Chapter 8- Multiple Choice

Which of the following best describes a "sunk cost"?

Costs that were incurred in the past and cannot be changed

An "opportunity cost" is best described by which of the following?

Benefits foregone by choosing a particular alternative course of action

A "relevant cost" is best described by which of the following?

Expected future costs that differ among alternatives

"Contribution margin per unit" is best described by which of the following?

Sales price per unit minus variable cost unit

Expected future data that differs among alternative courses of action are referred to as

relevant information.

Which of the following is irrelevant when making a decision?

The cost of an asset that the company is considering replacing

Fixed costs that do not differ between two alternatives are

irrelevant to the decision.

Which of the following is a sunk cost?

Purchase price of vehicle to be traded in

Fixed costs that may be avoided in the future are referred to as

relevant costs.

A sunk cost is described as which of the following?

A historical cost that is always irrelevant

The effect of a plant closing on employee morale is an example of which of the following?

A qualitative factor

The format of the income statement most useful in decision-making is which of the following?

Contribution margin format

All of the following are relevant to the decision to replace equipment except the

cost of old equipment.

Which of the following is most important in making a short-term special decision?

Separate variable from fixed costs

Managers should consider ________ when making any sort of decision.

revenues that differ among alternatives

In a special sales order decision, the special price must exceed the variable cost of filling the order. In other words, the special order must have _______

a positive contribution margin

In a special sales order decision, incremental fixed costs that will be incurred if the special order is accepted are considered to be

relevant to the decision.

Managers should consider all of the following when deciding whether to accept a special order, except

fixed costs that will not be affected by the order.

A manager should always reject a special order if

the special order price is less than the variable costs of the order.

Which would be a consideration for making special orders?

A) Available capacity to fill the order B) If price will cover incremental costs of filling the order C) If the order will affect regular sales in the long run D) All of the above Answer: D

A company should ________ when making a short-term special decision.

separate variable costs from fixed costs

Which of the following best describes "target costing"?

An approach to pricing that begins with revenue at market price and subtracts desired profit to arrive at target total cost

"Total cost of product or service" is best described as which of the following?

All costs incurred along the value chain in connection with the product or service

Which of the following describes the products and services of companies that are price-setters?

They tend to be unique.

Stockholders' expectations of company profits are affected by which of the following?

A) Industry risk B) Historical company earnings C) General economic conditions D) All of the above Answer: D

The cost-plus price is described by which of the following?

Total cost plus desired profit

Target total cost is described by which of the following?

Revenue at market price minus desired profit

Managers must consider which of the following when pricing a product or service?

All costs

Which of the following pairs are characteristics of price-takers?

Target costing and heavy competition

Which of the following pairs are characteristics of price-setters?

Cost-plus pricing and less competition

Big-box retailers such as Lowe's are considered price-takers because

their products are not unique.

Target total cost is defined as

revenue at market price less desired profit.

Methods for a company to meet target total cost and the profit goals if the current cost of the product is higher than the target cost include which of the following?

A) Accept a lower profit B) Cut fixed costs, cut variable costs C) Cut fixed costs D) Any of the above Answer: D

In pricing a product, managers should consider which of the following?

A) Only fixed costs B) Only variable costs C) Only period costs D) None of the above Answer: D

All of the following factors affect the amount a customer is willing to pay for a product, except

the selling company's costs

Unavoidable fixed costs are

irrelevant to the decision of whether to discontinue a product line because they will not differ between alternatives.

Common fixed costs that are allocated between departments are generally

irrelevant to the decision of whether to discontinue the department

Fixed costs that are allocated among all departments are known as

common fixed costs

A company's manager would consider which of the following in deciding whether to discontinue its electronics product line?

A) The costs it could save by discontinuing the product line B) The revenues it would lose from discontinuing the product line C) How discontinuing the electronics product line would affect sales of its other products (like CDs) D) All of the above Answer: D

All of the following are considerations for discontinuing a product or product line, except

not having any free capacity

A drug store decides to discontinue its health and beauty section of products because it has been unprofitable. This strategy could backfire because

the store's sales may suffer by not having this convenience category of products.

Fixed costs that continue to exist even after a product line is discontinued are called

unavoidable fixed costs

Each month, Burrel Incorporated produces 500 units of a product that has unit variable costs of $17.00. Total fixed costs for the month are $4,375. A special sales order is received for 200 units of the product at a price of $20 per unit. In deciding to accept or reject the special sales order, it is appropriate to consider the

difference between the offered price and the variable cost per unit.

