Cost Management Chapter 11 Exam Questions with Verified Solutions (Graded A+)
If a special sales order (consisting of 20 units of a product) is accepted, sales of 10 units of a different product (that sells for $15 per unit, with variable costs of $10 per unit) will be lost (because of capacity co...
If a special sales order (consisting of 20 units of a product) is accepted, sales of 10 units of a different
product (that sells for $15 per unit, with variable costs of $10 per unit) will be lost (because of capacity
constraints). For purposes of pricing the special sales order, the opportunity cost per unit of accepting
the special order is: - Answers $2.50
Relevant short-run financial considerations of a decision to drop (or keep) a product (or service) include:
- Answers The contribution margin that would be lost if the product were dropped
Avoidable short-term fixed costs
Variable costs associated with the product, both production and sales-related
When costs are classified by behavior, ________ costs are generally relevant for decisions because the
differ while _______ costs are often irrelevant because they do not change. - Answers Variable, Fixed
True or False: When there is excess capacity opportunity costs are zero. - Answers True
A future cost that is not expected to differ between the decision maker's options: - Answers Is never
relevant
In the decision to keep or replace your automobile, the original purchase price of your current car is a(n)
_______ cost. - Answers Sunk
A sunk cost: - Answers Is never relevant for decision-making purpose
In the decision to keep or replace your existing automobile, costs and revenues relevant to the decision
include: - Answers The purchase price of the new vehicle
Difference in insurance premiums between the old and new vehicle
The current salvage value of your existing vehicle
A mathematical technique that can be used to solve constrained optimization problems including short-
term product mix is ______ ______ - Answers linear programming
In a keep-or-drop-a-product decision the product's ________ is(are) relevant to the decision. - Answers
Variable production costs
Avoidable fixed production (or marketing) costs
Contribution margin
In deciding whether to process a given product beyond the split-off point: - Answers Compare
incremental revenues for the product's separable processing costs
Ignore allocated joint-manufacturing costs
, S&P Manufacturing is considering purchasing a component part from a supplier for $25.50 per part. The
manufacturing cost is $29.00 which includes $5.00 of fixed overhead. What should S&P do? - Answers
S&P should continue to make the part and save $1.50 per unit.
The term used to describe a firm's one-time opportunity to sell a specified quantity of its product or
service is ________-______ decision. - Answers Special-order
To maximize profit when there is a single resource constraint (e.g., machine hours) and excess demand
for each of multiple set of outputs that could be produced by a firm, the short-term product mix should
be determined: - Answers By ranking products based on their contribution margin per unit of the scarce
resource
The point in the production process where products with separate identities arise is the _______ point. -
Answers Split-off
ABC, Inc. has received a special order request for 100 units of Product XYZ. The product normally sells
for $10.00 per unit and has a total unit cost of $7.50. The special order price offered is $7.00 and the
relevant cost of the special order is $6.25. Based on this information, ABC should be: - Answers Accept
the special order because it will increase income by $0.75 per unit
Joint-production costs in a sell-or-process further decision are: - Answers Common costs
Sunk costs
A primary reason why managers may neglect long-term (strategic) goals in their decision-making process
is: - Answers Linkage of managerial compensation to short-term profit objectives
True or False: If managers are appropriately using relevant cost analysis as as tool to maximize short-
term contribution margin, there is no need to develop methods to manage fixed costs. - Answers False
Cost incurred after the split-off point that can be traced to individual products are known as ________
_______ costs. - Answers Separable processing
The decision to keep or replace a piece of equipment: - Answers May be made using wither a differential
or total cost analysis
Should consider relevant financial and nonfinancial information
In terms of a decision such as whether to keep (repair) or replace an existing piece of machinery, batch-
level costs are: - Answers Irrelevant if the amount of the cost is the same under each decision alternative
Relevant if they change in total as a result of the decision
When deciding whether or not to undertake a joint production process, joint production costs: -
Answers Are relevant to the decision
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