Ch 13 Test

Instructions
.

This assessment is worth 50 points.

  1. Costs which are always relevant in decision making are those costs which are:   (3 points)

    a.  
    b.  
    c.  
    d.  

  2. Consider a decision facing a firm of either accepting or rejecting a special offer for one of its products. A cost that is not relevant is:   (3 points)

    a.  
    b.  
    c.  
    d.  

  3. To maximize total contribution margin, a firm faced with a production constraint should:   (3 points)

    a.  
    b.  
    c.  
    d.  

  4. A plant operating at capacity would suggest that:   (3 points)

    a.  
    b.  
    c.  
    d.  

  5. Which of the following is not an effective way of dealing with a production constraint (i.e., bottleneck)?   (3 points)

    a.  
    b.  
    c.  
    d.  

  6. The opportunity cost of making a component part in a factory with no excess capacity is the:   (3 points)

    a.  
    b.  
    c.  
    d.  

  7. A joint product is:   (3 points)

    a.  
    b.  
    c.  
    d.  

  8. The Lantern Corporation has 1,000 obsolete lanterns that are carried in inventory at a manufacturing cost of $20,000. If the lanterns are remachined for $5,000, they could be sold for $9,000. Alternatively, the lanterns could be sold for scrap for $1,000. Which alternative is more desirable and what are the total relevant costs for that alternative?   (3 points)

    a.  
    b.  
    c.  
    d.  

  9. Relay Corporation manufactures batons. Relay can manufacture 300,000 batons a year at a variable cost of $750,000 and a fixed cost of $450,000. Based on Relay's predictions for next year, 240,000 batons will be sold at the regular price of $5.00 each. In addition, a special order was placed for 60,000 batons to be sold at a 40% discount off the regular price. Total fixed costs would be unaffected by this order. By what amount would the company's net operating income be increased or decreased as a result of the special order?   (3 points)

    a.  
    b.  
    c.  
    d.  

  10. A study has been conducted to determine if one of the departments in Parry Company should be discontinued. The contribution margin in the department is $50,000 per year. Fixed expenses charged to the department are $65,000 per year. It is estimated that $40,000 of these fixed expenses could be eliminated if the department is discontinued. These data indicate that if the department is discontinued, the company's overall net operating income would:   (3 points)

    a.  
    b.  
    c.  
    d.  

  11. A study has been conducted to determine if Product A should be dropped. Sales of the product total $200,000 per year; variable expenses total $140,000 per year. Fixed expenses charged to the product total $90,000 per year. The company estimates that $40,000 of these fixed expenses will continue even if the product is dropped. These data indicate that if Product A is dropped, the company's overall net operating income would:   (3 points)

    a.  
    b.  
    c.  
    d.  

  12. Lusk Company produces and sells 15,000 units of Product A each month. The selling price of Product A is $20 per unit, and variable expenses are $14 per unit. A study has been made concerning whether Product A should be discontinued. The study shows that $70,000 of the $100,000 in fixed expenses charged to Product A would continue even if the product was discontinued. These data indicate that if Product A is discontinued, the company's overall net operating income would:   (3 points)

    a.  
    b.  
    c.  
    d.  

  13. Manor Company plans to discontinue a department that has a contribution margin of $24,000 and $48,000 in fixed costs. Of the fixed costs, $21,000 cannot be avoided. The effect of this discontinuance on Manor's overall net operating income would be a(an):   (3 points)

    a.  
    b.  
    c.  
    d.  

  14. Gata Co. plans to discontinue a department that has a $48,000 contribution margin and $96,000 of fixed costs. Of these fixed costs, $42,000 cannot be avoided. What would be the effect of this discontinuance on Gata's overall net operating income?   (3 points)

    a.  
    b.  
    c.  
    d.  

  15. Manor Company plans to discontinue a department that has a contribution margin of $25,000 and $50,000 in fixed costs. Of the fixed costs, $21,000 cannot be eliminated. The effect on the profit of Manor Company of discontinuing this department would be:   (3 points)

    a.  
    b.  
    c.  
    d.  

  16. Products A, B, and C are produced from a single raw material input. The raw material costs $90,000, from which 5,000 units of A, 10,000 units of B, and 15,000 units of C can be produced each period. Product A can be sold at the split-off point for $2 per unit, or it can be processed further at a cost of $12,500 and then sold for $5 per unit. Product A should be:   (3 points)

    a.  
    b.  
    c.  
    d.  

  17. The Wyeth Company produces three products, A, B, and C, from a single raw material input. Product A can be sold at the split-off point for $40,000, or it can be processed further at a total cost of $15,000 and then sold for $58,000. Joint product costs total $60,000 annually. Product A should be:   (2 points)

    a.  
    b.  
    c.  
    d.  



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