All of the following are product mix considerations except

Which product has the most sunk costs?

The contribution margin per unit of constraint is calculated as

contribution margin per unit × units per constraint.

Companies with production constraints and irrelevant fixed costs will be most profitable when they maximize production of the product with the highest

contribution margin per unit of the constraint.

The factor that restricts production or sale of a product is which of the following?

Constraint

A "constraint" is best described by which of the following?

A factor that restricts production or sales of a product

A "sales mix" is best described by which of the following?

The relative number of all products to be sold

Which of the following could be a constraint for selling a product?

A) Store hours B) Available labor hours for employees C) Shelf space D) All of the above could be constraints. Answer: D

All of the following would be considered in evaluating product or sales mix allocations, except

deciding which product offers the lowest contribution margin per unit.

Changing the product mix emphasis in the short run will usually not affect

total fixed costs

In deciding whether to outsource, managers must consider

relevant fixed and variable components

Outsourcing decisions are sometimes referred to as

make-or-buy decisions

All of the following are outsourcing considerations, except

How do our fixed costs compare to the outsourcing cost?

If a company decides to outsource and then has freed capacity, the decision on what to do with that freed capacity would be based upon

Opportunity costs

Managers should consider which of the following when deciding whether to outsource a product or service?

A) Quality of the product or service B) Delivery schedule of the product or service C) Cost charged for the product or service D) All of the above Answer: D

When the extra revenue from processing further is less than the extra cost of processing further, the best decision would be to

not process further

The benefit foregone by choosing a particular alternative course of action is referred to as a(n)

opportunity cost

In making the decision whether to sell a product as is or process the product further, the expected income from selling the product as is may be defined as which of the following?

The opportunity cost of processing the product further

In a sell or process further decision, the company should process further if

the extra cost of processing further is less than the extra revenue.

Which of the following would be a consideration for "sell as is or process further" decisions?

A) Revenue generated if sold "as is" B) Revenue generated if "further processed" C) Costs involved in further processing D) All of the above Answer: D

Chapter 8- Multiple Choice - Subjecto.com

Chapter 8- Multiple Choice

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Which of the following best describes a "sunk cost"?

Costs that were incurred in the past and cannot be changed

An "opportunity cost" is best described by which of the following?

Benefits foregone by choosing a particular alternative course of action

A "relevant cost" is best described by which of the following?

Expected future costs that differ among alternatives

"Contribution margin per unit" is best described by which of the following?

Sales price per unit minus variable cost unit

Expected future data that differs among alternative courses of action are referred to as

relevant information.

Which of the following is irrelevant when making a decision?

The cost of an asset that the company is considering replacing

Fixed costs that do not differ between two alternatives are

irrelevant to the decision.

Which of the following is a sunk cost?

Purchase price of vehicle to be traded in

Fixed costs that may be avoided in the future are referred to as

relevant costs.

A sunk cost is described as which of the following?

A historical cost that is always irrelevant

The effect of a plant closing on employee morale is an example of which of the following?

A qualitative factor

The format of the income statement most useful in decision-making is which of the following?

Contribution margin format

All of the following are relevant to the decision to replace equipment except the

cost of old equipment.

Which of the following is most important in making a short-term special decision?

Separate variable from fixed costs

Managers should consider ________ when making any sort of decision.

revenues that differ among alternatives

In a special sales order decision, the special price must exceed the variable cost of filling the order. In other words, the special order must have _______

a positive contribution margin

In a special sales order decision, incremental fixed costs that will be incurred if the special order is accepted are considered to be

relevant to the decision.

Managers should consider all of the following when deciding whether to accept a special order, except

fixed costs that will not be affected by the order.

A manager should always reject a special order if

the special order price is less than the variable costs of the order.

Which would be a consideration for making special orders?

A) Available capacity to fill the order B) If price will cover incremental costs of filling the order C) If the order will affect regular sales in the long run D) All of the above Answer: D

A company should ________ when making a short-term special decision.

separate variable costs from fixed costs

Which of the following best describes "target costing"?

An approach to pricing that begins with revenue at market price and subtracts desired profit to arrive at target total cost

"Total cost of product or service" is best described as which of the following?

All costs incurred along the value chain in connection with the product or service

Which of the following describes the products and services of companies that are price-setters?

