Blocher 8e chapter 11 tb PDF

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Cost Management: A Strategic Emphasis, 8e (Blocher) Chapter 11 Decision Making with a Strategic Emphasis 1) A cost is not relevant for decision making if it: A) Does not differ for each option available to the decision maker. B) Changes from period to period. C) Is a future cost. D) Is a mixed cost. E) Is a fixed cost. 2) Variable costs will generally be relevant for decision making because they: A) Differ between decision options. B) Are volume-based. C) Have not been committed and are likely to differ between decision alternatives. D) Differ between decision options and have been committed. E) Measure opportunity cost. 3) Fixed costs will often be irrelevant for short-term decision making because they: A) Do not vary on a per-unit-of-output basis. B) Are the same each time period. C) Typically do not differ in total between decision alternatives being considered. D) Are not committed. E) Cannot be estimated with precision. 4) A "special sales order" within the context of Chapter 11 is: A) Typically expected. B) A profitable opportunity to sell a specified quantity of a firm's product or service. C) A one-time opportunity to sell a specified quantity of a product or service. D) A particularly large customer order. E) In most cases, a rush order. 5) "Special sales orders," as this term is used in Chapter 11: A) Generally arise from special marketing campaigns on the part of the seller. B) Typically come directly from the customer rather than through normal sales or distribution channels. C) Commonly represent a large part of a firm's overall business. D) Are usually not profitable to a firm in the short run. E) Do not involve long-term (that is, "normal") pricing considerations. 6) "Committed" and "Sunk" costs are: A) Generally not fixed. B) Generally small in amount. C) The result of prior bad decisions. D) Not relevant for decision-making. E) Recoverable in trade.

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7) All the following are characteristic of relevant costs except: A) They are generally variable. B) They are not committed. C) They are different in amount for different options. D) They are costs that will be incurred in the future. E) They are confined to inventory-related (i.e., product) costs. 8) The major problem with relevant cost determination is that it fails to recognize the: A) Impact of variable costs in the long run. B) Long-term nature of most product-related decisions. C) "Sunk" nature of most fixed product costs. D) Short-term nature of most product-related decisions. E) Need to calculate costs more precisely. 9) Depreciation expense is relevant in a decision only in the context of: A) Time value of money. B) Amortized values. C) Reducing the tax liability of the organization. D) Determining sunk costs associated with the decision problem. E) Regulatory reporting. 10) Operating at or near full capacity will require a firm considering a "special sales order" to potentially recognize the: A) Opportunity cost from lost sales. B) Value of full employment. C) Use of operating leverage. D) Likely increase in terms of the fixed cost associated with the order. E) The amount of facility-level cost drivers. 11) Done on a regular basis, relevant cost pricing in "special-order decisions" can erode normal pricing policies and lead to: A) Overconfidence in decision-making. B) A decrease in the firm's long-term profitability. C) Goal congruence between management and sales personnel. D) A cost leadership strategy. E) Maximization of the internal value stream. 12) The value-chain analysis used regarding the "make-or-buy decision" often leads a firm to make use of: A) Activity-based costing (ABC). B) Cost-volume profit (CVP) analysis. C) Outsourcing options. D) Relevant cost-based pricing. E) Value stream accounting.

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13) The decision to keep or drop products or services involves strategic consideration of all the following except: A) Potential impact of the decision on the demand for the remaining products or services. B) Potential impact of the decision on employee morale. C) Potential impact of the decision on pricing of other products offered by the firm. D) Growth potential of the firm. E) The desired inventory levels of the product. 14) A useful concept for solving production-planning problems involving multiple products and limited resources is: A) Gross profit per unit of product. B) Contribution per unit of scarce resource. C) Value-stream costing. D) Relevant cost pricing. E) The contribution income statement. 15) One of the behavioral problems with relevant cost analysis is a possible overemphasis on: A) Short-term goals. B) Unit fixed costs. C) Opportunity costs. D) Strategic goals. E) Goal congruency issues. 16) When using relevant cost analysis, it is a common mistake for untrained managers to include in their analysis all the following except: A) Sunk costs. B) Allocated fixed costs. C) Average fixed costs. D) Unit variable costs. E) Total fixed costs. 17) Which one of the following concepts is correct for determining relevant costs for short-term decision-making? A) Differential. B) Integrative. C) Variable. D) Subjective. E) Absorption. 18) Which one of the following is most descriptive of a strategic analysis conducted as part of a decision analysis? A) Quantitative. B) Customer focus. C) Short-term orientation. D) Individual product focus. E) Differential costing. 3 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

19) Which one of the following issues would least likely be addressed during the regular review of product profitability? A) Which product managers should be rewarded? B) Which products are most profitable? C) Which products provide the greatest contribution margin per unit of any scarce resources? D) Which products should be promoted and advertised most aggressively? E) Are the products priced properly? 20) Determination of the optimum short-term product mix should focus on: A) Fully absorbed costs. B) Production (that is, resource) and demand constraints. C) Sales-mix costs. D) Revenue forecasts for each of the firm's products or services. E) The relative sales values of the firm's outputs (goods or services). 21) Quirch Inc. manufactures machine parts for aircraft engines. The CEO, Chucky Valters, was considering an offer from a subcontractor that would provide 2,400 units of product PQ107 for Valters for a price of $150,000. If Quirch does not purchase these parts from the subcontractor it must produce them in-house with the following unit costs: Cost per Unit Direct materials Direct labor Variable overhead

