurred before the split-off point
C)   all costs incurred before and after the split-off point
D)   only the costs to package and ship the product

Question 6

In the decision to drop a product line, fixed costs are often classified as

Accepted Answer

A)   Avoidable or sunk
B)   Sunk or opportunity
C)   Product or period
D)   Incremental or avoidable

Question 7

Product quality is seldom a factor in make or buy decisions.

Accepted Answer

A) True 
 B)False  False

Question 8

An order from a new customer always constitutes a special order.

Accepted Answer

A) True 
 B)False  False

Question 9

Yvonne and Ken own and operate Deluxe Housecleaning Service. Which of the following is a qualitative factor associated with dropping carpet cleaning from their current line of services?

Accepted Answer

A)   The timeliness with which they can provide other cleaning services
B)   The quality of their current carpet cleaning equipment
C)   The potential effect on demand for their other services
D)   The lost revenue from current customers

Question 10

Mr. Bigletter is employed at an annual salary of $25,000. He plans to start his own business and estimates that he can gross $30,000 annually. If he chooses to open the new business, his foregone salary is a (an)

Accepted Answer

A)   Irrelevant cost
B)   Sunk cost
C)   Opportunity cost
D)   Incremental cost

Question 11

A company manufactures chips used in the production of computers. The chips can be purchased for $50 each from an outside vendor. It costs the manufacturer $60 a chip to produce them, of which 25% is fixed overhead cost. What are the relevant costs for this decision? Based on these costs, which option should the company choose?

Accepted Answer

A)   i
B)   ii
C)   iii
D)   iv

Question 12

Tyke, Ltd. produces 2 products A and B, each requiring direct material and labor. Total labor available is 200 hours, and 300 pounds of material. Each unit of A sells for $10, and B sells for $15. Given the following linear programming information:  What are the variable costs per unit for A and B?

Accepted Answer

A)   $4 and $15
B)   $14 and $19
C)   $6 and $10
D)   $7 and $14

Question 13

Effect on brand name recognition is a qualitative factor that managers should consider in

Accepted Answer

A)   Product line keep and drop decisions
B)   Special order decisions
C)   Cost prediction decisions
D)   Make or buy decisions

Question 14

The physical output method of joint product cost allocation

Accepted Answer

A)   is useful for all product costing
B)   is rarely used
C)   is useful only when the output for all main products can be expressed in the same physical measure
D)   is useful when products have similar net realisable values

Question 15

To ensure high quality in outsourcing decisions, organisations typically negotiate contracts with

Accepted Answer

A)   A high margin for error
B)   No uncertainties
C)   Specific performance criteria
D)   The lowest overall cost C

Question 16

Managers should discontinue a business if its contribution margin is less than the sum of

Accepted Answer

A)   Relevant fixed costs and opportunity costs
B)   Relevant fixed costs and sunk costs
C)   Relevant opportunity costs and sunk costs
D)   Relevant opportunity costs and profits

Question 17

Non-routine operating decisions differ from routine operating decisions in that non-routine decisions

Accepted Answer

A)   Ignore cash flows
B)   Consider cash flows
C)   Do not happen on a regular basis
D)   Involve small dollar amounts

Question 18

The general rule for special orders is

Accepted Answer

A)   Profit should be greater after the special order than before it
B)   Only take special orders when excess capacity exists
C)   The organisation should be as well off after taking the order as it was before taking it
D)   Ignore all fixed costs associated with the special order

Question 19

A product emphasis decision may involve

Accepted Answer

A)   Sunk costs and opportunity costs
B)   Multiple resource constraints and sunk costs
C)   Multiple products and qualitative factors
D)   Sunk costs and qualitative factors

Question 20

Managers should always emphasise products with the highest total contribution margin.

Accepted Answer

A) True 
 B)False

Exam 9: Relevant Costs for Decision Making

The shadow price of a slack variable in a linear programming solution that maximises the total contribution margin reflects

Correct Answer
verified

In deciding whether to manufacture a part or buy it from an outside supplier, which of the following is an irrelevant cost?

Correct Answer
verified

Accuracy of cost estimates is one of the uncertainties in this type of decision.

