ACCT 2101 CH 7

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A.identify the problem and assign responsibility.
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Accounting’s contribution to the decision-making process occurs in all of the following steps except to: A.identify the problem and assign responsibility. B.determine possible courses of action. C.make a decision. D.review results of the decision.
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D.(2), (3), (1).
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Three of the steps in management’s decision process are: (1) review results of decision, (2) determine and evaluate possible courses of action, and (3) make the decision. The steps are prepared in the following order. A.(1), (2), (3). B.(3), (2), (1). C.(2), (1), (3). D.(2), (3), (1).
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A.True
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The process used to identify the financial data that changes under alternative courses of action is called incremental analysis. A.True B.False
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B.change under alternative courses of action.
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Incremental analysis is the process of identifying the financial data that: A.do not change under alternative courses of action. B.change under alternative courses of action. C.are mixed under alternative courses of action. D.No correct answer is given.
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C.fixed manufacturing overhead.
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Relevant costs in accepting an order at a special price include all of the following except: A.direct materials. B.direct labor. C.fixed manufacturing overhead. D.variable manufacturing overhead.
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Direct materials
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_______ ________ are relevant costs in accepting an order at a special price, but fixed manufacturing overhead is not.
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B.Fixed costs.
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When the units required to fill a special order can be produced within existing plant capacity, which of the following will not increase? A.Variable costs. B.Fixed costs. C.Revenues. D.Contribution margin.
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Contribution margin
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When the units required to fill a special order can be produced within existing plant capacity, _____ _____ will increase, but not fixed costs will not.
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D.increase $2,500.
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It costs Orkid Company $17 of variable costs and $3 of fixed costs to produce its product. The company currently has unused capacity. The product sells for $25. Homer Industries offers to purchase 5,000 units at $19 each. In the deal, Orkid will incur special shipping costs of $1.50 per unit. If the special offer is accepted and produced with unused capacity, net income will: A.increase $10,000. B.decrease $30,000. C.decrease $5,000. D.increase $2,500.
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B.False
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Opportunity cost is a cost that cannot be changed by any present or future decision. A.True B.False
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Opportunity cost
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_____ _____ is the potential benefit that may be obtained by following an alternative course of action.
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D.all of these.
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In a make-or-buy decision, relevant costs are: A.manufacturing costs that will be saved. B.the purchase price of the units. C.opportunity costs. D.all of these.
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C.outsourcing.
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Another name for the option to buy a component from a supplier is A.vertical integration. B.supply chain management. C.outsourcing. D.insourcing.
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C.a decrease in net income of $3,500
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Taser Industries must decide whether to make or buy some of its components. The costs of producing 175,000 battery packs for its product are as follows: Direct Materials = $15,000 Direct Labor = $5,000 Variable overhead = $6,000 Fixed overhead = $9,000 The company has an opportunity to purchase the battery packs for $0.18 per unit, which would eliminate all variable costs, and $2,000 of fixed costs. Based on your analysis, what is the net income increase or decrease if the company purchases the battery packs? A.an increase in net income of $7,000 B.an increase in net income of $3,500 C.a decrease in net income of $3,500 D.an increase in net income of $5,500
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C.more than the incremental processing costs.
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The basic rule in a sell or process further decision is to process further as long as the incremental revenue is: A.equal to the incremental processing costs. B.less than the incremental processing costs. C.more than the incremental processing costs. D.more than the manufacturing cost per unit.
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C.sunk costs.
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In a sell or process further decision, joint costs are: A.incremental costs. B.opportunity costs. C.sunk costs. D.relevant costs.
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B.False
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When a company is deciding to retain or replace equipment, trade-in value of the existing equipment is irrelevant. A.True B.False
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Because this value will not be realized if the asset is continued in use.
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Why is Trade-in value of existing equipment is relevant?
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B.False
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The cash disposal value of existing equipment is considered a sunk cost and is therefore irrelevant in a decision to retain or replace the equipment. A.True B.False
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A.incremental processing costs.
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The decision rule in a sell-or-process-further decision is: process further as long as the incremental revenue from processing exceeds: A.incremental processing costs. B.variable processing costs. C.fixed processing costs. D.No correct answer is given.
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B.sunk cost.
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In a decision to retain or replace equipment, the book value of the old equipment is a(an): A.opportunity cost. B.sunk cost. C.incremental cost. D.marginal cost.
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A.True
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The key to making the best decision concerning eliminating an unprofitable segment is to focus on relevant costs. A.True B.False
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A.True
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If a company decides to eliminate an unprofitable segment, its net income will increase if the segment’s contribution margin is less than the fixed costs which are eliminated. A.True B.False
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A.Overall net income will decrease.
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Vegas Company is considering eliminating an unprofitable segment. The segment’s fixed costs are avoidable and are less than its contribution margin. Which of the following is a true consequence of eliminating this unprofitable segment? A.Overall net income will decrease. B.Overall fixed costs will increase. C.Overall contribution margin will increase. D.Overall variable costs will increase.
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B.Decrease by $130,000.
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Fido Company has three segments, one of which is unprofitable. The Duchess Doggy Biscuit segment had the following results last period: Sales: $1,040,000 Variable Expenses: ($640,000) Contribution Margin: $400,000 Fixed Expenses: ($540,000) Net Loss: ($140,000) If the Duchess Doggy Biscuit segment is eliminated, 50% of the fixed expenses can also be eliminated; the other 50% will be reallocated. What will happen to company net income if this product line is eliminated? A.Increase by $140,000. B.Decrease by $130,000. C.Increase by $270,000. D.Decrease by $400,000.
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C.Evaluating possible courses of action and reviewing the results of the decision.
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In which steps of the management decision-making process does accounting make its primary contribution? A.Making a decision and reviewing the results of the decision. B.Identifying the problem and evaluating possible courses of action. C.Evaluating possible courses of action and reviewing the results of the decision. D.Identifying the problem and making a decision.
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D.All of these options are involved in incremental analysis.
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All of the following types of decisions involve incremental analysis except: A.make or buy. B.allocate limited resources. C.sell or process further. D.All of these options are involved in incremental analysis.
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D.relevant costs.
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In incremental analysis, the only costs to be considered are: A.variable costs. B.sunk costs. C.manufacturing costs. D.relevant costs.
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B.False
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When deciding to accept an order at a special price, variable manufacturing overhead costs are not relevant. A.True B.False
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because they increase if the special order is accepted.
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When deciding to accept an order at a special price, WHY are variable manufacturing overhead costs relevant ?
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B.The firm is not currently operating at full capacity.
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Which one of the following is an important assumption that is made when considering the decision to accept an order at a special price? A.There are no mixed costs. B.The firm is not currently operating at full capacity. C.Overall economic growth will continue at historical rates. D.The firm will continue to receive similar orders in the future.
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C.increase $15,600.
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It costs Bluffton Company $18.20 of variable costs and $7.80 of fixed costs to produce its product that sells for $39. Osborne Company, a foreign buyer, offers to purchase 3,000 units at $23.40 each. If the special offer is accepted and produced with unused capacity, net income will: A.decrease $7,800. B.increase $7,800. C.increase $15,600. D.increase $11,700.
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D.decrease $1,500.
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It costs HHI Company $7 of variable costs and $3 of fixed costs to produce its product at full capacity. However, the company currently has unused capacity. The product sells for $15. Burlington Company offers to purchase 3,000 units at $9 each. HHI will incur special shipping costs of $2.50 per unit. If the special offer is accepted and produced with unused capacity, net income will: A.increase $1,500. B.increase $6,000. C.decrease $6,000. D.decrease $1,500.
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D.($5,000)
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Zoomer Company produces Optimist sailboats. The costs of producing 100,000 tiller extensions for use in the boats are as follows: Direct Labor: $250,000 Direct Materials: $300,000 Variable Overhead: $65,000 Fixed Overhead: $185,000 An outside supplier has offered to supply the tiller extensions for $720,000. If Zoomer accepts the offer $85,000 of fixed costs can be avoided. What is the financial advantage (disadvantage) of accepting the supplier’s offer? A.$5,000 B.($15,000) C.$15,000 D.($5,000)
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A.Incremental revenue.
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Which of the following will not affect a make-or-buy decision? A.Incremental revenue. B.Incremental variable costs. C.Differential fixed costs. D.Opportunity costs.
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A.added to the make total cost.
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In a make or buy decision, opportunity costs are: A.added to the make total cost. B.deducted from the make total cost. C.added to the buy total cost. D.ignored.
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A.True
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Incremental costs are the costs that differ between the alternatives being considered. A.True B.False
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C.sunk costs.
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In a sell or process further decision, joint costs are: A.incremental costs. B.opportunity costs. C.sunk costs. D.relevant costs.
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B.joint costs.
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Costs incurred prior to the split-off are A.fixed costs. B.joint costs. C.opportunity costs. D.relevant costs.
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A.True
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Sunk costs are not relevant in incremental analysis. A.True B.False
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D.Book value of existing equipment.
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Bergeron Company is considering replacing equipment with a cost of $30,000, accumulated depreciation of $20,000, and a 2 year remaining useful life. The new equipment has a cost of $42,000 and a useful life of 6 years. The seller has offered a trade-in allowance of $7,500. The new equipment is much more efficient. Bergeron projects cost savings of $10,000 per year if the new equipment is purchased. Which of the following is not relevant in deciding whether to retain or replace equipment? A.Cost savings. B.Trade-in allowance of existing equipment. C.Cost of new equipment. D.Book value of existing equipment.
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B.book value of the old asset.
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In a retain or replace equipment decision, all of the following are considered except the: A.salvage value of the old asset. B.book value of the old asset. C.cost of the new asset. D.decrease in variable manufacturing costs.
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B.False
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If a company decides to eliminate an unprofitable segment, its net income will always increase. A.True B.False
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C.fixed expenses allocated to the eliminated segment will have to be absorbed by other segments.
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If an unprofitable segment is eliminated: A.net income will always increase. B.variable expenses of the eliminated segment will have to be absorbed by other segments. C.fixed expenses allocated to the eliminated segment will have to be absorbed by other segments. D.net income will always decrease.
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B.$30,000 decrease.
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The Alligator segment of Louisiana Specialty Meats is operating at a loss and has the following data: Sales = $600,000 Variable expenses = 420,000 Fixed expenses = 300,000 If the Alligator segment is eliminated, what will be the effect on the remaining company? Assume that 50% of the fixed expenses will be eliminated and the rest will be allocated to the segments of the remaining company. A.$360,000 increase. B.$30,000 decrease. C.$150,000 increase. D.$30,000 increase.

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