They tend to be unique.

Stockholders’ expectations of company profits are affected by which of the following?

A) Industry risk B) Historical company earnings C) General economic conditions D) All of the above Answer: D

The cost-plus price is described by which of the following?

Total cost plus desired profit

Target total cost is described by which of the following?

Revenue at market price minus desired profit

Managers must consider which of the following when pricing a product or service?

All costs

Which of the following pairs are characteristics of price-takers?

Target costing and heavy competition

Which of the following pairs are characteristics of price-setters?

Cost-plus pricing and less competition

Big-box retailers such as Lowe’s are considered price-takers because

their products are not unique.

Target total cost is defined as

revenue at market price less desired profit.

Methods for a company to meet target total cost and the profit goals if the current cost of the product is higher than the target cost include which of the following?

A) Accept a lower profit B) Cut fixed costs, cut variable costs C) Cut fixed costs D) Any of the above Answer: D

In pricing a product, managers should consider which of the following?

A) Only fixed costs B) Only variable costs C) Only period costs D) None of the above Answer: D

All of the following factors affect the amount a customer is willing to pay for a product, except

the selling company’s costs

Unavoidable fixed costs are

irrelevant to the decision of whether to discontinue a product line because they will not differ between alternatives.

Common fixed costs that are allocated between departments are generally

irrelevant to the decision of whether to discontinue the department

Fixed costs that are allocated among all departments are known as

common fixed costs

A company’s manager would consider which of the following in deciding whether to discontinue its electronics product line?

A) The costs it could save by discontinuing the product line B) The revenues it would lose from discontinuing the product line C) How discontinuing the electronics product line would affect sales of its other products (like CDs) D) All of the above Answer: D

All of the following are considerations for discontinuing a product or product line, except

not having any free capacity

A drug store decides to discontinue its health and beauty section of products because it has been unprofitable. This strategy could backfire because

the store’s sales may suffer by not having this convenience category of products.

Fixed costs that continue to exist even after a product line is discontinued are called

unavoidable fixed costs

Each month, Burrel Incorporated produces 500 units of a product that has unit variable costs of $17.00. Total fixed costs for the month are $4,375. A special sales order is received for 200 units of the product at a price of $20 per unit. In deciding to accept or reject the special sales order, it is appropriate to consider the

difference between the offered price and the variable cost per unit.

All of the following are product mix considerations except

Which product has the most sunk costs?

The contribution margin per unit of constraint is calculated as

contribution margin per unit × units per constraint.

Companies with production constraints and irrelevant fixed costs will be most profitable when they maximize production of the product with the highest

contribution margin per unit of the constraint.

The factor that restricts production or sale of a product is which of the following?

Constraint

A "constraint" is best described by which of the following?

A factor that restricts production or sales of a product

A "sales mix" is best described by which of the following?

The relative number of all products to be sold

Which of the following could be a constraint for selling a product?

A) Store hours B) Available labor hours for employees C) Shelf space D) All of the above could be constraints. Answer: D

All of the following would be considered in evaluating product or sales mix allocations, except

deciding which product offers the lowest contribution margin per unit.

Changing the product mix emphasis in the short run will usually not affect

total fixed costs

In deciding whether to outsource, managers must consider

relevant fixed and variable components

Outsourcing decisions are sometimes referred to as

make-or-buy decisions

All of the following are outsourcing considerations, except

How do our fixed costs compare to the outsourcing cost?

If a company decides to outsource and then has freed capacity, the decision on what to do with that freed capacity would be based upon

Opportunity costs

Managers should consider which of the following when deciding whether to outsource a product or service?

A) Quality of the product or service B) Delivery schedule of the product or service C) Cost charged for the product or service D) All of the above Answer: D

When the extra revenue from processing further is less than the extra cost of processing further, the best decision would be to

not process further

The benefit foregone by choosing a particular alternative course of action is referred to as a(n)

opportunity cost

In making the decision whether to sell a product as is or process the product further, the expected income from selling the product as is may be defined as which of the following?

The opportunity cost of processing the product further

In a sell or process further decision, the company should process further if

the extra cost of processing further is less than the extra revenue.

Which of the following would be a consideration for "sell as is or process further" decisions?

A) Revenue generated if sold "as is" B) Revenue generated if "further processed" C) Costs involved in further processing D) All of the above Answer: D

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