Question 1

Variable costs per unit are as follows:
Raw materials $2.15
Direct labor $1.45
Fixed costs are $5,000 per month
If the company produces 4,000 units in the month of March their total costs will be:
A)$14,400
B)$19,400
C)$13,600
D)$18,000

Accepted Answer

The total variable costs per unit are $2.15 (raw materials) + $1.45 (direct labor) = $3.60. For 4,000 units, the total variable costs are 4,000 * $3.60 = $14,400. Adding the fixed costs of $5,000 gives a total cost of $14,400 + $5,000 = $19,400.

Question 2

Which of the following statements relating to relevance and controllability is not correct?
A)Using the concept of relevance does not reduce the number of costs and benefits to consider.
B)If the status quo is a feasible option, then all controllable costs and benefits are relevant.
C)When using the principle of controllability to identify the incremental costs and benefits relative to the status quo, calculate the value of each option, and choose the one with the lowest value.
D)Both A and C are incorrect.
E)A, B, and C are incorrect.

Accepted Answer

The answer of Which of the following statements relating to...

Question 3

When making decisions, a general rule would be:
A)Fixed costs are always relevant.
B)Variable (unit-level) costs are always irrelevant.
C)Future costs and revenues are always relevant.
D)Future costs and revenues which differ are always relevant.

Accepted Answer

Future costs and revenues which differ between alternatives are always relevant because they will impact the decision-making process. Fixed costs typically do not change with the decision and are therefore irrelevant, and variable costs can be relevant if they change with the decision.

Question 4

The Rich Company leases its copier on an annual basis.The lease fee is $1,600 per year plus $.01 per copy for any copies made over 750,000.If the company made 800,000 copies in 2008, its total cost was:
A)$1,600
B)$2,100
C)$2,400
D)$1,650

Accepted Answer

The total cost includes the annual lease fee of $1,600 plus the cost of the additional copies made over 750,000. The company made 800,000 - 750,000 = 50,000 additional copies. At $.01 per additional copy, the cost for these copies is 50,000 * $.01 = $500. Therefore, the total cost is $1,600 (annual lease fee) + $500 (additional copies) = $2,100.

Question 5

Which of the following is the best example of a long-term capacity cost for a trucking company?
A)Performing tune-ups on older trucks.
B)Installing a GPS unit in each truck to monitor efficient routes and fuel efficiency in order to serve more customers on a daily basis.
C)Changing the oil annually in each delivery truck.
D)Replacing torn seats in several of the trucks in which truckers have complained

Accepted Answer

Installing GPS units in each truck is a long-term capacity cost because it involves a significant investment in technology that will help the company make informed decisions about routes and fuel efficiency for years to come. Performing tune-ups, changing oil, and replacing torn seats are more routine maintenance costs that may need to be done periodically but do not represent a significant long-term investment in the company's capacity.

Question 6

Traceability is:
A)The degree to which we can directly relate a cost or benefit to a specific option.
B)How activities influence costs and benefits.
C)The result of performing activities.
D)The difference across decision options.
E)None of the above.

Accepted Answer

Traceability refers to the ability to directly relate a cost or benefit to a specific option. Option A correctly defines traceability. Option B refers to cost drivers, while Option C refers to outputs, and Option D refers to trade-offs. Option E is not a correct choice.

Question 7

Assume you are the owner of a video-rental store.Which of the following would be classified as a long-term decision?
A)Purchase of children's video inventory.
B)Purchase of cleaning supplies.
C)Deciding whether to purchase a new building.
D)Deciding whether to hire a new hourly employee for the summer.
E)None of the above is a long-term decision.

Accepted Answer

Deciding whether to purchase a new building is a long-term decision as it involves a significant investment and will have long-term implications for the business, such as potentially affecting the location and property values. Choosing to purchase inventory or cleaning supplies are short-term decisions that don't have a major long-lasting impact on the business. Deciding to hire a new hourly employee for the summer is also a short-term decision as it only affects the business for the duration of the summer.

Question 8

Variability deals with:
A)The degree to which we can directly relate a cost or benefit to a specific option.
B)How activities influence costs and benefits.
C)The result of performing activities.
D)The difference across decision options.
E)None of the above.

