Question 1

An ad hoc sales discount is

Accepted Answer

An ad hoc sales discount is brought about by competitive pressures, such as a competitor offering a lower price or a sales quota deadline approaching. It is not related to the quality of the goods or a decision made by a committee.

Question 2

Calvert Company has 3 divisions: A,B,and C Division A's income statement shows the following for the year ended December 31:  Cost of goods sold is 80 percent variable and 20 percent fixed.Of the fixed costs,50 percent are avoidable if the division is closed.All of the selling expenses relate to the division and would be eliminated if Division A were eliminated.Of the administrative expenses,85 percent are applied from corporate costs.If Division A were eliminated,Calvert's income would

Accepted Answer

If Division A is eliminated, the variable portion of cost of goods sold will be eliminated, resulting in a decrease of $400,000 (80% of $500,000) in total costs. Of the fixed costs, only 50% are avoidable, so $100,000 (50% of $200,000) will be eliminated. All of the selling expenses of $150,000 relate to Division A and will be eliminated. Of the $300,000 of administrative expenses, 85% or $255,000 will remain as corporate expenses. Therefore, the total decrease in expenses is $650,000 ($400,000 + $100,000 + $150,000). The division's operating loss is $125,000, so if it is eliminated, the company's income will decrease by $525,000 ($125,000 - $650,000).

Question 3

Thomas Company has only 25,000 hours of machine time each month to manufacture its two products.Product X has a contribution margin of $50,and Product Y has a contribution margin of $64.Product X requires 5 hours of machine time,and Product Y requires 8 hours of machine time.If Thomas Company wants to dedicate 80 percent of its machine time to the product that will provide the most income,the company will have a total contribution margin of

Accepted Answer

First, we need to find out how many machine hours can be dedicated to each product. 
80% of 25,000 hours = 20,000 hours 
Product X requires 5 hours per unit, so the maximum number of units that can be produced is 20,000/5 = 4,000 units. 
Product Y requires 8 hours per unit, so the maximum number of units that can be produced is 20,000/8 = 2,500 units.

Since Product Y has the higher contribution margin, we should produce as many units of Product Y as possible within the constraint of machine time. 
If we produce 2,500 units of Product Y, the total contribution margin will be:
2,500 units x $64 = $160,000

Therefore, the best choice is B) $240,000, which is not an answer choice. The closest answer choice is C) $210,000, which is 75% of the correct answer.

Question 4

For a particular product in high demand,a company decreases the sales price and increases the sales commission.These changes will not increase

Accepted Answer

The answer of For a particular product in high demand,a...

Question 5

Which of the following costs is irrelevant in making a decision about a special order price if some of the company facilities are currently idle?

Accepted Answer

If some of the company facilities are currently idle, equipment depreciation would be considered a sunk cost and thus irrelevant in making a decision about a special order price. Direct labor, variable cost of utilities, and opportunity cost of production are all relevant costs to consider.

Question 6

Which of the following activities within an organization would be least likely to be outsourced?

Accepted Answer

Product design is a critical function that requires creativity, innovation, and an in-depth understanding of the company's values and customers' needs. Outsourcing this function might result in a loss of control over the design process and could harm the company's competitiveness. Therefore, product design is least likely to be outsourced. Accounting, data processing, and transportation are administrative and operational functions that could be easily outsourced.

Question 7

Contracting with vendors outside the organization to obtain or acquire goods and/or services is called

Accepted Answer

Outsourcing involves contracting with vendors outside the organization to obtain goods and/or services. Target costing is a cost management tool used for determining the maximum cost that can be incurred on a product while still earning the desired profit margin. Insourcing is the opposite of outsourcing, involving the use of internal resources to provide goods and services. Product harvesting refers to the process of deliberately removing a product or service from the market.

Question 8

In evaluating the profitability of a specific organizational segment,all ____ would be ignored.

Accepted Answer

Costs allocated to the segment would be ignored in evaluating the profitability of a specific organizational segment because these costs are not directly incurred by the segment itself but are allocated to it from the broader organization, potentially distorting the segment's true profitability.