Correct Answer
verified

If financial statement data are used to evaluate a decision to discontinue a business

Correct Answer
verified

Separable costs are

Correct Answer
verified

In the decision to drop a product line, fixed costs are often classified as

Correct Answer
verified

Product quality is seldom a factor in make or buy decisions.

Correct Answer
verified
False

An order from a new customer always constitutes a special order.

Correct Answer
verified
False

Yvonne and Ken own and operate Deluxe Housecleaning Service. Which of the following is a qualitative factor associated with dropping carpet cleaning from their current line of services?

Correct Answer
verified

Mr. Bigletter is employed at an annual salary of $25,000. He plans to start his own business and estimates that he can gross $30,000 annually. If he chooses to open the new business, his foregone salary is a (an)

Correct Answer
verified

Correct Answer
verified

Tyke, Ltd. produces 2 products A and B, each requiring direct material and labor. Total labor available is 200 hours, and 300 pounds of material. Each unit of A sells for $10, and B sells for $15. Given the following linear programming information: What are the variable costs per unit for A and B?

Correct Answer
verified

Effect on brand name recognition is a qualitative factor that managers should consider in

Correct Answer
verified

The physical output method of joint product cost allocation

Correct Answer
verified

To ensure high quality in outsourcing decisions, organisations typically negotiate contracts with

Correct Answer
verified
C

Managers should discontinue a business if its contribution margin is less than the sum of

Correct Answer
verified

Non-routine operating decisions differ from routine operating decisions in that non-routine decisions

Correct Answer
verified

The general rule for special orders is

Correct Answer
verified

A product emphasis decision may involve

Correct Answer
verified

Managers should always emphasise products with the highest total contribution margin.

Correct Answer
verified

Exam 9: Relevant Costs for Decision Making

The shadow price of a slack variable in a linear programming solution that maximises the total contribution margin reflects

Correct AnswerverifiedShow Answer

In deciding whether to manufacture a part or buy it from an outside supplier, which of the following is an irrelevant cost?

Correct AnswerverifiedShow Answer

Accuracy of cost estimates is one of the uncertainties in this type of decision.

Correct AnswerverifiedShow Answer

If financial statement data are used to evaluate a decision to discontinue a business

Correct AnswerverifiedShow Answer

Separable costs are

Correct AnswerverifiedShow Answer

In the decision to drop a product line, fixed costs are often classified as

Correct AnswerverifiedShow Answer

Product quality is seldom a factor in make or buy decisions.

Correct AnswerverifiedFalse

An order from a new customer always constitutes a special order.

Correct AnswerverifiedFalse

Yvonne and Ken own and operate Deluxe Housecleaning Service. Which of the following is a qualitative factor associated with dropping carpet cleaning from their current line of services?

Correct AnswerverifiedShow Answer

Mr. Bigletter is employed at an annual salary of $25,000. He plans to start his own business and estimates that he can gross $30,000 annually. If he chooses to open the new business, his foregone salary is a (an)

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Tyke, Ltd. produces 2 products A and B, each requiring direct material and labor. Total labor available is 200 hours, and 300 pounds of material. Each unit of A sells for $10, and B sells for $15. Given the following linear programming information: What are the variable costs per unit for A and B?

Correct AnswerverifiedShow Answer

Effect on brand name recognition is a qualitative factor that managers should consider in

Correct AnswerverifiedShow Answer

The physical output method of joint product cost allocation

Correct AnswerverifiedShow Answer

To ensure high quality in outsourcing decisions, organisations typically negotiate contracts with

Correct AnswerverifiedC

Managers should discontinue a business if its contribution margin is less than the sum of

Correct AnswerverifiedShow Answer

Non-routine operating decisions differ from routine operating decisions in that non-routine decisions

Correct AnswerverifiedShow Answer

The general rule for special orders is

Correct AnswerverifiedShow Answer

A product emphasis decision may involve

Correct AnswerverifiedShow Answer

Managers should always emphasise products with the highest total contribution margin.

Correct AnswerverifiedShow Answer

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False

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False

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C

Correct Answer
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