Accepted Answer

The answer of Variability deals with:
A)The degree to which we...

Question 9

Which of the following is a not a correct statement?
A)A decision maker's control over costs and benefits decrease as the time horizon increases.
B)A decision maker's control over costs increases as the time horizon increases.
C)A decision maker's control over benefits increases as the time horizon increases.
D)Both B and C are incorrect statements.

Accepted Answer

The answer of Which of the following is a not...

Question 10

Steve Johnson has decided to lease a vehicle as opposed to purchasing it.The lease agreement calls for a monthly payment of $400.Any mile driven above 1,000 per month will cost an additional $.10 per mile.If Steve drives 1,240 miles in the month of January his total cost will be:
A)$400
B)$640
C)$524
D)$424

Accepted Answer

Steve drove 240 miles over the 1,000-mile limit. At $.10 per extra mile, that's 240 miles * $.10 = $24. Adding this to the base lease payment of $400 gives a total of $424.

Question 11

Steve Johnson has decided to lease a vehicle as opposed to purchasing it.The lease agreement calls for a monthly payment of $400.Any mile driven above 1,000 per month will cost an additional $.10 per mile.Steve's lease cost in January can be considered to be:
A)Fixed.
B)Variable.
C)Mixed.
D)Both B and C

Accepted Answer

Steve's lease cost is considered mixed because it has a fixed component (the monthly payment of $400) and a variable component (the additional cost per mile for any mile driven above 1,000 per month).

Question 12

A decision maker's control over costs and benefits:
A)Decreases as the time horizon increases.
B)Increases as the time horizon increases.
C)Does not change regardless of the time horizon.
D)Changes in proportion to the volume capacity.
E)None of the above.

Accepted Answer

As the time horizon increases, decision makers have more opportunities to influence costs and benefits through strategic planning and adjustments.

Question 13

Which one of the following is the best example of a long-term decision for management of a manufacturing company?
A)Increasing the amount of caffeine in the company's soft drink products.
B)Eliminating excessive use of company supplies.
C)Building an assembly line for its energy drinks.
D)Removing manufacturing byproducts that are deemed hazardous for storage.

Accepted Answer

Building an assembly line for energy drinks is a long-term decision that involves substantial investment and planning. It requires careful consideration of production capacity, costs, and potential demand for the product. The other options, such as increasing caffeine, eliminating excessive use of supplies, or removing hazardous manufacturing byproducts, are operational decisions that are less strategic and can be implemented relatively quickly without significant long-term planning.

Question 14

Jason is going to play golf this afternoon and has to choose between two different golf courses.The greens fees to play each are both $18, the cart fees at each course is $9.One course, however, is located 20 miles further than the other.Therefore it would cost approximately an additional $4 in gas to play the course that is further away.Relevant costs total:
A)$18
B)$27
C)$9
D)$4

Accepted Answer

The relevant cost is the additional $4 in gas to play the course that is further away, as it is the only cost that differs between the two options.

Question 15

The owner of Mom & Pop's Hardware Store purchased a knife sharpener last year in order to allow the store to offer services in sharpening all types of blades.The cost of the equipment was $5,200 but Pop now feels that the store needs to generate additional revenue of $200 per month in order to have made the purchase worthwhile.With regard to making the decision of whether to continue to offer the service, the original cost of the sharpener can be considered:
A)Controllable.
B)Mixed.
C)Sunk.
D)Relevant.

Accepted Answer

The cost of the sharpener is considered a sunk cost since it has already been incurred and cannot be recovered. It is not relevant in the decision to continue offering the service, as the important factor is whether the additional revenue of $200 per month justifies the ongoing expenses and effort required to offer the service.

Question 16

It is important to keep the time horizon in mind when making decisions because:
A)Short term decisions are generally more costly than long term decisions.
B)We always want to identify choices quickly.
C)When making future decisions, costs incurred in the past must be considered.
D)The horizon affects whether a cost or benefit is controllable for the decision.
E)All of the above are important.

