Back to Product

Test Bank Chapter 5 Relevant Costs For The Decision[1]maker

CHAPTER 5

COST ACCOUNTING HAS PURPOSE

CHAPTER LEARNING OBJECTIVES

1. Develop a decision-making framework in a few simple steps.

2. Identify relevant information and relevant costs for a given decision.

3. Outline four types of management decisions within the context of relevant costing.

4. Explain how opportunity costs relate to decision-making.

5. Describe how three types of fixed costs impact decision-making.

Current count is:

Knowledge: 51

Comprehension: 22

Application: 60

Analysis: 2

Evaluation: 0

Synthesis: 0

Total: 134

Number and percentage of questions:

Easy: 35 questions, 26 percent (target of 25%)

Medium: 86 questions, 64 percent (target of 65%)

Hard: 13 questions, 10 percent (target of 10%)

Question types:

Multiple Choice: 75

Brief Exercises: 18

Exercises: 14

Problems: 10

Short Answer: 17

MULTIPLE CHOICE QUESTIONS

The decision-making framework for businesses considers
only quantitative factors.
only qualitative factors.
both quantitative and qualitative factors.
neither quantitative nor qualitative factors but focuses only on differential factors.

Ans: C, LO 1, Bloom: K, Difficulty: Easy, AACSB: Analytic, AICPA: FC: Measurement, Analysis, and Interpretation, IMA:

BusinessAcumen & Operations: Operational Knowledge.

Solution: The decision-making framework for businesses considers both quantitative and qualitative factors.

The decision-making framework for an organization consists of how many steps?
Three
Four
Five
Six

Ans: C, LO 1, Bloom: K, Difficulty: Easy, AACSB: Analytic, AICPA: FC: Measurement, Analysis, and Interpretation, IMA: Business

Acumen & Operations: Operational Knowledge.

Solution: The decision-making process for an organization consists of five steps.

You have been provided with the following steps for an organization’s decision-making

framework. What is the appropriate order for the steps?

Calculate relevant costs and benefits for each option.
Implement your decision.
Clearly outline the problem and its related unknowns.
Select the option that maximizes the benefit to the organization and meets required

qualitative criteria.

Identify suitable options and gather relevant qualitative and quantitative information,

making informed assumptions as need be.

5, 3, 1, 2, 4
3, 5, 1, 4, 2
3, 1, 5, 4, 2
1, 3, 5, 4, 2

Ans: B, LO 1, Bloom: K, Difficulty: Easy, AACSB: Analytic, AICPA: FC: Measurement Analysis and Interpretation, IMA: Business Acumen & Operations: Operational Knowledge.

Solution: The appropriate order of steps in the decision-making process is (1) Clearly outline the problem and its related unknowns;

(2) Identify suitable options and gather relevant qualitative and quantitative information, making informed assumptions as need be.

(3) Calculate relevant costs and benefits for each option; (4) Select the option that maximizes the benefit to the organization and meets required qualitative criteria; and (5) Implement your choice.

After implementing a chosen option in the decision-making framework, the next natural step is to
assess how the decision worked and to learn from it.
move on to additional problems that needed to be resolved.
set new goals and objectives that will require the use of the decision-making framework.
identify the stakeholders in the decision and determine the financial impact of the chosen

option.

Ans: A, LO 1, Bloom: K, Difficulty: Easy, AACSB: Analytic, AICPA: FC: Measurement, Analysis, and Interpretation, IMA: IMA: Business Acumen & Operations: Operational Knowledge.

Solution: After implementing a chosen option in the decision-making framework, the next natural step is to assess how the decision worked and to learn from it.

Which of the following statements is true regarding the application of the decision-making framework?
Since qualitative factors are difficult to measure in financial terms, they should not be

considered in the decision-making framework.

Only quantitative factors should be considered in the decision-making framework since they

can be measured accurately.

All qualitative and quantitative information that a company has should be used to evaluate a

decision.

Relevant qualitative and quantitative information should be gathered and evaluated when

applying the decision-making framework.

Ans: D, LO 1, Bloom: C, Difficulty: Medium, AACSB: Analytic, AICPA: FC: Measurement, Analysis, and Interpretation, IMA: Business Acumen & Operations: Operational Knowledge.

Solution: The only true statement is, “Relevant qualitative and quantitative information should be gathered and evaluated when applying the decision-making framework.”

What is the first step in the decision-making framework?
Identify suitable options.
Gather relevant quantitative and qualitative information regarding the decision.
Clearly outline the problem and its related unknowns.
Calculate relevant costs and benefits of each option.

Ans: C, LO 1, Bloom: K, Difficulty: Easy, AACSB: Analytic, AICPA: FC: Measurement, Analysis, and Interpretation, IMA: Business Acumen & Operations: Operational Knowledge.

Solution: The first step in the decision-making framework is to clearly outline the problem and its related unknowns.

Precision Products is considering automating its manufacturing process. Currently, the manufacturing process is handled by 5 laborers which operate the machines with annual salaries and wages of $176,000. Annually, direct materials used in production total $73,000, manufacturing overhead associated with production totals $52,000, and marketing costs of $29,000, would remain the same under each option. If Precision automates its factory production, it will eliminate $120,000 of its labor costs, but will also incur $95,000 of machine leasing costs annually. Which of the following costs would be considered relevant in the decision-making framework?
Direct materials cost of $73,000
Manufacturing overhead costs of $52,000
Machine leasing costs of $95,000
Marketing costs of $29,000

Ans: C, LO 1, Bloom: C, Difficulty: Medium, AACSB: Analytic, AICPA: FC: Measurement, Analysis, and Interpretation, IMA: Business Acumen & Operations: Operational Knowledge, Strategy, Planning & Performance: Strategic Cost Management.