Question 9

Fixed costs are ignored in allocating scarce resources because

Accepted Answer

Fixed costs are not affected by the allocation of scarce resources. These costs remain the same regardless of how the resources are allocated. Therefore, it is not necessary to consider fixed costs when making allocation decisions.

Question 10

An outside firm selected to provide services to an organization is called a

Accepted Answer

An outside firm selected to provide services to an organization is commonly referred to as a contract vendor.

Question 11

Anderson Company uses 10,000 units of a part in its production process.The costs to make a part are: direct material,$12; direct labor,$25; variable overhead,$13; and applied fixed overhead,$30.Anderson has received a quote of $55 from a potential supplier for this part.If Anderson buys the part,70 percent of the applied fixed overhead would continue.Anderson Company would be better off by

Accepted Answer

To determine if Anderson Company would be better off buying or making the part, we need to compare the total cost to make the part to the cost to buy the part.

Total cost to make the part:
Direct material + Direct labor + Variable overhead + Applied fixed overhead
= $12 + $25 + $13 + $30
= $80 per unit

Total cost to buy the part = $55 per unit

If Anderson buys the part, 70% of the applied fixed overhead would continue. This means that Anderson would save 30% of the applied fixed overhead, which is $9 per unit ($30 x 0.3).

Therefore, the total cost to buy the part would be $55 + $9 = $64 per unit.

Since $64 is less than $80, it would be better for Anderson to buy the part from the potential supplier.

To find out how much Anderson would save by buying the part, we can calculate the total cost of making the part and subtract the total cost of buying the part:
Total cost to make the part = $80 x 10,000 = $800,000
Total cost to buy the part = $64 x 10,000 = $640,000
Savings from buying the part = $800,000 - $640,000 = $160,000.

Therefore, Anderson would be better off by $160,000 if they buy the part instead of making it.

Question 12

The minimum selling price that should be acceptable in a special order situation is equal to total

Accepted Answer

In a special order situation, the minimum selling price should cover the variable costs, as these are the costs that will be incurred with the additional production. Fixed costs are not considered since they are already covered by regular sales.

Question 13

When a company discontinues a segment,total corporate costs may decrease in all of the following categories except

Accepted Answer

Allocated common costs are typically spread across various segments of a company and do not decrease simply because one segment is discontinued. These costs are shared across the company's operations and would remain until specifically reduced through other cost-cutting measures.

Question 14

Swanson Company has 3 divisions: X,Y,and Z.Division X's income statement shows the following for the year ended December 31:  Cost of goods sold is 75 percent variable and 25 percent fixed.Of the fixed costs,60 percent are avoidable if the division is closed.All of the selling expenses relate to the division and would be eliminated if Division X were eliminated.Of the administrative expenses,90 percent are applied from corporate costs.If Division X were eliminated,Swanson's income would

Accepted Answer

To determine the impact if Division X were eliminated, we need to analyze its costs and their behavior:

- Cost of goods sold (COGS): 75% variable and 25% fixed. This means that COGS will decrease by 75% if sales decrease by the same percentage (assuming constant selling price and product mix). The remaining 25% of COGS (the fixed portion) will not change if the division is closed.
- Selling expenses: All relate to the division and would be eliminated if Division X were eliminated. This means that they are avoidable costs and will not affect Swanson's income if the division is closed.
- Administrative expenses: 90% are applied from corporate costs. This means that only 10% of the administrative expenses are directly traceable to Division X. As such, if Division X were eliminated, Swanson would still need to incur 90% x $150,000 = $135,000 of administrative expenses to support the remaining divisions.
- Avoidable fixed costs: 60% of the fixed costs can be avoided if the division is closed. This means that Swanson can save 60% x 25% x $800,000 = $120,000 if it closes Division X.

Putting these figures together, we can calculate the net impact of closing Division X on Swanson's income:

Net income impact = (Decrease in COGS) + (Decrease in avoidable fixed costs) - (Remaining administrative expenses)
Net income impact = (75% x $1,200,000) + (60% x 25% x $800,000) - ($135,000)
Net income impact = $900,000 + $120,000 - $135,000 = $885,000

Therefore, if Division X were eliminated, Swanson's income would decrease by $155,000 (Option C).

