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Exam 13: Budgetary Control and Responsibility Accounting

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Question 51

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Which of the following is an irrelevant cost?

A) An avoidable cost
B) An incremental cost
C) A sunk cost
D) An opportunity cost

E) A) and D)
F) C) and D)

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Question 52

Multiple Choice

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If Clemente accepts the offer it could use the production capacity to produce another product that would generate additional income of $3600.The increase (decrease) in net income from accepting the offer would be

A) $150.
B) $7350.
C) $(150) .
D) $(3600) .

E) A) and B)
F) A) and C)

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Question 53

Multiple Choice

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The decision rule on whether to sell or process further

A company has three product lines one of which reflects the following results: $\begin{array} { l r } \text { Sales } & \$ 215,000 \\\text { Variable expenses } & 125,000 \\\text { Contribution margin } & 90,000 \\\text { Fixed expenses } & 130,000 \\\text { Net loss } & \$ ( 40,000 ) \end{array}$ If this product line is eliminated 60% of the fixed expenses can be eliminated and the other 40% will be allocated to other product lines.If management decides to eliminate this product line the company's net income will

The focus of a sell or process further decision is

The incremental profit (loss) from accepting the order would be

A factory is operating at less than 100% capacity.Potential additional business will not use up the remainder of the plant capacity.Given the following list of costs which one should be ignored in a decision to produce additional units of product?

Which of the following is not a qualitative factor to be considered in a make-or-buy decision?

In making decisions management ordinarily considers both financial and nonfinancial information.

A company should never accept an order for its product at less than its regular sales price.

What amount would be considered sunk costs?

It costs Garner Company $12 of variable and $5 of fixed costs to produce one bathroom scale which normally sells for $35.A foreign wholesaler offers to purchase 3000 scales at $15 each.Garner would incur special shipping costs of $1 per scale if the order were accepted.Garner has sufficient unused capacity to produce the 3000 scales.If the special order is accepted what will be the effect on net income?

Financial data are developed for a course of action under an incremental basis and then compared to data developed under a differential basis before a decision is made.

At what price were the updated versions sold?

An incremental make-or-buy decision depends solely on which alternative is the lowest cost alternative.

Corn Crunchers has three product lines.Its only unprofitable line is Corn Nuts the results of which appear below for 2022: $\begin{array} { l r } \text { Sales } & \$ 1,400,000 \\\text { Variable expenses } & 920,000 \\\text { Fixed expenses } & 600,000 \\\text { Net loss } & \$ ( 120,000 ) \end{array}$ If this product line is eliminated 30% of the fixed expenses can be eliminated.How much are the relevant costs in the decision to eliminate this product line?

Saran Company has contacted Truckel with an offer to sell it 5000 of the wickets for $18 each.If Truckel makes the wickets variable costs are $16 per unit.Fixed costs are $8 per unit; however $5 per unit is unavoidable.Should Truckel make or buy the wickets?

Tex's Manufacturing Company can make 100 units of a necessary component part with the following costs: $\begin{array} { l r } \text { Direct Materials } & \$ 120,000 \\\text { Direct Labor } & 25,000 \\\text { Variable Overhead } & 45,000 \\\text { Fixed Overhead } & 30,000\end{array}$ If Tex's Manufacturing Company purchases the component externally $20000 of the fixed costs can be avoided.At what external price for the 100 units is the company indifferent between making or buying?

The fixed overhead is an allocated common cost.How much is the relevant cost of the wicket?

When deciding whether or not to replace old equipment with new equipment the overriding consideration is the