LO 10.1Which type of incurred costs are not relevant in decision-making (i.e., they have no bearing on future events) and should be excluded in decision-making?
- avoidable costs
- unavoidable costs
- sunk costs
- differential costs
LO 10.1The managerial decision-making process has which of the following as its third step?
- Review, analyze and evaluate the results of the decision.
- Decide, based upon the analysis, the best course of action.
- Identify alternative courses of action to achieve a goal or solve a problem.
- Perform a comprehensive differential (differential) analysis of potential solutions.
LO 10.1Which of the following is not one of the five steps in the decision-making process?
- identify alternatives
- review, analyze, and evaluate decision
- decide best action
- consult with CFO concerning variable costs
LO 10.2Jansen Crafters has the capacity to produce 50,000 oak shelves per year and is currently selling 44,000 shelves for $32 each. Cutrate Furniture approached Jansen about buying 1,200 shelves for bookcases it is building and is willing to pay $26 for each shelf. No packaging will be required for the bulk order. Jansen usually packages shelves for Home Depot at a price of $1.50 per shelf. The $1.50 per-shelf cost is included in the unit variable cost of $27, with annual fixed costs of $320,000. However, the $1.50 packaging cost will not apply in this case. The fixed costs will be unaffected by the special order and the company has the capacity to accept the order. Based on this information, what would be the profit if Jansen accepts the special order?
- Profits will decrease by $1,200.
- Profits will increase by $31,200.
- Profits will increase by $600.
- Profits will increase by $7,200.
LO 10.3Which of the following is a disadvantage of outsourcing?
- freeing up capacity
- freeing up capital
- transferring production and technology risks
- limiting ability to upsize or downsize production
LO 10.4Which of the following is one of the two approaches used to analyze data in the decision to keep or discontinue a segment?
- comparing contribution margins and fixed costs
- comparing contribution margins and variable costs
- comparing gross margin and variable costs
- comparing total contribution margin under each alternative
LO 10.4When should a segment be dropped?
- only when the decrease in total contribution margin is less than the decrease in fixed cost
- only when the decrease in total contribution margin is equal to fixed cost
- only when the increase in total contribution margin is more than the decrease in fixed cost
- only when the decrease in total contribution margin is less than the decrease in variable cost
LO 10.4Youngstown Construction plans to discontinue its roofing segment. Last year, this segment generated a contribution margin of $65,000 and incurred $70,000 in fixed costs. Discontinuing the segment will allow the company to avoid half of the fixed costs. What effect is expected to occur to the company’s overall profit?
- a decrease of $5,000
- a decrease of $30,000
- a decrease of $5,000
- an increase of $30,000
LO 10.5Mallory’s Video Supply has changed its focus tremendously and as a result has dropped the selling price of DVD players from $45 to $38. Some units in the work-in-process inventory have costs of $30 per unit associated with them, but Mallory can only sell these units in their current state for $22 each. Otherwise, it will cost Mallory $11 per unit to rework these units so that they can be sold for $38 each. How much is the financial impact if the units are processed further?
- $5 per unit profit
- $16 per unit profit
- $3 per unit loss
- $12 per unit loss
LO 10.6A company produces two products, E and F, in batches of 100 units. The production and cost data are:
The company can only perform 12,000 set-ups each period yet there is unlimited demand for each product. What is the differential profit from producing product E instead of product F for the year?
LO 10.6When operating in a constrained environment, which products should be produced?
- products with the highest contribution margin per unit
- products with the highest contribution margin per unit of the constrained process
- products with the highest selling price
- products with the lowest allocated joint cost