Costs: Relevant, Differential, Avoidable

Pages: 5 (940 words) Published: June 27, 2013
1. The cost of a computer system installed last year is an example of: (Points: 2)         a sunk cost
        a relevant cost
        a differential cost
        an avoidable cost

2. In evaluating different alternatives, it is useful to concentrate on: (Points: 2)         variable costs
        fixed costs
        total costs
        relevant costs

3. Relevant costs in a make-or-buy decision of a part include: (Points: 2)         setup overhead costs for the manufacture of the product using the outsourced part         currently used manufacturing capacity that has alternative uses when part is outsourced         annual plant insurance costs that will remain the same         corporate office costs that will be allocated differently

4. The following information applies to Questions 7 and 8.

Jim's 5-year-old Geo Prizm requires repairs estimated at $3,000 to make it roadworthy again. His friend, Julie, suggested that he should buy a 5-year-old used Honda Civic instead for $3,000 cash. Julie estimated the following costs for the two cars:

Geo Prizm Honda Civic
Acquisition cost $15,000 $3,000
Repairs $ 3,000 ---
Annual operating costs
(Gas, maintenance, insurance)
$ 2,280 $2,100

The cost(s) NOT relevant for this decision is(are): (Points: 2)         the acquisition cost of the Geo Prizm
        the acquisition cost of the Honda Civic
        the repairs to the Geo Prizm
        the annual operating costs of the Honda Civic

5. Employee morale at Dos Santos, Inc., is very high. This type of information is known as: (Points: 2)         a qualitative factor
        a quantitative factor
        a differential factor
        an opportunity cost

6. Characteristics of a product layout include: (Points: 2)
        raw materials and purchased parts are delivered directly to the production line where they are needed         low-volume production
        a U-shaped layout
        small batches of unique products

The following information applies to Questions 14 and 15.

Skate Magic manufactures three different product lines, Model TS, Model AY, and Model GG. Considerable market demand exists for all models. The following per unit data apply:

Model TS Model AY Model GG
Selling price $100 $120 $140
Direct materials 12 12 12
Direct labor ($12 per hour) 24 24 48
Variable support costs ($4 per machine-hour) 8 16 16
Fixed support costs 20 20 20

Which model has the greatest contribution margin per unit? (Points: 2)         Model TS
        Model AY
        Model GG
        both Models TS and AY

Model TS100-12-24-8= 56
Model AY120-12-24-16=68*
Model GG140-12-48-16=64

8. Characteristics of just-in-time manufacturing include all of the following except: (Points: 2)         the ability to process items in large batches         making a product only when the customer requires it         no work-in-process inventories

        a problem anywhere can stop production

9. Costs that cannot be changed by any decision made now or in the future are: (Points: 2)         fixed costs
        indirect costs
        avoidable costs
        sunk costs

10. When deciding to lease a new cutting machine or continue using the old machine, the following costs are all relevant EXCEPT the: (Points: 2)         $50,000 cost of the old machine
        $20,000 cost of the new machine
        $10,000 selling price of the old machine
        $3,000 annual savings in operating costs if the new machine is purchased

11. Relevant costs of a make-or-buy decision include all EXCEPT: (Points: 2)         fixed salaries that will not be incurred if the part is outsourced         current direct material costs of the part

        special machinery for the part that has no resale value         material-handling costs that can be eliminated

12. Which of the following would NOT be considered in a make-or-buy decision? (Points: 2)         capacity-related costs that...
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