Costs and Special Order

Topics: Costs, Variable cost, Management accounting Pages: 66 (21696 words) Published: August 27, 2013
Student: _______________________________________________________________________________________

1. A cost is not relevant if it: A. B. C. D. E. Does not differ for each option available to the decision maker. Changes from period to period. Is a future cost. Is a mixed cost. Is a fixed cost.

2. Variable costs will generally be relevant for decision making because they: A. B. C. D. E. Differ between options. Are volume-based. Have not been committed and differ between options. Differ between options and have been committed. Measure opportunity cost.

3. Fixed costs will often be irrelevant because they: A. B. C. D. Are fixed in amount. Are the same each time period. Typically do not differ between options. Are not committed.

4. A special order is: A. B. C. D. E. Typically expected. A profitable opportunity to sell a specified quantity of a firm's product or service. Typically unexpected. A particularly large customer order. A rush order.

5. Special orders: A. B. C. D. Are frequent. Are infrequent. Commonly represent a large part of a firm's overall business. Can never be profitable to a firm.

6. Committed, or "sunk" costs are generally: A. B. C. D. E. Not fixed. Small in amount. From bad decisions. Occurred in the past. Recoverable in trade.

7. All the following are characteristic of relevant costs except: A. B. C. D. E. They are generally variable. They are not committed. They are different in amount for different options. They are in the future. They are inventory costs.

8. The major problem with relevant cost determination is that it fails to recognize the: A. B. C. D. E. Impact of variable costs in the long run. Long-term nature of most product-related decisions. "Sunk" nature of most fixed product costs. Short-term nature of most product-related decisions. Need to calculate costs more precisely.

9. Depreciation is a relevant cost in a decision only in the context of: A. B. C. D. E. Time value of money. Amortized values. Reducing tax liability. Sunk cost. Financial accounting.

10. Operating at or near full capacity will require a firm considering a special order to recognize potentially the: A. B. C. D. E. Opportunity cost from lost sales. Value of full employment. Time value of money. Need for good management. Value of capacity resource management.

11. Done on a regular basis, relevant cost pricing in special order decisions can erode normal pricing policies and lead to: A. B. C. D. E. Overconfidence in decision-making. A loss in the firm's profitability. Conflicting goals between management and sales personnel. A cost leadership strategy. Maximization of resources.

12. The value chain analysis used in connection with the make or buy decision often leads a firm to make use of: A. B. C. D. E. Activity-based costing. Cost-volume profit analysis. Outsourcing activities. Relevant cost-based pricing. Process improvement.

13. The decision to keep or drop products or services involves strategic consideration of all the following except: A. B. C. D. E. Potential impact on remaining products or services. Impact on employee morale. Impact on organizational effectiveness. Growth potential of the firm. The current inventory of the product.

14. A useful device for solving production problems involving multiple products and limited resources is: A. B. C. D. E. Gross profit per unit of product. Contribution per unit of scarce resource. Net profit per unit of product. Relevant cost pricing. The contribution income statement.

15. One of the behavioral problems with relevant cost analysis is the overemphasis on: A. B. C. D. Short-term goals. Unit fixed costs. Opportunity costs. Long-term strategic goals.

16. When using relevant cost analysis, it is a common mistake for untrained managers to include in their analysis all the following except: A. B. C. D. Sunk costs. Allocated fixed costs. Average fixed costs. Unit variable costs.

17. Which one of the following is correct for...
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