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LEARNING OBJECTIVESpart3

This document contains 25 multiple choice questions about concepts related to managerial accounting and costing, including relevant costs, sunk costs, incremental costs, opportunity costs, and their application in decision making contexts like make-or-buy decisions and allocation of scarce resources. The questions cover identifying which costs are relevant versus irrelevant in different situations and which quantitative and qualitative factors should be considered for various decisions.

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56 views7 pages

LEARNING OBJECTIVESpart3

This document contains 25 multiple choice questions about concepts related to managerial accounting and costing, including relevant costs, sunk costs, incremental costs, opportunity costs, and their application in decision making contexts like make-or-buy decisions and allocation of scarce resources. The questions cover identifying which costs are relevant versus irrelevant in different situations and which quantitative and qualitative factors should be considered for various decisions.

Uploaded by

sere marc
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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11.

In linear programming, a __________________________ represents the overachievement of a minimum


requirement.

ANS: surplus variable

DIF: Moderate OBJ: 10-8

MULTIPLE CHOICE

1. Which of the following is not a characteristic of relevant costing information? It is


a. associated with the decision under consideration.
b. significant to the decision maker.
c. readily quantifiable.
d. related to a future endeavor.
ANS: C DIF: Easy OBJ: 10-1
2. A fixed cost is relevant if it is
a. a future cost.
b. Avoidable.
c. sunk.
d. a product cost.
ANS: B DIF: Easy OBJ: 10-1

3. Relevant costs are


a. all fixed and variable costs.
b. all costs that would be incurred within the relevant range of production.
c. past costs that are expected to be different in the future.
d. anticipated future costs that will differ among various alternatives.
ANS: D DIF: Easy OBJ: 10-1

4. Which of the following is the least likely to be a relevant item in deciding whether to replace an old
machine?
a. acquisition cost of the old machine
b. outlay to be made for the new machine
c. annual savings to be enjoyed on the new machine
d. life of the new machine
ANS: A DIF: Easy OBJ: 10-2

5. If a cost is irrelevant to a decision, the cost could not be


a. a sunk cost.
b. a future cost.
c. a variable cost.
d. an incremental cost.
ANS: D DIF: Easy OBJ: 10-2

6. Which of the following costs would be relevant in short-term decision making?


a. incremental fixed costs
b. all costs of inventory
c. total variable costs that are the same in the considered alternatives
d. the cost of a fixed asset that could be used in all the considered alternatives
ANS: A DIF: Easy OBJ: 10-2

7. The term incremental cost refers to


a. the profit foregone by selecting one choice instead of another.
b. the additional cost of producing or selling another product or service.
c. a cost that continues to be incurred in the absence of activity.
d. a cost common to all choices in question and not clearly or feasibly allocable to any of
them.
ANS: B DIF: Easy OBJ: 10-2
8. A cost is sunk if it
a. is not an incremental cost.
b. is unavoidable.
c. has already been incurred.
d. is irrelevant to the decision at hand.
ANS: C DIF: Easy OBJ: 10-2

9. Most___________ are relevant to decisions to acquire capacity, but not to short-run decisions involving
the use of that capacity.
a. sunk costs
b. incremental costs
c. fixed costs
d. prime costs
ANS: C DIF: Easy OBJ: 10-2

10. Irrelevant costs generally include

Sunk costs Historical costs Allocated costs

a. yes yes no
b. yes no no
c. no no yes
d. yes yes yes

ANS: D DIF: Easy OBJ: 10-2

11. In deciding whether an organization will keep an old machine or purchase a new machine, a manager
would ignore the
a. estimated disposal value of the old machine.
b. acquisition cost of the old machine.
c. operating costs of the new machine.
d. estimated disposal value of the new machine.
ANS: B DIF: Easy OBJ: 10-2

12. The potential rental value of space used for production activities
a. is a variable cost of production.
b. represents an opportunity cost of production.
c. is an unavoidable cost.
d. is a sunk cost of production.
ANS: B DIF: Easy OBJ: 10-3

13. The opportunity cost of making a component part in a factory with excess capacity for which there is no
alternative use is
a. the total manufacturing cost of the component.
b. the total variable cost of the component.
c. the fixed manufacturing cost of the component.
d. zero.
ANS: D DIF: Easy OBJ: 10-3
14. Which of the following are relevant in a make or buy decision?

Variable Avoidable fixed Unavoidable fixed


costs costs costs

a. no yes yes
b. yes no yes
c. no no yes
d. yes yes no

ANS: D DIF: Easy OBJ: 10-3

15. In a make or buy decision, the opportunity cost of capacity could


a. be considered to decrease the price of units purchased from suppliers.
b. be considered to decrease the cost of units manufactured by the company.
c. be considered to increase the price of units purchased from suppliers.
d. not be considered since opportunity costs are not part of the accounting records.
ANS: A DIF: Easy OBJ: 10-3

16. Which of the following are relevant in a make or buy decision?

Prime costs Sunk costs Incremental costs

a. yes yes yes


b. yes no yes
c. yes no no
d. no no yes

ANS: B DIF: Easy OBJ: 10-3

17. In a make or buy decision, the reliability of a potential supplier is


a. an irrelevant decision factor.
b. relevant information if it can be quantified.
c. an opportunity cost of continued production.
d. a qualitative decision factor.
ANS: D DIF: Easy OBJ: 10-3

18. Which of the following qualitative factors favors the buy choice in a make or buy decision for a part?
a. maintaining a long-term relationship with suppliers
b. quality control is critical
c. utilization of idle capacity
d. part is critical to product
ANS: A DIF: Easy OBJ: 10-3

19. When a scarce resource, such as space, exists in an organization, the criterion that should be used to
determine production is
a. contribution margin per unit.
b. selling price per unit.
c. contribution margin per unit of scarce resource.
d. total variable costs of production.
ANS: C DIF: Easy OBJ: 10-4

20. Fixed costs are ignored in allocating scarce resources because


a. they are sunk.
b. they are unaffected by the allocation of scarce resources.
c. there are no fixed costs associated with scarce resources.
d. fixed costs only apply to long-run decisions.
ANS: B DIF: Easy OBJ: 10-4

21. The minimum selling price that should be acceptable in a special order situation is equal to total
a. production cost.
b. variable production cost.
c. variable costs.
d. production cost plus a normal profit margin.
ANS: C DIF: Easy OBJ: 10-6

22. Which of the following costs is irrelevant in making a decision about a special order price if some of the
company facilities are currently idle?
a. direct labor
b. equipment depreciation
c. variable cost of utilities
d. opportunity cost of production
ANS: B DIF: Easy OBJ: 10-6

23. The _______________ prohibits companies from pricing products at different amounts unless these
differences reflect differences in the cost to manufacture, sell, or distribute the products.
a. Internal Revenue Service
b. Governmental Accounting Office
c. Sherman Antitrust Act
d. Robinson-Patman Act
ANS: D DIF: Easy OBJ: 10-6

24. An ad hoc sales discount is


a. an allowance for an inferior quality of marketed goods.
b. a discount that an ad hoc committee must decide on.
c. brought about by competitive pressures.
d. none of the above.
ANS: C DIF: Moderate OBJ: 10-6

25. A manager is attempting to determine whether a segment of the business should be eliminated. The focus
of attention for this decision should be on
a. the net income shown on the segment's income statement.
b. sales minus total expenses of the segment.
c. sales minus total direct expenses of the segment.
d. sales minus total variable expenses and avoidable fixed expenses of the segment.
ANS: D DIF: Easy OBJ: 10-7

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