Accepted Answer

The time horizon is crucial in decision-making because it influences whether certain costs or benefits can be controlled or altered in the context of the decision at hand. Short-term decisions might not always be more costly than long-term ones, and not all decisions require quick identification. Additionally, in decision-making, sunk costs (costs incurred in the past) are typically considered irrelevant since they cannot be recovered or changed.

Question 17

A sunk cost is:
A)A cost that can be directly traced to a decision option.
B)A past expenditure that cannot be changed.
C)A cost that does not change as the volume of activity changes.
D)A controllable cost.
E)None of the above.

Accepted Answer

A sunk cost is a past cost that has already been incurred and cannot be recovered or changed. It is irrelevant to current and future decision making and should not be considered in making new decisions.

Question 18

Which of the following best represents a controllable cost for a manufacturing plant?
A)Reducing the number of pages in a product brochure.
B)Increasing the price of two of the best selling products.
C)Billing customers for delivery fuel surcharges.
D)Charging customers for additional production runs of a special ordered product.

Accepted Answer

Controllable costs are those that can be influenced or managed by a decision-maker. Reducing the number of pages in a product brochure is a decision that can be controlled by the manufacturing plant, as it involves managing the costs associated with marketing materials.

Question 19

Relevant benefits are:
A)The controllable benefits that differ across decision options.
B)Past expenditures that cannot be changed.
C)Benefits that do not change as the volume of activity changes.
D)Always created by variable costs.
E)None of the above.

Accepted Answer

Relevant benefits refer to controllable benefits that vary across different decision options. These benefits can be modified based on specific choices made by the decision maker. Option B, C, and D are not accurate definitions of relevant benefits.

Question 20

The Criders Company has 12,000 units of obsolete inventory.The units originally cost $6,000.The company can either sell them for scrap at $.20 per unit or they can invest $2,000 to be able to sell them at a price of $.60 per unit.With regard to this decision, relevant costs or benefits include:
A)$6,000 only.
B)$2,000 and $.20 per unit only.
C)$.20 per unit, $.60 per unit, and $2,000.
D)$2,000 and $6,000 only.

Accepted Answer

The relevant costs are the revenue generated from selling at $.60 per unit ($.60 x 12,000 = $7,200) and the cost to invest in order to sell at that price ($2,000). The revenue generated from selling for scrap ($.20 x 12,000 = $2,400) is also relevant. Therefore, choice C is the best answer as it includes all three relevant costs.

Quiz 2: Identifying and Estimating Costs and Benefits

Variable costs per unit are as follows: Raw materials $2.15 Direct labor $1.45 Fixed costs are $5,000 per month If the company produces 4,000 units in the month of March their total costs will be:

Which of the following statements relating to relevance and controllability is not correct?

When making decisions, a general rule would be:

The Rich Company leases its copier on an annual basis.The lease fee is $1,600 per year plus $.01 per copy for any copies made over 750,000.If the company made 800,000 copies in 2008, its total cost was:

Which of the following is the best example of a long-term capacity cost for a trucking company?

Traceability is:

Assume you are the owner of a video-rental store.Which of the following would be classified as a long-term decision?

Variability deals with:

Which of the following is a not a correct statement?

Steve Johnson has decided to lease a vehicle as opposed to purchasing it.The lease agreement calls for a monthly payment of $400.Any mile driven above 1,000 per month will cost an additional $.10 per mile.If Steve drives 1,240 miles in the month of January his total cost will be:

Steve Johnson has decided to lease a vehicle as opposed to purchasing it.The lease agreement calls for a monthly payment of $400.Any mile driven above 1,000 per month will cost an additional $.10 per mile.Steve's lease cost in January can be considered to be:

A decision maker's control over costs and benefits:

Which one of the following is the best example of a long-term decision for management of a manufacturing company?

It is important to keep the time horizon in mind when making decisions because:

A sunk cost is:

Which of the following best represents a controllable cost for a manufacturing plant?

Relevant benefits are:

The Criders Company has 12,000 units of obsolete inventory.The units originally cost $6,000.The company can either sell them for scrap at $.20 per unit or they can invest $2,000 to be able to sell them at a price of $.60 per unit.With regard to this decision, relevant costs or benefits include: