Q1. Which of the following will never be a relevant cost?
Opportunity cost
Sunk cost
Variable cost
Fixed cost
Q2. Alvarez Company is considering the following alternatives:
Alternative A Alternative B
Revenues $50,000 $60,000
Variable costs 30,000 30,000
Fixed costs 10,000 16,000
What is the incremental profit?
$10,000
$0
$6,000
$4,000
Q3. All of the following are ordinarily considered relevant costs in a make-or-buy decision except
variable costs.
purchase price.
opportunity costs.
fixed costs.
Q4. Wishnell Toys can make 1,000 toy robots with the following costs:
Direct Materials $70,000
Direct Labor 26,000
Variable Overhead 15,000
Fixed Overhead 15,000
The company can purchase the 1,000 robots externally for $120,000. The avoidable fixed costs are $5,000 if the units are purchased externally. What is the cost savings if the company makes the robots? (Points: 2)
$1,000
$5,000
$10,000
$4,000
Q5. Which one of the following is not a disadvantage of buying rather than making a component of a company's product?
Quality control specifications may not be met.
The outside supplier could increase prices significantly in the future.
Profitable product lines may be dropped.
The supplier may not deliver on time.
Q6. The costs incurred prior to the split-off point are referred to as
separable costs.
split-off costs.
joint product costs.
joint costs.
Q7. In an equipment replacement decision, the cost of the old equipment is a(n)
incremental cost.
sunk cost.
relevant cost.
opportunity cost.
Q8. North Division has the following information:
Sales $900,000
Variable expenses 480,000
Fixed expenses 465,000
If this division is eliminated, the fixed expenses will be allocated to the company's other divisions. What is the incremental effect on net income if the division is dropped?
$45,000 increase
$465,000 decrease
$420,000 decrease
$435,000 increase
Q9. A product line should be eliminated whenever
the product line generates a net loss.
the unavoidable fixed costs exceed the product line's contribution margin.
the product line generates a negative contribution margin.
the avoidable costs are less than the product line's contribution margin.
Q10. When will the elimination of a product line have no effect on the company's overall profit?
When the avoidable fixed costs equal the product line's contribution margin
When the unavoidable fixed costs equal the product line's contribution margin
When there are no fixed costs incurred by the product line
When the product line contribution margin is negative