l>ACCT-202 Principles of Managerial Accounting - Practice Exam - Chapter 13
ACCT 202 Principles of Managerial AccountingPractice Exam - Chapter 13Relevant Costs for Decision MakingDr. Fred Barbee
Select your answer by clicking on the button next to each alternative. You willreceive immediate feedback. 1. The opportunity cost ofmaking a component part in a factory with no excess capacity is the: a.Variable manufacturing cost of the component.b.Fixed manufacturing cost of the component.c.Total manufacturing cost of the component.d.Net benefit foregone from the best alternative use of the capacity required. 2. Manor Company plans to discontinue a department that has a contribution margin of $24,000 and $48,000 in fixed costs. Of the fixed costs, $21,000 cannot be eliminated. The effect of this discontinuance on Manors net income would be a(an): a.Decrease of $3,000.b.Increase of $3,000.c.Decrease of $24,000.d.Increase of $24,000.Use the following information to answer questions 3 and 4:Meacham Company has traditionally made a subcomponent of its major product. Annual production of 20,000 subcomponents result in the following costs:
Direct Materials

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Meacham has received an offer from an outside supplier who is willing to provide 20,000 units of this subcomponent each year at a price of $28 per subcomponent. Meacham knows that the facilities now being used to make the subcomponent would be rented to another company for $75,000 per year if the subcomponent were purchased from the outside supplier. Otherwise, the fixed overhead would be unaffected. 3. If Meacham decides to purchase the subcomponent from the outside supplier, how much higher or lower will operating income be than if Meacham continued to make the subcomponent? a.$45,000 higher.b.$70,000 higher. c.$30,000 lower.d.$70,000 lower. 4. Suppose the price for the subcomponent has not been set. At what price per unit charged by the outside supplier would Mecham be economically indifferent between making the subcomponent or buying it from the outside? a.$30.25.b.$29.25.c.$26.50.d.$31.50.Use the following information to answer questions 5 and 6:The Tingey Company has 500 obsolete microcomputers that are carried in inventory at a total cost of $720,000. If these microcomputers are upgraded at a total cost of $100,000, they can be sold for a total of $160,000. As an alternative, the microcomputers can be sold in their present condition for $50,000. 5. The sunk cost in this situation is: a.$720,000.b.$160,000.c.$50,000.d.$100,000. 6. What is the advantage or disadvantage to the company from upgrading the computers rather than selling them in their present condition? a.$110,000 advantageb.$660,000 disadvantage.c.$10,000 advantage.d.$60,000 advantage.Use the following information to answer question 7:Ahrends Company makes 70,000 units per year of a part it uses in the products it manufactures. The unit product cost of this part is computed as follows:
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An outside supplier has offered to sell the company all of these parts it needs for $48.50 per unit. If the company accepts this offer, the facilities now being used to make the part could be used to make more units of a product that is in high demand. The additional contribution margin on this other product would be $273,000 per year.If the part were purchased from the outside supplier, all of the direct labor cost of the part would be avoided. However, $8.20 of the fixed manufacturing overhead cost being applied to the part would continue even if the part were purchased from the outside supplier. This fixed manufacturing overhead cost would be applied to the company"s remaining products. 7. How much of the unit product cost of $54.90 is relevant in the decision of whether to make or buy the part? a.$37.80b.$46.70c.$54.90d.$19.00 8. When there is a production constraint, the company should emphasize the products with: a.The highest unit contribution margin..b.The highest contribution margin ratios.c.The highest contribution margin per unit of the constrained resource.d.The highest contribution margins and contribution margin ratios. 9.

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A general rule in relevant cost analysis is: a.Variable costs are always relevant.b.Fixed costs are always irrelevant.c.Differential future costs and revenues are always relevant.d.Depreciation is always irrelevant.Use the following information to answer question 10:Gary Company p