UCF ACG 2071 CHAP 8 – Flashcards

Fixed costs that exist even after a product is dropped are called avoidable fixed costs.

When deciding whether to accept a special order, managers need not consider whether they have available excess capacity.

A constraint is a factor that restricts production or sale of a product.

Relevant information is future data that differs among alternatives.

Companies often consider outsourcing so they can focus on their core competencies

Companies often try to gain more control over pricing by attempting to differentiate their products.

When making product mix decisions, companies are most profitable when they maximize production of the product with the greatest sales demand. True False

When deciding whether to accept a special order, managers should consider all of the following EXCEPT: available excess capacity. the affect of the order on regular sales fixed costs that will not be affected by the order. the variable costs associated with the special order.

Which of the following best describes "contribution margin per unit"? Sales price per unit minus variable cost per unit Units sold time contribution margin ratio Sales price per unit minus fixed cost per unit Sales price per unit minus fixed and variable costs per unit

Which of the following is irrelevant when making a decision? The cost of an asset that the company is considering replacing The expected increase in contribution margin of one product line as a result of a decision to drop a separate unprofitable product line Fixed overhead costs that differ among alternatives The cost of further processing a product that could be sold as is

The effect of a plant closing on employee morale is an example of which of the following? A sunk cost A qualitative factor A quantitative factor Variable cost

In a sell or process further decision, the company should process further if the extra: cost of processing further is less than the incremental revenue. cost of processing further is the same as the incremental revenue. cost of processing further is greater than the incremental revenue. revenue from processing further is less than the incremental cost.

Which of the following best describes "total cost of product or service"? A factor that restricts production or sales of a product All costs incurred along the value chain in connection with the product or service. Costs that were incurred in the past and can not be changed Benefits foregone by not choosing an alternative course of action

Common fixed costs that are allocated between departments are generally: direct fixed costs of other departments. relevant to the decision of whether to drop the department. irrelevant to the decision of whether to drop the department. direct fixed costs of the department.

The Schmidt Corporation has in its inventory 4,000 damaged radios that cost $50,000. The radios can be sold in their present condition for $32,000, or repaired at a cost of $43,000 and sold for $66,000. Which option should the company choose and how much better off would it be as compared to the other option? Repair, better off by $66,000 Sell in present condition, better off by $9,000. Sell in present condition, better off by $32,000. Repair, better off by $23,000

Clear Sky Sailmakers manufactures sails for sailboats. The company has the capacity to produce 15,000 sails per year, but is currently producing and selling 10,000 sails per year. The following information relates to current production: Sale price per unit $250 Manufacturing $165 Marketing and administrative $50 Total fixed costs: Manufacturing $750,000 Marketing and administrative $200,000 If a special sales order is accepted for 3,000 sails at a price of $215 per unit, fixed costs remain unchanged, and no variable marketing and administrative costs will be incurred for this order, how would operating income be affected? (NOTE: Assume regular sales are not affected by the special order.) Increase by $50,000 Increase by $150,000 Increase by $1,125,000 Decrease by $50,000

Rosemont Tennis is planning for the coming year. Investors would like to earn a 12% return on the company's $25 million of assets. The company primarily incurs fixed costs to maintain the tennis courts. Fixed costs are projected to be $12,500,000 for the year. About 500,000 court time hours are expected to be played each year. Variable costs are about $5 per hour of court time. The Rosemont Country Club and Tennis Courts has a favorable reputation in the area and therefore, has some control over the price per hour of court time. Using a cost-plus approach, what price should Rosemont Tennis charge for an hour of court time? $36.00 $30.00 $33.00 $24.00

Spahr Company produces a part that is used in the manufacture of one of its products. The unit manufacturing costs of this part, assuming a production level of 5,000 units, are as follows: Direct materials $2.00 Direct labor $4.00 Variable manufacturing overhead $3.00 Fixed manufacturing overhead $3.00 Total cost $12.00 The fixed overhead costs are unavoidable. Erickson Company has offered to sell 5,000 units of the same part to Spahr Company for $11 per unit. Assuming the company has no other use for its facilities, what should Spahr Company do? Buy from Erickson and save $1 per unit. Make the part and save $2 per unit. Make the part and save $5 per unit. Make the part and save $7 per unit.

Fine Pottery Processors manufactures two products, platters and tureens, from a joint process. Platters are allocated $5,000 of the total joint costs of $25,000. There are 1,500 platters produced and 1,500 tureens produced each year. Platters can be sold at the split-off point for $12 per unit, or they can be processed further into a deluxe platter for additional processing costs of $5,000 and sold for $18 for each deluxe platter. If the platters are processed further and made into deluxe platters, the effect on operating income would be: $1,000 net decrease in operating income. $4,000 net decrease in operating income. $1,000 net increase in operating income. $4,000 net increase in operating income.