Solution: The machine leasing costs of $95,000 would be relevant in the decision-making framework. Other costs given as responses are not relevant.

What is the last step in the decision-making framework?
Identify suitable options.
Gather relevant quantitative and qualitative information regarding the decision.
Implement your decision.
Calculate relevant costs and benefits of each option.

Ans: C, LO 1, Bloom: K, Difficulty: Easy, AACSB: Analytic, AICPA: FC: Measurement, Analysis, and Interpretation, IMA: Business Acumen & Operations: Operational Knowledge.

Solution: The last step in the decision-making framework is to implement your decision.

In decision-making, relevant information pertains
1. only costs.
only revenues.
either revenues and/or costs.
neither revenues nor costs, but only qualitative data.

Ans: C, LO 1, Bloom: K, Difficulty: Easy, AACSB: Analytic, AICPA: FC: Measurement Analysis and Interpretation, IMA: Business Acumen & Operations: Operational Knowledge.

Solution: In decision-making, relevant information pertains to either revenues and/or costs.

Which of the following depicts the correct flow of the steps in the decision-making framework?
Identify suitable options→Gather relevant qualitative and quantitative information →Calculate relevant costs and benefits for each option→Clearly outline the problem→ Select the option that maximizes the benefit to the organization
Clearly outline the problem→Identify suitable options→Gather relevant qualitative and quantitative information→Calculate relevant costs and benefits for each option→Select the option that maximizes the benefit to the organization
Gather relevant qualitative and quantitative information→ Identify suitable options→Clearly outline the problem→Calculate relevant costs and benefits for each option→Select the option that maximizes the benefit to the organization→Identify suitable options
Calculate relevant costs and benefits for each option → Clearly outline the problem

→ Identify suitable options→Gather relevant qualitative and quantitative information →Select the option that maximizes the benefit to the organization

Ans: B, LO 1, Bloom: K, Difficulty: Medium, AACSB: Analytic, AICPA: FC: Measurement, Analysis, and Interpretation, IMA: Business Acumen & Operations: Operational Knowledge.

Solution: The correct flow of the steps in the decision-making framework is, Clearly outline the problem→Identify suitable options→Gather relevant qualitative and quantitative information→Calculate relevant costs and benefits for each option→Select the option that maximizes the benefit to the organization.

After identifying suitable options and gathering relevant qualitative and quantitative

information, a manager would then proceed to which step in the decision-making process?

Clearly outline the problem and the related unknowns.
Calculate relevant costs and benefits for each option.
Implement the choice you feel is the best option.
Select the option that maximizes the benefit, and meets the qualitative criteria.

Ans: B, LO 1, Bloom: K, Difficulty: Easy, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Business Acumen & Operations: Operational Knowledge.

Solution: After identifying suitable options and gathering relevant qualitative and quantitative information, a manager would then proceed to calculate relevant costs and benefits for each option.

Which of the following statements is true regarding the decision-making framework?
Only management will need to make effective decisions to help meet an organization’s

profit goal without any regard to time or money spent to achieve them.

Only management will need to make effective decisions to help meet an organization’s

profit goals while minimizing the time spent to achieve them.

Whether as an employee, manager or entrepreneur, you will need to make effective

decisions to help meet an organization’s profit goals while minimizing the time spent to

achieve them.

Whether as an employee, manager or entrepreneur, you will need to make effective

decisions to help meet an organization’s profit goals without any regard to time or money

spent to achieve them.

Ans: C, LO 1, Bloom: K, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Business Acumen & Operations: Operational Knowledge.

Solution: The statement which is true which relates to the decision-making framework is, “Whether as an employee, manager or entrepreneur, you will need to make effective decisions to help meet an organization’s profit goals while minimizing the time spent to achieve them.”

When calculating relevant costs and benefits in the decision-making framework, if an option or

alternative is being considered and it is expected that there will be no changes to the existing

capacity, which of the following costs would not change in the decision to choose one option

over the other?

Total costs
Variable costs
Relevant costs
Fixed costs

Ans: D, LO 1, Bloom: K, Difficulty: Easy, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Business Acumen & Operations: Operational Knowledge, Strategy, Planning & Performance – Strategic Cost Management.

Solution: When calculating relevant costs and benefits in the decision-making framework, if an option or alternative is being considered and it is expected that there will be no changes to the existing capacity, fixed costs would not change in the decision to choose one option over the other.

If managers are presented with challenges, they should figure out a solution by
applying the decision-making framework.
using only data analytics.
considering every possible option regardless of the time and money spent to arrive at a

solution.

hiring an outside management consulting firm with expertise related to the challenge.

Ans: A, LO 1, Bloom: K, Difficulty: Easy, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Business Acumen & Operations: Operational Knowledge.

Solution: If managers are presented with challenges, they should figure out a solution by applying the decision-making framework.

