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Question;1.;Future costs that do not differ;among the alternatives are not relevant in a decision. True False;2.;Fixed costs are irrelevant in a;decision. True False;3.;Sunk costs are considered to be;avoidable costs. True False;fi4.;Avoidable costs are also called;relevant costs. True False;5.;An avoidable cost is a cost that;can be eliminated (in whole or in part) as a result of choosing one alternative;over another.;True False;6.;A sunk cost is a cost that has;already been incurred and that cannot be avoided regardless of what action is;chosen.;True False;7.;The book value of a machine, as;shown on the balance sheet, is relevant in a decision concerning the;replacement of that machine by another machine.;True False;8.;If by dropping a product a firm;can avoid more in fixed costs than it loses in contribution margin, then the;firm is better off economically if the product is dropped.;True False;9.;Generally, a product line should;be dropped when the fixed costs that can be avoided by dropping the product;line are less than the contribution margin that will be lost.;True False;10. The;cost of a resource that has no alternative use in a make or buy decision;problem has an opportunity cost of zero.;True False;11. Vertical;integration is the involvement by a company in more than one of the steps from;securing basic raw materials to the production and distribution of a finished;product.;True False;12. Depreciation;expense on existing factory equipment is generally relevant to a decision of;whether to accept or reject a special offer for a company's product.;True False;13.;When a company has a production;constraint, the product with the highest contribution margin per unit of the;constrained resource should be given highest priority.;True False;14. Managers;should not authorize working overtime at a work station that contains a;bottleneck. True False;15.;Joint costs are not relevant to;the decision to sell a product at the split-off point or to process the product;further.;True False;16.;Joint production costs are;relevant costs in decisions about what to do with a product from the split-off;point onward in the production process.;True False;17.;Costs which are always relevant in decision making;are those costs which are;A.;variable.;B.;avoidable.;C.;sunk.;D.;fixed.;18.;A general rule in relevant cost analysis is;A.;variable costs are always;relevant.;B.;fixed costs are always irrelevant.;C.;differential future costs and;revenues are always relevant.;D.;depreciation is always irrelevant.;19.;The opportunity cost of making a component part in;a factory with no excess capacity is the;A.;variable manufacturing cost of the;component.;B.;fixed manufacturing cost of the;component.;C.;total manufacturing cost of the;component.;D.;net benefit foregone from the best;alternative use of the capacity required.;20. Freestone;Company is considering renting Machine Y to replace Machine X. It is expected;that Y will waste less direct materials than does X. If Y is rented, X will be;sold on the open market. For this decision, which of the following factors is;(are) relevant?;I. Cost of direct;materials used;II.;Resale value of Machine X;A.;Only I;B.;Only II;C.;Both I and II;D.;Neither I nor II;21.;Which of the following are valid reasons for;eliminating a product line?;I. The product;line's contribution margin is negative.;II. The;product line's traceable fixed costs plus its allocated common corporate costs;are less than its contribution margin.;A.;Only I;B.;Only II;C.;Both I and II;D.;Neither I nor II;22.;When there is a production constraint, a company;should emphasize the products with;A.;the highest unit contribution;margins.;B.;the highest contribution margin;ratios.;C.;the highest contribution margin;per unit of the constrained resource.;D.;the highest contribution margins;and contribution margin ratios.;23.;In a sell or process further decision, which of;the following costs are relevant?;I. A variable;production cost incurred prior to the split-off point.;II. An;avoidable fixed production cost incurred after the split-off point.;A.;Only I.;B.;Only II.;C.;Both I and II.;D.;Neither I nor II.;24. Scherer;Corporation is preparing a bid for a special order that would require 720;liters of material U48N. The company already has 560 liters of this raw;material in stock that originally cost $6.30 per liter. Material U48N is used;in the company's main product and is replenished on a periodic basis. The;resale value of the existing stock of the material is $5.80 per liter. New;stocks of the material can be readily purchased for $6.65 per liter. What is;the relevant cost of the 720 liters of the raw