Question 1

The time and material approach pricing will result in attaining the company's desired profit only if forecasted billable activity is realized,holding all other things constant.

Accepted Answer

The time and material approach pricing depends on the forecasted billable activity to achieve the desired profit. If this forecasted activity is not realized, the company may not achieve the desired profit. Other factors can also affect the profitability, but holding all other things constant, the statement is true.

Question 2

Only the variable costs identified with a product are relevant in a decision concerning whether to eliminate the product or not.

Accepted Answer

Fixed costs can also be relevant if they are avoidable or directly attributable to the product in question. Decisions on eliminating a product should consider all costs that would change as a result of the decision.

Question 3

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.

Accepted Answer

This is because fixed costs are factored into the overall cost of producing a product, and if dropping the product means avoiding more in fixed costs than the contribution margin, then the firm will save money by not producing that product. The contribution margin is the amount remaining from sales revenue after variable costs have been deducted, and it represents the amount of revenue that can contribute to covering fixed costs and generating profit.

Question 4

One of the dangers of allocating common fixed costs to a product line is that such allocations can make the line appear less profitable than it really is.

Accepted Answer

Allocating common fixed costs to a product line can increase the cost of the product line, which can decrease its profitability on paper. However, this does not necessarily reflect the actual profitability of the product line, as it may generate additional revenue that offsets the increased cost.

Question 5

All other things equal,it is profitable to continue processing a joint product after the split-off point so long as the incremental revenue from further processing exceeds the incremental costs of further processing.

Accepted Answer

This is the basic principle of joint product costing. If the additional revenue generated from further processing is more than the incremental costs of that processing, it is profitable to continue processing the joint product after the split-off point. However, if the incremental costs are higher than the additional revenue, it is not profitable to continue processing.

Question 6

The markup over cost under the absorption costing approach would increase if the unit product cost increases,holding everything else constant.

Accepted Answer

The answer of  The markup over cost under the...

Question 7

Managers should pay little attention to bottleneck operations because they have limited capacity for producing output.

Accepted Answer

Managers should pay close attention to bottleneck operations because they have limited capacity for producing output and can significantly limit overall production. Identifying and addressing bottlenecks can improve efficiency and increase overall output.

Question 8

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.

Accepted Answer

Joint production costs are sunk costs by the time a decision is made about the products at the split-off point, and therefore, they are not relevant to decisions made after the split-off point.

Question 9

Two or more different products that are manufactured in the same production period are known as joint products.

Accepted Answer

The answer of Two or more different products that are...

Question 10

The book value of old equipment is NOT a relevant cost in an equipment replacement decision.

Accepted Answer

The book value of old equipment is a sunk cost, meaning it has already been incurred and cannot be recovered. In making an equipment replacement decision, only future costs and benefits should be considered.

Question 11

The cost of resources that has no alternative use in a make or buy decision has an opportunity cost of zero.

Accepted Answer

If a resource has no alternative use, its opportunity cost is zero as it has no other valuable use to forgo in choosing to use it for a particular make or buy decision. Therefore, the cost of such a resource does not factor into the decision-making process.

Question 12

The absorption costing approach to cost-plus pricing will result in attaining the company's required rate of return only if forecasted unit sales are realized,holding all other things constant.

Accepted Answer

Absorption costing includes all production costs, including fixed overhead costs, in the calculation of unit cost. Cost-plus pricing using absorption costing assumes that a profit margin is added to the full cost of producing a unit, including overhead costs allocated to that unit. Thus, for the company to achieve the required rate of return, forecasted unit sales must be realized to cover all costs and add the desired profit margin.

Question 13

A sunk cost is a cost that has already been incurred and cannot be avoided regardless of what action is chosen.

Accepted Answer

A sunk cost is a cost that has already been paid and cannot be recovered, so it will not change regardless of what action is chosen.

Question 14

Using the profitability index,it is easy to decide which product is less profitable and should be de-emphasized.

Accepted Answer

The profitability index measures the present value of future cash flows divided by the initial investment. It is a useful tool to evaluate investment projects and prioritize them based on their relative profitability. By comparing the profitability indices of different products or projects, we can identify which ones are more lucrative and should be prioritized, and which ones are less profitable and should be de-emphasized or abandoned. Therefore, the statement is true.

Question 15

An avoidable cost is a cost that can be eliminated (in whole or in part)by choosing one alternative over another.

Accepted Answer

Avoidable costs are costs that can be avoided by choosing one alternative over another. These costs can be eliminated by changing the decision or action taken. For example, if a company decides to produce a product in-house rather than outsourcing it, the cost of production in-house is an avoidable cost because the company could have avoided it by outsourcing.

Question 16

Future costs that do NOT differ among the alternatives are NOT relevant in a decision.

Accepted Answer

Future costs that do not differ among alternatives do not contribute to the decision-making process as they will not impact the choice between alternatives. Only costs that are relevant and different among alternatives should be considered when making a decision.

Question 17

Variable costs are always relevant costs.

Accepted Answer

The answer of Variable costs are always relevant costs....

Question 18

The markup over cost under the absorption costing approach would increase if the required rate of return increases,holding everything else constant.

Accepted Answer

The required rate of return is one of the components used to calculate the overhead rate in absorption costing. As the required rate of return increases, the overhead rate also increases, resulting in a higher markup over cost.

Question 19

If a company sells a product for less than its budgeted unit product cost under absorption costing,then the company will lose money.

Accepted Answer

Selling a product for less than its budgeted unit product cost under absorption costing does not necessarily mean the company will lose money, as the total cost includes fixed costs that are spread over all units. If the selling price covers the variable costs and contributes towards covering fixed costs, the company could still be profitable overall, especially if the reduced price leads to higher volume sales.

Question 20

Opportunity costs are recorded in the accounts of an organization.

Accepted Answer

Opportunity costs are not recorded in the accounts of an organization as they are non-financial costs associated with the next best alternative foregone. They are, however, considered in decision-making processes.

Quiz 12: Relevant Costs for Decision Making