Cost accounting
focuses only on identifying relevant costs in decision making.
supports management decision-making.
emphasizes on quantitative information in the decision-making framework.
will always result in the optimal decision when applying the decision-making framework.

Ans B: LO 1, Bloom: K, Difficulty: Easy, AACSB: Analytic, AICPA: FC: Measurement, Analysis, and Interpretation, IMA: Business Acumen & Operations: Operational Knowledge.

Solution: Cost accounting supports management decision-making.

Differential costs are the same as
unavoidable costs.
non-relevant costs.
incremental costs.
sunk costs.

Ans: C, LO 2, Bloom: K, Difficulty: Easy, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management.

Solution: Differential costs are the same as incremental costs

Which of the following costs is not relevant in the decision-making process?
Incremental costs
Avoidable costs
Differential costs
Unavoidable costs

Ans: D, LO 2, Bloom: K, Difficulty: Easy, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution: Unavoidable costs are not relevant to the decision-making process. Incremental, avoidable, and differential costs are relevant in the decision-making process.

Which of the following costs is relevant in the decision-making process?
Unavoidable costs
Sunk costs
Incremental costs
Past costs

Ans: C, LO 2, Bloom: K, Difficulty: Easy, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution: Incremental costs are relevant in the decision-making process. Unavoidable costs, sunk costs, and past costs are not relevant in the decision-making process.

A cost which differs in amount between one choice and another is called a(n)
sunk cost.
differential cost.
unavoidable cost.
past cost.

Ans: B, LO 2, Bloom: K, Difficulty: Easy, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management.

Solution: Differential costs differ in amount between one choice and another.

Relevant costs
assist in making a decision by helping dismiss other costs.
do not matter to a particular decision.
do not change from decision to decision.
are always the same for each situation/problem.

Ans A: LO 1, Bloom: K, Difficulty: Easy, AACSB: Analytic, AICPA: FC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management .

Solution: Relevant costs assist in making a decision by helping dismiss other costs.

In the decision-making process, relevant costs ______________.
are treated the same as past costs.
occur in the future.
are sunk costs.
are always unavoidable.

Ans: B, LO 1, Bloom: K, Difficulty: Easy, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management .

Solution: In the decision-making process, relevant cost occur in the future.

Sunk costs are the same as
relevant costs.
avoidable costs.
incremental costs.
past costs.

Ans: D, LO 1, Bloom: K, Difficulty: Easy, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management .

Solution: Sunk costs are the same as past costs, and are not relevant to the decision-making process. They are not avoidable nor are they incremental.

Which of the following costs would not be included in the evaluation of alternatives in the decision-making process?
Sunk costs
Opportunity costs
Relevant costs
Avoidable costs

Ans: A, LO 2, Bloom: K, Difficulty: Easy, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution: The cost that would not be included in the evaluation of alternatives in the decision-making process is a sunk cost since it is not relevant. An opportunity cost, avoidable cost and relevant cost would all be included in the evaluation of alternatives.

Fern’s Florist is considering the purchase of a new delivery van since its old van has required

numerous repairs. Last year, the old van required an engine overhaul with a cost of $5,000.

This year, it is anticipated that the old van will require additional repairs with an estimated cost

of $2,500. Fern can purchase a new van for $35,000 or the business can lease a new van

with a down-payment of $3,900 and monthly lease payments of $320. Which of the cost

presented in this decision would be considered a sunk cost?

Engine overhaul of $5,000 last year
Anticipated repairs for old van of $2,500
New van purchase of $35,000
Lease down-payment of $3,900

Ans: A, LO 2, Bloom: C, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management.

Solution: The cost that represents a sunk cost is the engine overhaul of $5,000 that was incurred last year, since it happened in the past and can’t be undone.

How would a decision be made in the decision-making framework if two or more options have

both relevant revenues and relevant expenses for each option?

Compare only the relevant expenses of each option.
Compare only the relevant revenues of each option.
Determine the net effect of each option (revenue less expenses) and then compare them.
Priority is given to the larger difference in the comparison (either expenses or revenues) to

determine which option is most beneficial.

Ans: C, LO 2, Bloom: K, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution: If two or more options have both relevant revenues and relevant expenses for each option in the decision-making framework, then a decision would be made based on the net effect of each option (revenue less expenses) and then compared to determine which option is most beneficial.

Corner Cupcakes is considering the purchase of a new machine for its bakery. It can purchase the new machine at a cost of $10,000. For the existing machine, last year, the bakery spent $3,200 on machine repairs, an additional $1,900 on add-ons, and $2,700 for a software upgrade. How much of the given costs is relevant to the decision to purchase the new machine for the bakery?
$5,100
$7,800
$10,000
$17,800

Ans: C, LO 2, Bloom: C, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution: The cost(s) that is relevant to the decision to purchase the new machine for the bakery is $10,000 which is the purchase price of the new machine. The other costs, $3,200 for the machine repairs, the $1,900 for the add-one for the machine, and the $2,700 software upgrade for the machine are considered sunk costs since the occurred last year, and sunk costs are not relevant in the decision-making process.

Community College of Puxton Park (CCPP) is trying to determine if it is more cost effective to

reimburse employees for mileage in traveling to educational conferences or should the college

purchase a vehicle to be used for employee travel to conferences. The following information

has been provided with regards to the decision:

Annual miles driven by employees to conferences 29,000

Travel reimbursement rate per mile $0.56/mi.

