ACCT 2101 CH 7 – Flashcards
Unlock all answers in this set
Unlock answersquestion
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.
answer
A.identify the problem and assign responsibility.
question
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).
answer
D.(2), (3), (1).
question
The process used to identify the financial data that changes under alternative courses of action is called incremental analysis. A.True B.False
answer
A.True
question
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.
answer
B.change under alternative courses of action.
question
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.
answer
C.fixed manufacturing overhead.
question
_______ ________ are relevant costs in accepting an order at a special price, but fixed manufacturing overhead is not.
answer
Direct materials
question
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.
answer
B.Fixed costs.
question
When the units required to fill a special order can be produced within existing plant capacity, _____ _____ will increase, but not fixed costs will not.
answer
Contribution margin
question
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.
answer
D.increase $2,500.
question
Opportunity cost is a cost that cannot be changed by any present or future decision. A.True B.False
answer
B.False
question
_____ _____ is the potential benefit that may be obtained by following an alternative course of action.
answer
Opportunity cost
question
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.
answer
D.all of these.
question
Another name for the option to buy a component from a supplier is A.vertical integration. B.supply chain management. C.outsourcing. D.insourcing.
answer
C.outsourcing.
question
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
answer
C.a decrease in net income of $3,500
question
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.
answer
C.more than the incremental processing costs.
question
In a sell or process further decision, joint costs are: A.incremental costs. B.opportunity costs. C.sunk costs. D.relevant costs.
answer
C.sunk costs.
question
When a company is deciding to retain or replace equipment, trade-in value of the existing equipment is irrelevant. A.True B.False
answer
B.False
question
Why is Trade-in value of existing equipment is relevant?
answer
Because this value will not be realized if the asset is continued in use.
question
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
answer
B.False
question
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.
answer
A.incremental processing costs.
question
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.
answer
B.sunk cost.
question
The key to making the best decision concerning eliminating an unprofitable segment is to focus on relevant costs. A.True B.False
answer
A.True
question
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
answer
A.True
question
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.
answer
A.Overall net income will decrease.
question
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.
answer
B.Decrease by $130,000.
question
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.
answer
C.Evaluating possible courses of action and reviewing the results of the decision.
question
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.
answer
D.All of these options are involved in incremental analysis.
question
In incremental analysis, the only costs to be considered are: A.variable costs. B.sunk costs. C.manufacturing costs. D.relevant costs.
answer
D.relevant costs.
question
When deciding to accept an order at a special price, variable manufacturing overhead costs are not relevant. A.True B.False
answer
B.False
question
When deciding to accept an order at a special price, WHY are variable manufacturing overhead costs relevant ?
answer
because they increase if the special order is accepted.
question
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.
answer
B.The firm is not currently operating at full capacity.
question
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.
answer
C.increase $15,600.
question
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.
answer
D.decrease $1,500.
question
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)
answer
D.($5,000)
question
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.
answer
A.Incremental revenue.
question
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.
answer
A.added to the make total cost.
question
Incremental costs are the costs that differ between the alternatives being considered. A.True B.False
answer
A.True
question
In a sell or process further decision, joint costs are: A.incremental costs. B.opportunity costs. C.sunk costs. D.relevant costs.
answer
C.sunk costs.
question
Costs incurred prior to the split-off are A.fixed costs. B.joint costs. C.opportunity costs. D.relevant costs.
answer
B.joint costs.
question
Sunk costs are not relevant in incremental analysis. A.True B.False
answer
A.True
question
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.
answer
D.Book value of existing equipment.
question
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.
answer
B.book value of the old asset.
question
If a company decides to eliminate an unprofitable segment, its net income will always increase. A.True B.False
answer
B.False
question
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.
answer
C.fixed expenses allocated to the eliminated segment will have to be absorbed by other segments.
question
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.
answer
B.$30,000 decrease.
