Quiz (Relevant - Costing) - MT - Cont [PDF]

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QUIZ – ACCTG 120A SHORT-TERM NON-ROUTINE DECISIONS ================================================================================== 5. A company’s approach to a make-or-buy decision a. depends on whether the company is operating at or below breakeven b. depends on whether the company is operating at or below normal volume c. involves an analysis of avoidable costs d. should use absorption (full) costing e. should use activity-based costing 6. Total unit costs are a. relevant for CVP analysis b. needed for determining sunk cost c. irrelevant in marginal analysis d. independent of the cost system used to generate them e. needed for determining product contribution 7. The term relevant cost applies to all the following decision situations except the a. acceptance of a special order b. manufacture or purchase of a component part c. determination of a product price d. replacement of equipment e. addition or deletion of a product line 8. Filipino Coat Company estimates that 60,000 special zippers will be used in the manufacture of men's jackets during the next year. Resse Zipper Company has quoted a price of P.60 per zipper. Filipino would prefer to purchase 5,000 units per month, but Reese is unable to guarantee this delivery schedule. In order to ensure availability of these zippers, Filipino is considering the purchase of all 60,000 units at the beginning of the year. Assuming Filipino can invest cash at 8%, the company's opportunity cost of purchasing that 60,000 units at the beginning of the year is a. P1,320 b. P1,440 c. P1,500 d. P16,500 9. Sunk costs a. are substitutes for opportunity costs b. in and of themselves are not relevant to decision making c. are relevant to decision making d. are relevant to long-run decisions but not to short-run decisions e. are fixed costs Questions 10 and 11 are based on the following information. Regis Company manufactures plugs used it ints manufacturing cycle at a cost of P36 per unit that includes P8 of fixed overhead. Regis needs 30,000 of these plugs annually, and Orlan Company has offered to sell these units to Regis at P33 per unit. If Regis decides to purchase the plugs, P60,000 of the annual fixed overhead applied will be eliminated, and the company may be able to rent the facility previously used for manufacturing the plugs.

c. save P2 per unit e. save P1 per unit

d. lose P3 per unit

11. If the plugs are purchased and the facility rented, Regis Company wishes to realize P100,000 in savings annually. To achieve this goal, the minimum annual rent on the facility must be a. P10,000 d. P190,000

b. P40,000 e. P280,000

c. P70,000

12. Laurel Corporation has its own cafeteria with the following annual costs: Food Labor Overhead

P100,000 P 75,000 P110,000

The overhead is 40% fixed. Of the fixed factory overhead, P25,000 is the salary of the cafeteria supervisor. The remainder of the fixed overhead has been allocated from total company overhead. Assuming the cafeteria supervisor will remain and that Laurel will continue to pay his/her salary, the maximum cost Laurel will be willing to pay an outside firm to service the cafeteria is a. P285,000 d. P266,000

b. P175,000 e. P241,000

c. P219,000

13. Norkis Motors, Inc. employs 45 sales personnel to market its line of luxury automobiles. The average car sells for P23,000, and a 6% commission is paid to the salesperson. Norkis is considering a change to a commission arrangement that would pay each salesperson a salary of P2,000 per month plus a commission of 2% of the sales made by that salesperson. The amount of total monthly car sales at which Norkis Motors would be indifferent as to which plan to select is a. P2,250,000 d. P1,250,000

b. P3,000,000 e. P4,500,000

c. P1,500,000

14. The opportunity cost of making a component part in a factory with no excess capacity is the a. variable manufacturing cost of the component b. fixed manufacturing cost of the component c. cost of the production given up in order to manufacture the component d. net benefit given up from the best alternative use of the capacity e. total manufacturing cost of the component. 15. ABC Realty manages five apartment complexes in a three-state area. Shown below are summary income statements for each apartment complex.

10. If Regis Company purchases the plugs but does not rent the unused facility, the company would a. save P3 per unit b. lose P6 per unit

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QUIZ – ACCTG 120A SHORT-TERM NON-ROUTINE DECISIONS ================================================================================== ABC Realty Summary Income Statements (in thousands) 1 2 Rental income P1,000 P1,210 Expenses 800 1,300 Profit P 200 P(90)

3 4 P2,347 P1,878 2,600 2,400 P (253) P (552)

5 P1,065 1,300 P (235)

Included in the expenses is P1,200,000 of corporate overhead allocated to the apartment complexes based on rental income. The apartment complex(es) that ABC should consider selling is (are) a. apartment complexes 2, 3, 4, and 5 b. apartment complexes 3, 4, and 5 c. apartment complexes 4 and 5 d. apartment complex 4 e. apartment complexes 2, 3 and 4 16. Power Systems, Inc. manufactures jet engines for the United States armed forces on a cost-plus basis. The cost of a particular jet engine the company manufactures is shown below. Direct materials Direct labor Overhead: Supervisor's salary Fringe benefits on direct labor Depreciation Rent Total cost

200,000 150,000 20,000 15,000 12,000 11,000 408,000

If production of this engine were discontinued, the production capacity would be idle, and the supervisor would be laid off. When asked to bid on the next contract for this engine, the minimum unit price that Power Systems should bid is a. P408,000 d. 385,000

b. 365,000 e. 350,000

c. 397,000

Questions 17-19 are based on the following information. Management accountants are frequently asked to analyze various decision situations, including the following: I.