Purchase price – new vehicle (5 year useful life) $28,000 (no salvage value)

Annual Maintenance – new vehicle $ 1,000

Annual vehicle insurance & registration $ 2,500

Given the quantitative information for the two options, which option would you select as most

beneficial to CCPP and why?

The option to continue mileage reimbursement should be selected since it will only cost $16,240 whereas, the option for the new vehicle will cost $31,500.
The option to continue mileage reimbursement should be selected since it will only cost $16,240 whereas, the option for the new vehicle will cost $28,000.
The option to purchase the new vehicle should be selected with a total annual cost of $9,100 whereas, the option to continue mileage reimbursement will cost $16,240.
The option to purchase the new vehicle should be selected with a total annual cost of $5,600 whereas, the option to continue mileage reimbursement will cost $16,240.

Ans: C, LO 2, Bloom: AP Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement Analysis and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution: Annual cost associated with the mileage reimbursement option is 29,000 miles x $56/mile = $16,240 and the total annual cost related to the purchase of a new vehicle = $28,000 / 5 years = $5,600 annual depreciation + $1,000 annual maintenance + $2,500 annual vehicle insurance & registration = $9,100. Since the annual cost of the vehicle purchase/ownership is less at $9,100 vs. $16,240 in mileage reimbursement, the option to purchase the vehicle should be selected.

In problem-solving with the decision-making framework, one
must only use the total cost approach since it is the most comprehensive approach.
must only use the relevant cost or the differential approach since it isolates specifically what

changes and what does not change.

can use either the total cost approach or the relevant cost approach, since the end result will be the same using either method.
should use the total cost approach since it is less tedious and less time consuming to

compute, and is also, more accurate with a final result.

Ans: C, LO 2, Bloom: K, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: In problem-solving with the decision-making framework, one can use either the total cost approach or the relevant cost approach, since the end result will be the same using either method.

Which of the statements below is correct with regards to relevant costs and relevant

information?

Every relevant cost happens not only in the future, but also includes what happened in the

past.

Every relevant cost happens in the future, but not every future cost will be relevant to the

current decision to be made.

Relevant costs include both avoidable and unavoidable costs in evaluating options.
The relevant cost approach focuses on what remains the same among the alternative instead of what changes.

Ans: B, LO 2, Bloom: K, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution: With regards to relevant costs and relevant information, the statement which is correct is that, ”Every relevant cost happens in the future, but not every future cost will be relevant to the current decision to be made.”

Corner Cupcakes Co. has two new bakery products to consider marketing. The first product,

a Mango Munchie, is expected to be sold for $4.00 each with a related product cost of $1.50

per unit. The projected sales in units for the Mango Munchie is 2,000 per month. The second

product is a Cosmo Cookie, which will sell for $3.50 each with a related product cost of $1.30

per unit. The projected sales in units for the Cosmo Cookie is 2,500 per month. Assuming

that Corner Cupcakes Co. can only select one of these new bakery products to market and

sell, which product should it select and why?

Mango Munchie should be sold since it has the lowest total cost to produce.
Cosmo Cookie should be sold since it has the highest revenues generated from sales.
Cosmo Cookie should be sold since it will result in $500 of additional income to the bakery.
Mango Munchie should be sold since it has the lowest cost per unit to produce.

Ans: C, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis

Solution: Mango Munchie Profit = ($4.00 Unit Selling Price - $1.50 Unit Cost) = $2.50 per unit profit x 2,000 units sales = $5,000 profit; Cosmo Cookie Profit = ($3.50 Unit selling Price - $1.30 Unit Cost) = $2.20 per unit profit x 2,500 units sales = $5,500 profit; $5,500 - $5,000 = $500 difference in profit, Cosmo Cookie greater than Mango Munchie.

To think strategically about insourcing versus outsourcing, it’s useful to divide processes into

which of the following three categories?

Core processes, functional processes, and critical processes
Core processes, critical processes, and commodity processes
Critical processes, commodity processes, and functional processes.
Core processes, commodity processes, and functional processes.

Ans: B, LO 3, Bloom: K, Difficulty: Easy, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Business Acumen & Knowledge: Operational Knowledge.

Solution: To think strategically about insourcing versus outsourcing, its useful to divide processes in three categories: (1) Core processes; (2) Critical processes; and (3) Commodity processes.

Processes that a company must control in-house and not outsource possibly because they are proprietary and confidential, or a source of competitive advantage are referred to as
functional processes.
critical processes.
core processes.
commodity processes.

Ans: C, LO 3, Bloom: K, Difficulty: Easy, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Business Acumen & Knowledge: Operational Knowledge.

Solution: Processes that a company must control in-house and not outsource possibly because they are proprietary and confidential, or a source of competitive advantage are referred to as core processes.

Payroll processes which typically can be outsourced without losing competitive advantage within a company are known as
core processes.
commodity processes.
critical processes.
functional processes.

Ans: B, LO 3, Bloom: K, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Business Acumen & Knowledge: Operational Knowledge..

Solution: Payroll processes which typically can be outsource without losing competitive advantage within a company are known as commodity processes.

Relevant costs are
past costs.
unavoidable costs.
differential costs.
sunk costs.

Ans: C, LO 3, Bloom: K, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management .