Question 15

Assume a company produces three products: A,B,and C It can only sell up to 3,000 units of each product.Production capacity is unlimited.The company should produce the product (or products)that has (have)the highest

Accepted Answer

Contribution margin per unit is the most important factor in determining which product(s) to produce, as it represents the amount of profit that will be generated from each unit sold.

Question 16

Henke Company has only 30,000 hours of machine time each month to manufacture its two products.Product X has a contribution margin of $60,and Product Y has a contribution margin of $72.Product X requires 6 hours of machine time,and Product Y requires 10 hours of machine time.If Thomas Company wants to dedicate 85 percent of its machine time to the product that will provide the most income,the company will have a total contribution margin of

Accepted Answer

First, we need to calculate how many hours of machine time each product will require if we dedicate 85% of the time to the more profitable product:

Product X: 0.85 * 30,000 hours = 25,500 hours
Product Y: 0.15 * 30,000 hours = 4,500 hours

Next, we need to calculate how many units of each product we can produce with these hours of machine time:

Product X: 25,500 hours ÷ 6 hours per unit = 4,250 units
Product Y: 4,500 hours ÷ 10 hours per unit = 450 units

Now, we can calculate the contribution margin for each product:

Product X: $60 per unit * 4,250 units = $255,000
Product Y: $72 per unit * 450 units = $32,400

The total contribution margin for both products is $287,400 (i.e. $255,000 + $32,400). Therefore, the best choice is C.

Question 17

An increase in direct fixed costs could reduce all of the following except

Accepted Answer

Direct fixed costs are directly attributable to a product line and do not affect the corporate net income directly, as they are absorbed by the specific product line's performance metrics.

Question 18

The ____ prohibits companies from pricing products at different amounts unless these differences reflect differences in the cost to manufacture,sell,or distribute the products.

Accepted Answer

The Robinson-Patman Act specifically addresses price discrimination, which is the practice of charging different prices to different customers for the same product. It prohibits companies from pricing products at different amounts unless these differences reflect differences in the cost to manufacture, sell, or distribute the products.

Question 19

A manager is attempting to determine whether a segment of the business should be eliminated.The focus of attention for this decision should be on

Accepted Answer

The focus should be on the contribution margin of the segment, which is calculated as sales minus total variable expenses and avoidable fixed expenses. This reflects the amount of revenue that would be lost if the segment is eliminated and is therefore the most relevant figure to consider when making the decision. Net income (A) is not as useful because it includes non-avoidable fixed costs which may not reflect the true situation if the segment is eliminated. Sales minus total expenses (B) and sales minus total direct expenses (C) do not take into account the portion of fixed expenses that could still be incurred if the segment is eliminated.

Question 20

Credell Company uses 12,000 units of a part in its production process.The costs to make a part are: direct material,$15; direct labor,$27; variable overhead,$15; and applied fixed overhead,$32.Anderson has received a quote of $60 from a potential supplier for this part.If Credell buys the part,75 percent of the applied fixed overhead would continue.Credell Company would be better off by

Accepted Answer

Total cost to manufacture the parts = Direct material + Direct labor + Variable overhead + Applied fixed overhead = $15 + $27 + $15 + $32 = $89 per unit

Total cost for 12,000 units = $89 x 12,000 = $1,068,000

If Credell buys the part at $60 per unit, the total cost for 12,000 units would be $60 x 12,000 = $720,000

75% of the applied fixed overhead will continue, which is $32 x 75% = $24

Total cost to manufacture after buying the part = Direct material + Direct labor + Variable overhead + 75% Applied fixed overhead + Cost to buy the part = $15 + $27 + $15 + $24 + $60 = $141 per unit

Total cost for 12,000 units after buying the part = $141 x 12,000 = $1,692,000

The cost to buy the part is less than the cost to manufacture the part after buying it. Therefore, Credell Company would be better off by buying the part at $60.

Quiz 10: Relevant Information for Decision Making