1) Historical or past information can have an indirect bearing on a manager's decision because ________.
A) the past decision resulted in a favorable outcome
B) it can help predict the future
C) the past decision resulted in a bonus for the manager
D) the manager wants to repeat the past decisions made some of the time
2) Information is relevant in business decisions if it is a(n) ________.
A) expected future revenue or it differs among alternatives
B) expected future revenue and it differs among alternatives
C) past revenue and it differs among alternatives
D) expected future revenue that differs from past revenue
3) When evaluating short-term special order decisions, which of the following types of income statements should be used?
A) method used for external reporting
B) method that follows U.S. Generally Accepted Accounting Principles
C) absorption approach
D) contribution approach
4) In special order situations, unit costs are useful for predicting total ________. In special order situations, unit costs are not useful for predicting total ________.
A) mixed costs; step costs
B) step costs; mixed costs
C) variable costs; fixed costs
D) fixed costs; variable costs
5) Franklin Company uses activity-based costing, and normally produces 1,000,000 units per month. At this level of production, the costs per unit are as follows:
Direct materials used $14
Direct labor $6
Variable indirect production $1
Setup costs $3
For 1,000,000 units, 500 setups are required at a cost of $6,000 per setup. The company has received a special order for 100,000 units at $22 per unit. The company has excess capacity. The company estimates that 5 setups will be required for the special order. What is the cost of the special order?
A) $2,100,000
B) $2,130,000
C) $2,400,000
D) $2, 430,000
6) Oak Creek Company uses activity-based costing, and normally produces 1,000,000 units per month. At this level of production, the costs per unit are as follows:
Direct materials used $15
Direct labor $6
Variable indirect production $1
Setup costs $5
For 1,000,000 units, 500 setups are required at a cost of $10,000 per setup. The company has received a special order for 100,000 units at $22 per unit. The company has excess capacity. The company estimates that 5 setups will be required for the special order. Variable selling costs of $1 per unit will also be incurred for the special order. What is the cost of the special order?
A) $2,300,000
B) $2,350,000
C) $2,700,000
D) $2,800,000
7) Which of the following items is usually NOT important to special order decisions?
A) affect of special order on regular business
B) whether idle capacity is available
C) total fixed costs
D) increase in variable costs per unit due to special order
8) Missouri Company has a current production capacity level of 200,000 units per month. At this level of production, variable costs are $0.60 per unit and fixed costs are $0.50 per unit. Current monthly sales are 173,000 units. Gates Company has contacted Missouri Company about purchasing 20,000 units at $1.00 each. Current sales would not be affected by the special order and no additional fixed costs would be incurred on the special order. If the order is accepted, what is Missouri Company's change in profits?
A) $8,000 increase
B) $8,000 decrease
C) $10,000 increase
D) $10,000 decrease
9) Differential cost is the difference in ________ between two alternatives.
A) average cost
B) marginal cost
C) median cost
D) total cost
10) Differential revenue is the difference in ________ between two alternatives.
A) average revenue
B) marginal revenue
C) median revenue
D) total revenue
11) Incremental costs are the ________ generated by a proposed alternative.
A) additional revenues
B) additional revenues or reduced costs
C) reduced costs
D) additional costs or reduced revenues
12) Incremental benefits are the ________ generated by a proposed alternative.
A) reduced revenues
B) additional costs
C) additional profits
D) additional revenues or reduced costs
13) Johnston Company wants to double production of Product X from 1,000 units to 2,000 units. The variable manufacturing cost per unit is $10. The variable nonmanufacturing cost per unit is $20. There are no fixed costs. The selling price per unit is $50. What is the incremental cost of the proposed change?
A) $10,000
B) $20,000
C) $30,000
D) $60,000
14) Jeffrey Company wants to double production of Product X from 1,000 units to 2,000 units. The variable manufacturing cost per unit is $10. The variable nonmanufacturing cost per unit is $20. There are no fixed costs. The selling price per unit is $50. What is the incremental revenue of the proposed change?
A) $10,000
B) $20,000
C) $30,000
D) $50,000
15) Gonzalez Company produces a part that is used in the manufacture of one of its products. The annual costs associated with the production of 5,000 units of this part are as follows:
Direct materials $100,000
Direct labor 56,000
Variable factory overhead 72,000
Fixed factory overhead 168,000
Total costs $396,000
Of the fixed factory overhead costs, $72,000 are avoidable. Another company has offered to sell 5,000 units of the same part to Gonzalez for $70.00 per unit. The facilities currently used to make the part can be rented out to another manufacturer for $72,000 per year. What should Gonzalez Company do?
A) Make the part to save $22,000.
B) Make the part to save $50,000.
C) Buy the part and rent the facilities to save $22,000.
D) Buy the part and rent the facilities to save $72,000.
16) Central Industries has three product lines: A, B and C. The following information is available:
Product A Product B Product C
Sales $100,000 $90,000 $44,000
Variable costs 76,000 48,000 35,000
Contribution margin 24,000 42,000 9,000
Avoidable fixed costs 9,000 18,000 3,000
Unavoidable fixed costs 6,000 9,000 7,700
Operating income(loss) $9,000 $15,000 $(1,700)
Central Industries is thinking about dropping Product C because it is reporting a loss. Assume Central Industries drops Product C and does not replace it. What will happen to operating income?
A) increase by $600
B) increase by $2,400
C) decrease by $6,000
D) decrease by $9,000
17) A company can sell any mix of Product A and Product B at full capacity. The company has 100,000 hours of capacity. The demand for each product exceeds the capacity. It takes one hour to make one unit of Product A and two hours to make one unit of Product B. The following information is available:
Product A Product B
Units produced from capacity available 100,000 50,000
Contribution margin per unit $20 $30
If capacity is the limiting factor, which product should be produced?
A) 0 units of Product A and 50,000 units of Product B
B) 20,000 units of Product A and 30,000 units of Product B
C) 30,000 units of Product A and 20,000 units of Product B
D) 100,000 units of Product A and 0 units of Product B
18) Which of the following statements about budgets and budgeting is FALSE?
A) Budgets help coordinate financial and operational activities.
B) The vast majority of managers use budgeting as an effective cost management tool.
C) Budgeting is the process of formulating an organization's plans.
D) Managers do not use budgets for performance evaluation.
19) In practice, when developing a budget, two extremes used for guidance are ________ and ________.
A) participative budget; zero-base budget
B) strategic budget; long-range budget
C) financial planning budget; strategic budget
D) zero-base budget; activities of current or prior period
20) A major benefit of effective budgeting is that ________.
A) it compels managers to think ahead
B) it aids managers in communicating objectives to employees
C) it provides benchmarks to evaluate subsequent performance
D) all of the above
21) A(n) ________ starts with the assumption that current activities in a company will not automatically continue in the next period.
A) activity-based budget
B) strategic budget
C) master budget
D) zero-base budget
22) The most effective budget processes facilitate communication from top management to ________ and from lower level managers and employees to ________.
A) the SEC; the audit committee
B) stockholders; creditors
C) lower level managers and employees; top management
D) creditors; stockholders