Solution: Relevant costs are differential costs.

Pergola Industries currently produces 1,000 units of a part needed for its product, incurring the

following costs:

Direct Materials $25,000

Direct Labor 8,000

Variable Overhead 16,000

Fixed Overhead 9,000

If Pergola Industries purchases the component externally, $4,000 of the fixed costs can be

avoided. Below what external price per unit for the 1,000 units would Galley choose to

outsource (buy) instead of insource (make)?

Ans: C, LO 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution: (Direct Materials + Direct Labor + Variable Overhead + Fixed Costs Avoided = External Price to Buy instead of Make) = $25,000 + $8,000 + $16,000 + $4,000 = $53,000 ÷ 1,000 = $53

Tastykakes makes various cookies and cupcakes. The cost of each batch of cupcakes and

cookies is as follows:

Direct materials $18

Direct labor 13

Variable overhead 11

Fixed overhead 14

An outside supplier has offered to make the cupcakes and cookies for $30 per batch. If

Tastykakes accepts the offer to outsource the production of the cupcakes and cookies, it will

not be able to avoid the $14 of fixed overhead. How much will Tastykakes save if it accepts

the offer?

$15 per batch
$12 per batch
$26 per batch
$ 1 per batch

Ans: B, LO 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution: (Direct Materials + Direct Labor + Variable Overhead + Fixed Overhead) = $18 + $13 + $11 + $14 = Current cost to make, $56; Unavoidable Fixed Overhead + Purchase Price (outsource) = Cost to Outsource; $14 + $30 = $44; Current cost to make, $56 – Cost to Outsource, $44 = $12 saved by Accepting offer to purchase (outsource)

In which category of management decisions would revenues not be relevant in the decision-making process?
Keep versus drop decisions
Insource versus outsource decisions
Product mix decisions
Special orders

Ans: B, LO 3, Bloom: C, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: Analysis of revenues is not relevant in the decision-making process for insource versus outsource decisions. Only relevant costs are considered in this evaluation of the decision. Other options include the analysis of revenues and costs in the decision-making process.

A quantitative rule of thumb for a keep-versus-drop decisions is that any fixed costs avoided by dropping a product line or closing a business segment should be larger than
the contribution margin given up.
the sales given up.
the variable costs given up.
the income given up.

Ans: A, LO 3, Bloom: C, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: A quantitative rule of thumb for a keep-versus-drop decisions is that any fixed costs avoided by dropping a product line or closing a business segment should be larger than the contribution margin given up.

Dropping a product line or a business segment that is experiencing a loss will cause the overall profitability of the company
to always increase.
to always decrease.
to either increase or decrease depending on the fixed costs that can be avoided compared

to the contribution margin lost.

to either increase or decrease depending on the sales and variable costs that can be

avoided compared to the contribution margin of the remaining products/segments.

Ans: C, LO 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management.

Solution: Dropping a product line or a business segment that is experiencing a loss will cause the overall profitability of the company to either increase or decrease depending on the fixed costs that can be avoided compared to the contribution margin lost.

Yuwanga company has three business segments, two of which are profitable and the other

which has been experiencing recurring losses. For the current year, the following

information is available for the unprofitable segment:

Sales $240,000

Variable expenses 120,000

Contribution margin 120,000

Fixed expenses 140,000

Net loss $ (20,000)

If this segment is eliminated, 70% of the fixed expenses can be eliminated and the other 30%

will be allocated to the remaining segments. If management decides to eliminate this segment,

the company’s net income will

increase by $20,000.
decrease by $98,000.
decrease by $22,000.
increase by $22,000.

Solution: (Contribution margin – Fixed expenses eliminated = Net Income decrease); $120,000 – ($140,000 x .70) = $22,000 (decrease)

Quentin Company is considering whether it should eliminate a product line. Currently, the

company has fixed costs which are allocated to all product lines. Should Quentin Company

eliminate the product line, the fixed costs currently allocated to the product line will have to be

allocated to the other remaining product lines in total. If the product line is eliminated,

total income for the company will increase by the amount of the product line’s fixed costs.
total income for the company will decrease by the amount of the product line’s fixed costs.
the contribution margin of the product line will reflect the increase or decrease in the company

income.

the company’s total fixed costs will decrease.

Solution: If the product line is eliminated for Quentin Company, since the remaining product lines must absorb the total fixed costs allocation, then the contribution of the product line eliminated will reflect the increase or decrease in the company income.

Saturn Industries has three product lines. Management is concerned about the Jupiter

product line, which experienced an operating loss of $(40,000) last year as result of sales of

$240,000, variable expenses of $150,000, and fixed expenses of $130,000. If this product line

is eliminated, 60% of the fixed expenses can be eliminated, but the remaining 40% will have to

be allocated to other product lines. If management decides to eliminate this product line, the

company’s net income will

increase by $40,000.
decrease by $90,000.
decrease by $12,000.
increase by $12,000.

Ans: C, LO 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA:

Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution: (Sales – Variable Expenses = Contribution margin – Fixed expenses eliminated = Net Income decrease); $240,000 -

$150,000 = $90,000; $90,000 – ($130,000 x .60) = $12,000 (decrease)

In order to maximize income within a company, management should select a sales mix with
more higher contribution margin per unit products/services.
less higher contribution margin per unit products/services.
more lower contribution margin per unit products/services.
balanced sales mix of higher and lower contribution margin per unit products/services.