The cost of a special device that is necessary if a special order is accepted II. The cost proposed annually for the plant service for the grounds at corporate headquarters III. Joint production costs incurred, to be considered in a sell-at-split versus a process further decision IV. The costs associated with alternative uses of plant space, to be considered in a make/buy decision V. The cost of obsolete inventory acquired several years ago, to be considered in a keep-versusdisposal decision

17. The costs described in situations I and IV a. prime costs b. sunk costs c. discretionary costs d. relevant costs e. imputed costs 18. The costs described in situations III and V are a. prime costs b. sunk costs c. discretionary costs d. relevant costs e. imputed costs 19. The cost described in situation II is a a. prime costs b. sunk costs c. discretionary costs d. relevant costs e. imputed costs Questions 19-20 are based on the following information. Condensed monthly operating income date for Korbin, Inc. for May 31, 2008 follow: Sales VC CM Direct FC Store segment margin Common FC Operating income

Urban 80,000 32,000 48,000 20,000 28,000 4,000 24,000

Suburban Total 120,000 200,000 84,000 116,000 36,000 84,000 40,000 60,000 (4,000) 24,000 6,000 10,000 (10,000) (14,000)

Additional information regarding Korbin's operations follows:   



¼ of each store's direct FC would continue if either store is closed Korbin allocates common FC to each store on the basis of sales dollars Management estimates that closing Suburban Store would result in a 10% decrease in Urban Store's sales, whereas closing Urban Store would not affect Suburban Store's sales The operating results for May 2008 are representative of all months

19. A decision by Korbin to close Suburban Store would result in a monthly increase (decrease) in Korbin's operating income of a. P(10,800) d. P4,000

b. P(6,000) e. P10,000

c. P(1,200)

20. Korbins is considering a promotional campaign at Suburban Store that would not affect Urban Store. Increasing annual promotional expense at Suburban Store by P60,000 in order to increase this store's sales by 10% would result in a monthly increase (decrease) in Korbin's operating income during 2009 (rounded) of

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QUIZ – ACCTG 120A SHORT-TERM NON-ROUTINE DECISIONS ================================================================================== a. P(5,000) b. P(1,400) c. P487 d. P7,000 e. P12,000 21. The Lantern Corporation has 1,000 obsolete lanterns that are carried in inventory at a manufacturing cost of P20,000. If the lanterns are reworked for P5,000, they could be sold for P9,000. Alternatively, the lanterns could be sold for scrap for P1,000. Which alternative is more desirable and what are the total relevant costs for that alternative? a. rework and P5,000. b. rework and P25,000. c. scrap and P20,000. d. scrap and P19,000. 22. Relay Corporation manufactures batons. Relay can manufacture 300,000 batons a year at a variable cost of P750,000 and a fixed cost of P450,000. Based on Relay's predictions for next year, 240,000 batons will be sold at the regular price of P5.00 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? a. P60,000 decrease. b. P30,000 increase. c. P36,000 increase. d. P180,000 increase. 23. Wagner Company sells product A for $21 per unit. Wagner's unit product cost based on the full capacity of 200,000 units is as follows: Direct materials P4 Direct labor 5 Manufacturing overhead 6 Unit product cost P15 A special order offering to buy 20,000 units has been received from a foreign distributor. The only selling costs that would be incurred on this order would be $3 per unit for shipping. Wagner has sufficient idle capacity to manufacture the additional units. Two-thirds of the manufacturing overhead is fixed and would not be affected by this order. Assume that direct labor is an avoidable cost in this decision. In negotiating a price for the special order, the minimum acceptable selling price per unit should be: a. P14. b. P15. c. P16. d. P18. 24. 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 P50,000 per year. Fixed expenses charged to the department are P65,000 per year. It is estimated that

P40,000 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: a. decrease by P25,000 per year. b. increase by P25,000 per year. c. decrease by P10,000 per year. d. increase by P10,000 per year. 25. The Cook Company has two divisions--Eastern and Western. The divisions have the following revenues and expenses: Sales Variable costs Direct fixed costs Allocated corporate costs Net income (loss)

Eastern Western P550,000 P500,000 275,000 200,000 80,000 150,000 170,000 135,000 (75,000) 15,000

The management of Cook is considering the elimination of the Eastern Division. If the Eastern Division were eliminated, the direct fixed costs associated with this division could be avoided. However, corporate costs would still be P305,000 in total. Given these data, the elimination of the Eastern Division would result in an overall company net income (loss) of: a. P15,000. b. (P155,000). c. (P75,000). d. (P60,000). 26. Manico Company produces three products -- X, Y, & Z -- with the following characteristics: Selling price per unit Variable cost per unit Contribution margin per unit Machine hours per unit ......

X P20 100% 12 60 P 8 40% 5 3

Y Z o P16 100% P15 100% 12 75 6 40 P 4 25% P 9 60% 6

The company has only 2,000 machine-hours available each month. If demand exceeds the company's capacity, in what sequence should orders be filled if the company wants to maximize its total contribution margin? a. orders for Z first, X second, and Y third. b. orders for X first, Z second, and Y third. c. orders for Y first, X second, and Z third. d. orders for Z first and no orders for X or Y. 27. Consider the following statements: I. A vertically integrated firm is more dependent on its suppliers than a firm that is not vertically integrated. II. Many firms feel they can control quality better by making their own parts. III. A vertically integrated firm realizes profits from the parts it is "making" instead of "buying" as well as profits from its regular operations.

Which of the above statements represent advantages to a firm that is vertically integrated? a. Only I b. Only III c. Only I and II d. Only II and III

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