$31 19 8

In addition to the above costs, if Quirch produces part PQ107, it would have a retooling and design cost of $9,800. The relevant costs of producing 2,400 units of product PQ107 internally are: A) $149,000. B) $129,800. C) $150,000. D) $164,200. E) $148,300. 22) A boat, costing $108,000 and uninsured, was wrecked the very first day it was used. This boat can either be disposed for $11,000 cash and be replaced with a similar boat costing $110,000, or rebuilt for $98,000 and be brand new as far as operating characteristics and looks are concerned. A relevant cost analysis of the decision to replace the boat shows: A) A cost equivalence between the two decision options. B) An $11,000 net advantage associated with the decision to fix the old boat. C) A $1,000 cost advantage associated with the decision to fix the old boat. D) A $21,000 cost advantage associated with the decision to fix the old boat. E) A $2,000 cost advantage associated with the decision to purchase a new boat.

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23) Walman Corp. manufactures products X, Y, and Z from a joint production process. Joint costs are allocated to products based on relative sales value of the products at the split-off point. Additional information is as follows:

Units produced Allocated joint costs Sales value at split-off Additional costs for further processing Sales value if processed further

X Y Z Total 14,000 10,000 6,000 30,000 $ 204,000 $ 90,000 $ 66,000 $ 360,000 ? 150,000 110,000 600,000 38,000

30,000

22,000

90,000

348,000

185,000

147,000

680,000

Product X's sales value at the split-off point is: A) $306,000. B) $135,000. C) $340,000. D) $150,000. E) $233,000. 24) Walman Corp. manufactures products X, Y, and Z from a joint production process. Joint costs are allocated to products based on relative sales values of the products at the split-off point. Additional information is as follows:

Units produced Allocated joint costs Sales value at split-off Additional costs for further processing Sales value if processed further

X Y Z Total 14,000 10,000 6,000 30,000 $ 204,000 $ 90,000 $ 66,000 $ 360,000 ? 150,000 110,000 600,000 38,000

30,000

22,000

90,000

348,000

185,000

147,000

680,000

Based solely on a relevant cost analysis, which of the three products should be processed by Walman beyond the split-off point? A) Only X B) Only Y C) Only Z D) Only Y and Z E) All three products: X, Y and Z 25) Joint (common) costs in a joint production process are relevant for determining: A) Whether to produce at all. B) Which products should be produced up to the split-off point in the production process. C) Which products should be produced internally and which products should be outsourced. D) The set of products that should be subjected to additional processing. E) The selling price of individual products produced as part of the joint production process. 5 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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26) In a joint production process, the allocation of joint (common) costs to each of the joint products being produced is needed principally: A) To meet external reporting requirements (i.e., for financial statement preparation purposes). B) To determine whether the firm in question should produce at all. C) To assess supplier performance. D) To determine which products, if any, should be processed beyond the split-off point. E) For determining the incremental revenues associated with additional processing of each product. 27) In a joint production process, joint product costs are: A) Those costs incurred after the split-off point. B) Allocated to outputs (products) to facilitate short-term decision making. C) Not relevant to the decision whether to produce at all. D) Those that are incurred before the split-off point. E) Relatively small compared to costs incurred after the split-off point. 28) Which of the following statements regarding a joint production process is not true? A) A common decision facing management is whether to sell products at the split-off point or to sell these products after further processing. B) The allocation of joint (common) production costs to individual products helps management determine which products should be processed beyond the split-off point. C) Costs incurred up to the split-off point are referred to as joint production costs. D) The decision as to whether individual products should be sold "as is" or processed further is made by comparing incremental revenues and incremental costs. E) For financial reporting purposes output (i.e., inventory) is costed at the sum of separable processing cost plus an allocated share of joint production costs. 29) In deciding whether to accept or reject a "special sales order," managers need critical information about all the following except: A) Relevant costs. B) Prior period operating costs. C) Any opportunity costs associated with accepting the order. D) The strategic, competitive environment of the firm. E) Alternative uses of existing capacity.

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30) Zap Video Inc. produces two basic types of video games, Clash and Slash. Pertinent data follow (DLH = direct labor hour):

Sales price (per unit) Costs (per unit): Direct materials Direct labor Variable factory overhead (@ $15 per DLH) Allocated fixed factory overhead (based on DLHs) Marketing expenses (all variable) Total costs Operating income (per unit)

Clash

Slash

$ 240

$ 168

67 36 60 24 35 222 $ 18

31 60 30 12 24 157 $ 11

There is insufficient labor capacity in the plant to meet the combined demand for both Clash and Slash. Both products are produced through the same production departments. The contribution margin per unit for Clash is: A) $53. B) $35. C) $47. D) $42. E) $23.