Ans: A, LO 3, Bloom: K, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis

Solution: In order to maximize income within a company, management should select a sales mix with more higher contribution margin per unit products/services.

For product-mix decisions with constrained resources, companies should select the products

to produce/sell based on

highest contribution margin per unit.
lowest per unit cost.
highest contribution margin per unit of constrained resource.
highest selling price per unit.

Ans: C, LO 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management Decision Analysis.

Solution: For product-mix decisions with constrained resources, companies should select products to produce/sell based on the highest contribution margin per unit of constrained resource.

Panera can produce and sell only one of the following bakery products:

	Unit Contribution Margin	Required Bakery Hours
Multi-Grain Bread	$4	.3 hours
Brioche Bread	$3	.2 hours

Panera has oven capacity of 1,500 hours. If Panera bakes only the most profitable product,

how much will the total contribution margin be?

$15,000
$20,000
$22,500
$30,000

Solution: For product-mix decisions with constrained resources, companies should select products to produce/sell based on the highest contribution margin per unit of constrained resource which for Panera is the Brioche Bread, $15 per bakery hour ($3/.2 hours). If this is then multiplied by the 41,500 hours, the contribution margin = $15 x 1,500 hours = $22,500, Contribution Margin

Craftsman has the following production information available regarding its lawn mowers:

	Riding Mower	Self-Propelled Push Mower
Unit Contribution Margin	$500	$275
Production Machine Hours per Mower	10 hours	5 hours

If Craftsman currently has only 900 machine hours available per month for mower

production, which of the two lawn mowers, Riding Mower and/or Self-Propelled Push Mower,

should Craftsman produce to maximize net income (assuming all mowers produced can be

sold)?

Riding Mower, since it has the highest unit contribution margin at $500.
Self-Propelled Push Mower, since it has the highest contribution margin per machine hour

of $55.

Equal amounts of each mower will maximize net income for the company.
Not enough information is provided to compute the maximized net income computation.

Ans: B, LO 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: Craftsman should produce and sell the Self-Propelled Push Mower in this scenario since it has the highest contribution margin per unit of constrained resource (Machine Hours) - $55 per machine hour ($275/5 hrs.) vs. Riding Mower of $50 ($500/10 hrs.)

Craftsman has the following production information available regarding its lawn mowers:

	Riding Mower	Self-Propelled Push Mower
Unit Contribution Margin	$500	$275
Production Machine Hours per Mower	10 hours	5 hours

If Craftsman currently has sufficient production capacity (no constraints) for mower production,

but can only manufacture one of the lawn mowers, which of the two lawn mowers, Riding

Mower and/or Self-Propelled Push Mower, should Craftsman produce to maximize net income

(assuming all mowers produced can be sold)?

Riding Mower, since it has the highest unit contribution margin at $500.
Self-Propelled Push Mower, since it has the highest contribution margin per machine hour

of $55.

Equal amounts of each mower will maximize net income for the company.
Not enough information is provided to compute the maximized net income computation.

Ans: A, LO 3, Bloom: C, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: Craftsman should produce and sell the Riding Mower in this scenario since it has the highest contribution margin per unit ($500) given there are no production constraints.

When making special-order decisions, if there is available capacity (no additional fixed costs incurred) to complete the special order, then the criteria for the decision will be based on the comparison of
the unit selling prices of the existing product sales to the special-order product sales.
contribution margins of the existing product sales to the special-order product sales.
operating incomes of the existing product sales to the special-order product sales.
the unit production costs (variable and fixed) for the existing product sales to the special- order product sales.

Ans: B, LO 3, Bloom: K, Difficulty: Easy, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy,Planning & Performance: Decision Analysis.

Solution: When making special order decisions, if there is sufficient available capacity to complete the special order, then the criterial for the decision will be based on the comparison of contribution margins of the normal product sales to the special-order product sales.

When making special order decisions, if there is not available capacity to complete the special order, and additional fixed costs need to be incurred to fulfill the special order, then the criteria for the decision will be based on the comparison of
the unit selling prices of the existing product sales to the special-order product sales.
contribution margins of the existing product sales to the special-order product sales.
operating incomes of the existing product sales to the special-order product sales.
the unit production costs (variable and fixed) for the normal product sales to the special-

order product sales.

Ans: C, LO 3, Bloom: K, Difficulty: Easy, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: When making special order decisions, if there is not sufficient available capacity to complete the special order, and additional fixed costs need to be incurred to fulfill the special order, then the criterial for the decision will be based on the comparison of operating incomes of the normal product sales to the special-order product sales.

If a company is presented with a decision to accept a special order, if it is already operating

at full-capacity, and in order to accept the special order, would need to expand its capacity,

which of the following will most likely to happen in the decision analysis?

Unit variable costs will increase.
Fixed costs will not be affected.
Both variable and fixed costs will be need to be considered.
The company should accept the order.

Ans: C, LO 3, Bloom: C, Difficulty: Easy, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: If a company is presented with a decision to accept a special order, if it is already operating at full-capacity, and in order to accept the special order, would need to expand its capacity, then both the variable and fixed costs will need to be considered in the decision analysis.

In the decision-making process for a special order, which costs are relevant if there is

sufficient production capacity (without adding production facilities)?

