CHAPTER 11 QUIZ
1. Which of the following should not be considered for every option in the decision
process?
a. Relevant revenues
b. Relevant costs
c. Historical costs
d. Opportunity costs
2. What is always the question to ask to determine if revenues or costs are relevant?
a. What is the time frame for achieving results?
b. What difference will an action make?
c. Who will be responsible?
d. How much will it cost?
3. [CPA Adapted] Mikaelabelle Products sells product A at a selling price of $40 per unit.
Mikaelabelle’s cost per unit based on the full capacity of 500,000 units is as follows:
Direct materials $ 6
Direct labor 3
Indirect manufacturing (60% of which is fixed) 10
$19
A one-time-only special order offering to buy 50,000 units was received from an overseas
distributor. The only other costs that would be incurred on this order would be $4 per unit
for shipping. Mikaelabelle has sufficient existing capacity to manufacture the additional
units. In negotiating a price for the special order, Mikaelabelle should consider that the
minimum selling price per unit should be
a. $17
b. $19
c. $21
d. $23
4. The concept of outsourcing services to countries with lower labor costs is known as:
a. Opportunity cost
b. Offshoring
c. Insourcing
d. International outsourcing
5. [CMA Adapted] Troy Instruments uses ten units of Part Number S1798 each month in
the production of scientific equipment. The unit cost to manufacturing one unit of S1798 is
presented below.
Direct materials $ 4,000
Materials handling (10% of direct materials cost) 400
Direct manufacturing labor 6,000
Indirect manufacturing (200% of direct labor) 12,000
Total manufacturing cost $22,400
Materials handling represents the direct variable costs of the Receiving Department that
are applied to direct materials and purchased components on the basis of their cost. This is
a separate charge in addition to indirect manufacturing cost. Troy’s annual indirect
manufacturing cost budget is one-fourth variable and three-fourths fixed. Duncan Supply,
one of Troy’s reliable vendors, has offered to supply Part Number S1798 at a unit price of
$17,000.
If Troy purchases the S1798 units from Duncan, the capacity Troy used to manufacture
these parts would be idle. Should Troy decide to purchase the parts from Duncan, the unit
cost of S1798 would
a. decrease by $3,700.
b. decrease by $5,600.
c. increase by $3,600.
d. increase by $5,300.
6. Which of the following is not a correct use of the term opportunity cost?
a. Opportunity costs are considered period costs rather than inventoriable costs for
accounting purposes.
b. Opportunity costs must be considered by managers when making decisions.
c. Opportunity cost plus the incremental future revenues and costs equal the relevant
revenues and costs of any alternative when capacity is constrained.
d. The opportunity cost of holding inventory is the income forgone by tying up money in
inventory and not investing it elsewhere.
7. Nicholas, Inc. has provided the following unit data for review:
Simple Product Advanced Product
Selling price $22.75 $55.00
Variable cost 10.00 34.50
Pounds of scarce raw material per unit 3 5
Which product, Simple or Advanced, is most profitable for Nicholas, Inc. to manufacture?
a. Both in ratio of 3:5
b Both in ratio of 5:8
c. Simple
d. Advanced
8. RCG Services is investigating its profitability relationship with each of its customers.
What is the key question RCG should ask in deciding whether to keep or drop a particular
customer?
a. Will the customer meet a specific designated gross margin percentage?
b. Will the customer be willing to pay a higher price to insure RCG’s profitability?
c. Will enough customers be found to replace any customers dropped for lack of
profitability?
d. Will expected total corporate office costs decrease if decision is made to drop the
customer?
9. [CPA Adapted] On December 31, 2005, Brown Co. had a machine with an original cost
of $90,000, accumulated depreciation of $75,000, and an estimated salvage value of zero.
On December 31, 2005, Brown was considering the purchase of a new machine having a
five-year life, costing $150,000, and having an estimated salvage value of $30,000 at the
end of five years. In its decision concerning the possible purchase of the machine, how
much should Brown consider as sunk cost at December 31, 2005?
a. $150,000
b. $120,000
c. $90,000
d. $15,000
10. Which of the following is not a reason for the performance evaluation model to differ
from the decision model?
a. The use of different time frames: one being an annual basis, the other a period of several
years.
b. The accounting systems enable each decision to be tracked separately.
c. The accrual accounting method incorporates irrelevant costs.
d. Top management is rarely aware of particular desirable alternatives that were not chosen
by subordinate managers.
CHAPTER 11 QUIZ SOLUTIONS