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31) Zap Video Inc. produces two basic types of video games, Clash and Slash. Pertinent data follow (DLH = direct labor hour):

Sales price (per unit) Costs (per unit): Direct materials Direct labor Variable factory overhead (@ $15 per DLH) Allocated fixed factory overhead (based on DLHs) Marketing expenses (all variable) Total costs Operating income (per unit)

Clash

Slash

$ 240

$ 168

67 36 60 24 35 222 $ 18

31 60 30 12 24 157 $ 11

There is insufficient labor capacity (i.e., DLHs) in the plant to meet the combined demand for both Clash and Slash. Both products are produced through the same production departments. In view of the labor shortage, which of the two products is most profitable, and how much is the contribution margin, per DLH? A) Slash, $23.00. B) Clash, $18.00. C) Slash, $11.50. D) Slash, $11.00. E) Clash, $10.50.

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32) The following cost information pertained to the Violin Division of Stringing Music Co. and was based on monthly demand and sales of 100 units: Per-Unit Costs Variable production costs: Direct materials Direct labor Variable factory overhead Fixed production costs: Depreciation (equipment) Factory rent Other Total production cost Variable selling & administrative costs Fixed selling & administrative costs

$ 120 150 60 20 48 12 $ 410 $ 24per unit $ 36per unit

Assume that the Violin Division was evaluating whether it would accept a special sales order for 10 violins at $390 per unit. For this purpose, total relevant cost per unit (given the costs stated above) is: A) $330. B) $342. C) $390. D) $366. E) $354. 33) The following cost information pertained to the Violin Division of Stringing Music Co. and was based on monthly demand and sales of 100 units: Per-Unit Costs Variable production costs: Direct materials Direct labor Variable factory overhead Fixed production costs: Depreciation (equipment) Factory rent Other Total production cost Variable selling & administrative costs Fixed selling & administrative costs

$ 120 150 60 20 48 12 $ 410 $ 24per unit $ 36per unit

Given a normal selling price per unit of $750, what is the contribution margin per unit sold for recurring (i.e., normal) sales? A) $336. B) $316. C) $276. D) $396. 10 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

E) $630. 34) In a "make-or-buy" decision: A) Only variable costs are relevant. B) Fixed costs that can be avoided in the future are relevant. C) Fixed costs that will continue regardless of the decision are relevant. D) Only opportunity costs are relevant. E) Opportunity costs are generally zero. 35) For the past 12 years, the Blue Company has produced the small electric motors that fit into its main product line of dental drilling equipment. As material costs have steadily increased, the controller of the company is reviewing the decision to continue to make the small motors and has identified the following facts: (1) The equipment used to manufacture the electric motors has a net book value (NBV) of $150,000. (2) The space now occupied by the electric motor manufacturing department could be used to eliminate the need for storage space now being rented by the company. (3) Comparable units can be purchased from an outside supplier for $59.75. (4) Four of those who work in the electric motor manufacturing department would be terminated and given eight weeks' severance pay. (5) A $10,000 unsecured note payable is still outstanding on the equipment used in the manufacturing process. Which of the items above are relevant to the controller's decision analysis (i.e., to make vs. buy the motors)? A) 1, 3, and 4. B) 2, 3, and 4. C) 2, 3, 4, and 5. D) 1, 2, 4, and 5. E) 4 and 5. 36) In deciding whether to manufacture a part or buy it from an outside vendor, a cost that is irrelevant to this short-run decision is: A) Direct labor. B) Variable overhead. C) Fixed overhead that will be avoided if the part is bought from an outside vendor. D) Fixed overhead that will continue even if the part is bought from an outside vendor. E) Transportation-in charges assessed on external purchases.

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37) Kingston Company, which needs 10,000 units of a certain part to be used in its production cycle, can make or buy the part. If Kingston buys the part from Utica Company, Kingston could not use the released facilities in another manufacturing activity within the coming year. 60% of the fixed overhead applied will continue regardless of which decision option is chosen. The following per-unit cost information to make the part by Kingston is available: Direct materials Direct labor Variable overhead Fixed overhead applied Cost to buy the part from Utica Company

$

6 24 12 15 $ 57 $ 53

In deciding whether to make or buy the part, Kingston's total relevant cost to make the part would be: A) $342,000. B) $480,000. C) $530,000. D) $570,000. E) Some amount other than these choices. 38) Which of the following statements regarding "opportunity costs" is true? A) These costs are recorded routinely by most modern cost accounting systems. B) These costs relate to the benefit lost or foregone when a chosen option (course of action) precludes the benefits of an alternative option from being realized. C) These costs are generally deductible for federal income tax purposes in the U.S. D) In terms of most short-run decisions, they are irrelevant. E) They are usually considered a sunk cost associated with one or more decision alternatives.

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39) The Blade Division of Dana Company produces hardened steel blades. Approximately onethird of the Blade Division's output is sold to the Lawn Products Division of Dana; the remainder is sold to outside customers. Blade Division's estimated sales and cost data for the year ending June 30th are as follows: Sales to Lawn Products Sales to Division Outsiders Revenu...