Variable costs only
Fixed costs only
Variable costs and fixed costs
Variable costs and avoidable costs

Ans: A, LO 3, Bloom: C, Difficulty: Easy, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management, Strategy, Planning & Performance: Decision Analysis.

Solution: In the decision-making process for a special order, only variable costs are relevant if there is sufficient production capacity.

Kidzlane makes child-size backpacks for a total cost of $8 per unit ($5 per unit variable cost

and $3 per unit fixed cost) and a unit selling price of $12. The company has been recently

contacted by a local nonprofit to make the 500 child-size backpacks for a unit selling price of

$8 per unit. Kidzlane currently has available capacity to make and sell the 500 units without

adding additional production capacity. What should Kidzlane do regarding the special order

proposal from the local nonprofit and why?

Reject the special order since the special order price is equal to the total cost to make.
Reject the special order since the company would lose $4 per unit.
Accept the special order since it is being performed for a nonprofit cause, and the $4 loss

can be written off as a charitable contribution.

Accept the special order since it will increase operating income by $1,500 or $3 per unit for

500 units.

Ans: D, LO 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: Kidzlane should accept the special order since it will increase operation income by $1,500 = (Special Order Price, $8 – Per Unit Variable Cost, $5) = $3 per Unit Contribution Margin x 500 special order units.

Kingston Company produces a hover board with a unit variable cost of $100 and a unit

selling price of $176. Fixed manufacturing costs were $24,000 when 8,000 units were

produced and sold. The company has a one-time opportunity to sell an additional 1,000 units

at $150 each. If the company has sufficient capacity to produce these additional units,

should Kingston accept the special order?

No, because operating income will decrease by $26,000.
Yes, because operating income will increase by $26,000.
Yes, because operating income would increase by $150,000.
Yes, operating income will increase by $50,000.

Ans: D, LO 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: [(Special order price - unit variable cost) x Special order quantity] = Contribution Margin/Operating Income Increase; [($150 - $100) x 1,000] = $50,000

Khan Manufacturing incurs the following unit manufacturing cost in producing its sport

earbuds:

Variable Costs $50

Fixed Costs 25

A special order for 2,000 units has been received. The unit price requested is $65. The

normal unit price is $90. If the special order is accepted, the amount of contribution margin

that will be realized assuming there is sufficient capacity to produce the special order.

$(50,000)
($20,000)
$30,000
$80,000

Solution: [(Special order price - unit variable cost) x Special order quantity] = Contribution Margin/Operating Income Increase;

[($65 - $50) x 2,000] = $30,000

Brentwood Company is able to currently sell all of the units that it can produce of either A132

or B345. If Unit A132 has a unit contribution margin of $90 and it takes three machine hours

to produce and Unit B345 has a unit contribution margin of $72 and takes two machine hours

to produce. If Brentwood Company has a constraint on machine hours, and currently has only

1,800 machines of production time, which should Brentwood produce to maximize the

operating income of the company?

Make Unit A132 which creates $18 more profit per unit than Unit B345 does.
Make Unit B345 which creates $6 more profit per machine hour than Unit A132 does.
Make Unit B345 because more units can be made and sold than Unit A132.
The same total profits exist regardless of which product is made.

Solution: Using the contribution margin per unit of constrained resource (machine hours), compute the contribution margin per machine hour = Unit Contribution Margin/Production Machine Hours = Unit A132: $72 / 2 = $36; Unit B345: $90 / 3 = $30; Difference = $36 - $30 = $6 more in profit for Unit A123 than Unit B345.

What is the determining factor when a company has sales mix with a constrained resource?
Contribution margin per unit of constrained resource
Unit contribution margin
Unit contribution margin times the unit of constrained resource
Lowest unit variable cost

Ans: A, LO 3, Bloom: K, Difficulty: Easy, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance:

Decision Analysis.

Solution: The determining factor when a company has sales mix with a constrained resource is the contribution margin per unit of constrained resource.

The costs and the benefits of those options not used or taken are called
sunk costs.
avoidable costs.
opportunity costs.
future costs.

Ans: C, LO 4, Bloom: K, Difficulty: Easy, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management.

Solution: The costs and benefits of those options not used or taken are called opportunity costs.

Opportunity costs
are recorded in the company’s books only when that option is chosen.
are recorded in the company’s books only when the option is not chosen.
are always recorded in the company’s books.
are never recorded in the company’s books.

Ans: D, LO 4, Bloom: K, Difficulty: Easy, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management.

Solution: Opportunity costs are never recorded in the company’s books.

In making a decision,
qualitative considerations will always outweigh quantitative considerations.
quantitative considerations will always outweigh qualitative considerations.
equal weights will always be given to both qualitative and quantitative considerations.
the importance of qualitative and quantitative considerations can vary among alternatives

and decisions.

Ans: D, LO 4, Bloom: K, Difficulty: Easy, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: In making a decision, the importance of qualitative and quantitative considerations can vary among alternatives and decisions.

Opportunity costs are
costs and benefits of those options not used or taken
costs that have already occurred and cannot be changed.
costs that are not avoidable.
costs that never change from decision to decision.

Ans: A, LO 4, Bloom: K, Difficulty: Easy, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance:

Strategic Cost Management.

Solution: Opportunity costs are costs and benefits of those options not used or taken.

