Question 1. A cost that will not be affected by later decisions is termed a(n) ________.
- historical cost
- differential cost
- sunk cost
- replacement cost
Question 2. Jones Co. can further process Product B to produce Product C. Product B is currently selling for $30 per pound and costs $28 per pound to produce. Product C would sell for $60 per pound and would require an additional cost of $24 per pound to produce. What is the differential cost of producing Product C?
- $30 per pound
- $24 per pound
- $28 per pound
- $60 per pound
Question 3. A business is considering a cash outlay of $500,000 for the purchase of land, which it could lease for $40,000 per year. If alternative investments are available which yield a 21% return, the opportunity cost of the purchase of the land is ________.
- $105,000
- $40,000
- $65,000
- $8,400
Question 4. Franklin and Johnson, CPAs, currently work a five-day week. They estimate that net income for the firm would increase by $45,000 annually if they worked an additional day each month. The cost associated with the decision to continue the practice of a five-day work week is an example of ________.
- differential revenue
- sunk cost
- differential income
- opportunity cost
Question 5. Carnival Corp. is considering selling its old popcorn machine and replacing it with a newer one. The old machine originally cost $5,000 and has been fully depreciated. Annual costs are $4,000. A high school is willing to buy it for $2,000. New equipment would cost $18,000 and annual operating costs would be $1,500. Both machines have an estimated useful life of 5 years.
- Stay with the old equipment $3,500 less in net costs
- Purchase the new equipment $3,500 cost savings
- Purchase the new equipment - deduction in costs $14,500
- Stay with the old equipment - cost savings of $2,000
Question 6. What cost concept used in applying the cost-plus approach to product pricing includes only total manufacturing costs in the "cost" amount to which the markup is added?
- Variable cost concept
- Total cost concept
- Product cost concept
- Opportunity cost concept