material when deciding how much;to bid on the special order?;A.;$4,592;B.;$4,788;C.;$4,456;D.;$4,176;25.;Cung Inc. has some material that;originally cost $68,400. The material has a scrap value of $30,100 as is, but;if reworked at a cost of $1,400, it could be sold for $30,800. What would be;the incremental effect on the company's overall profit of reworking and selling;the material rather than selling it as is as scrap?;A.;-$69,100;B.;-$700;C.;$29,400;D.;-$39,000;26. Liffick;Corporation is a specialty component manufacturer with idle capacity.;Management would like to use its extra capacity to generate additional profits.;A potential customer has offered to buy 6,200 units of component VFG. Each unit;of VFG requires 8 units of material C79 and 6 units of material X70. Data;concerning these two materials follow;Material;C79 is in use in many of the company's products and is routinely replenished.;Material X70 is no longer used by the company in any of its normal products and;existing stocks would not be replenished once they are used up.;What;would be the relevant cost of the materials, in total, for purposes of;determining a minimum acceptable price for the order for product VFG?;A.;$528,551;B.;$523,280;C.;$476,350;D.;$484,455;27. Schemm;Inc. regularly uses material F04E and currently has in stock 460 liters of the;material for which it paid $2,622 several weeks ago. If this were to be sold as;is on the open market as surplus material, it would fetch $5.25 per liter. New;stocks of the material can be purchased on the open market for $5.85 per liter;but it must be purchased in lots of 1,000 liters. You have been asked to;determine the relevant cost of 800 liters of the material to be used in a job;for a customer. The relevant cost of the 800 liters of material F04E is;A.;$5,850;B.;$4,200;C.;$4,404;D.;$4,680;28. Stampka;Corporation is a specialty component manufacturer with idle capacity.;Management would like to use its extra capacity to generate additional profits.;A potential customer has offered to buy 4,200 units of component JJF. Each unit;of JJF requires 6 units of material O38 and 9 units of material P56. Data;concerning these two materials follow;Material;O38 is in use in many of the company's products and is routinely replenished.;Material P56 is no longer used by the company in any of its normal products and;existing stocks would not be replenished once they are used up.;What would be the relevant;cost of the materials, in total, for purposes of determining a minimum;acceptable price for the order for product JJF?;A.;$146,790;B.;$199,080;C.;$155,610;D.;$212,340;29.;Janus Corporation has in stock;43,700 kilograms of material L that it bought five years ago for $6.10 per;kilogram. This raw material was purchased to use in a product line that has;been discontinued. Material;L can;be sold as is for scrap for $3.23 per kilogram. An alternative would be to use;material L in one of the company's current products, E99D, which currently;requires 2 kilograms of a raw material that is available for $9.45 per;kilogram. Material L can be modified at a cost of $0.62 per kilogram so that it;can be used as a substitute for this material in the production of product;E99D. However, after modification, 3 kilograms of material L is required for;every unit of product E99D that is produced. Janus Corporation has now received;a request from a company that could use material L in its production process.;Assuming that Janus Corporation could use all of its stock of material L to;make product E99D or the company could sell all of its stock of the material at;the current scrap price of $3.23 per kilogram, what is the minimum acceptable;selling price of material L to the company that could use material L in its own;production process?;A.;$3.23;B.;$5.68;C.;$6.92;D.;$2.45;30. Lampshire;Inc. is considering using stocks of an old raw material in a special project.;The special project would require all 160 kilograms of the raw material that;are in stock and that originally cost the company $1,136 in total. If the;company were to buy new supplies of this raw material on the open market, it;would cost $7.25 per kilogram. However, the company has no other use for this;raw material and would sell it at the discounted price of $6.50 per kilogram if;it were not used in the special project. The sale of the raw material would;involve delivery to the purchaser at a total cost of $75 for all 160 kilograms.;What is the relevant cost of the 160 kilograms of the raw material when;deciding whether to proceed with the special project?;A.;$1,040;B.;$965;C.;$1,136;D.;$1,160


Paper#50043 | Written in 18-Jul-2015

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