In the decision-making framework, qualitative factors are
never considered when making a decision.
considered along with the quantitative factors when making a decision.
only considered when making decision.
considered along with quantitative factors, but with much less emphasis when making a

decision.

Ans: B, LO 4, Bloom: K, Difficulty: Easy, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: In the decision-making framework, qualitative factors are considered along with the quantitative factors that affect the decision when making a decision.

Quantitative factors are
always superior to qualitative factors in the decision-making process.
evaluated using the same methodology in the decision-making process.
evaluated along with qualitative factors in the decision-making process.
used exclusively in the decision-making process.

Ans: C, LO 4, Bloom: K, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Solution: Quantitative factors are evaluated along with qualitative factors in the decision-making process.

You are trying to make a decision regarding your impending holiday travel plans. You have

flown into the major airport in Philadelphia in the past, but have always disliked the one-hour

drive to your family’s home. You have recently realized that you can fly into a local airport in

Allentown, but at a somewhat higher price for the trip. You have been given the following

three options for traveling home for the holidays (including all costs incurred for each

option to arrive at the final total travel cost):

Option 1: Nonstop flight to Philadelphia (1 hour drive) $700

Option 2: Nonstop flight to Allentown (20 minute drive) $800

Option 3: Flight to Allentown via Charlotte (2 hour layover) $740

You have narrowed your final selection down to flying into the Allentown airport, and decide on

the nonstop flight to Allentown. What is the opportunity cost associated with this decision?

$60
$100
$140
$740

Ans: A, LO 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution: Opportunity Cost = Cost of Nonstop flight to Allentown, $800 – Cost of Flight to Allentown via Charlotte, $740 = $60

You are trying to make a decision regarding your impending holiday travel plans. You have

flown into the major airport in Philadelphia in the past, but have always disliked the one-hour

drive to your family’s home. You have recently realized that you can fly into a local airport in

Allentown, but at a somewhat higher price for the trip. You have been given the following

three options for traveling home for the holidays (including all costs incurred for each

option to arrive at the final total travel cost):

Option 1: Nonstop flight to Philadelphia (1 hour drive) $700

Option 2: Nonstop flight to Allentown (20 minute drive) $800

Option 3: Flight to Allentown via Charlotte (2 hour layover) $740

You have narrowed your final selection down to flying nonstop, and must decide between

the nonstop flight to Allentown or the nonstop flight to Philadelphia. What is the opportunity

cost associated with this decision if you select the nonstop flight to Allentown option?

$40
$60
$100
$740

Solution: Opportunity Cost = Cost of Nonstop flight to Allentown, $800 – Cost of Nonstop Flight to Philadelphia, $700 = $100

Which of the following is not a type of fixed cost?
Direct
Common
Allocated
Opportunity

Ans: D, LO 3, Bloom: K, Difficulty: Easy, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management.

Solution: Opportunity cost not a type of fixed cost.

Fixed costs which are attributable to a product line are called
allocated fixed costs
direct fixed costs.
common fixed costs.
joint fixed costs.

Ans: B, LO 3, Bloom: K, Difficulty: Easy, AACSB: Analytic, AICPA: FC, Measurement Analysis and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management.

Solution: Fixed costs which are attributable to a product line are called direct fixed costs.

When making the decision to eliminate a business segment or product line, direct fixed costs

are

unavoidable and relevant.
avoidable and nonrelevant.
avoidable and relevant.
unavoidable and nonrelevant.

Ans: C, LO: 3, Bloom: K, Difficulty: Easy, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Strategy, Planning & Performance: Strategic Cost Management.

Solution: When making the decision to eliminate a business segment or product line, direct fixed costs are avoidable and relevant.

Segment margin equals
sales – variable costs – common fixed costs.
sales – variable costs – direct fixed costs.
sales – variable costs – allocated fixed costs.
sales – variable costs – total fixed costs.

Ans: B, LO: 3, Bloom: K, Difficulty: Easy, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN:

Measurement, AICPA PC: Problem Solving; IMA: Strategy, Planning & Performance: Strategic Cost Management, Business Acumen & Operations: Operational Knowledge.

Solution: Segment margin equals sales – variable costs – direct fixed costs.

Common fixed costs
are differential in nature.
are relevant in a make-versus-buy decision.
are not relevant in a make-versus-buy decision.
only become unavoidable in a decision to keep or drop an entire outlet or location.

Ans: C, LO: 3, Bloom: K, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN:

Measurement, AICPA PC: Problem Solving, IMA: Strategy, Planning & Performance: Strategic Cost Management

Solution: Common fixed costs are not relevant in a make-versus-buy decision.

Allocated fixed costs are
increased by corporate restructuring or layoffs.
only eliminated when the company goes out of business.
eliminated when the drops a segment or division.
controllable by branch or division managers.

Ans: B, LO: 3, Bloom: K, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN:

Measurement, AICPA PC: Problem Solving, IMA: Strategy, Planning & Performance: Strategic Cost Management

Solution: Allocated fixed costs are only eliminated when the company goes out of business.

Which of the following fixed costs will be eliminated if a segment or product line is eliminated

within a company?

Common fixed costs
Direct fixed costs
Allocated fixed costs
Home office fixed costs

Ans: B, LO 5, Bloom: C, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management.

Solution: Direct fixed costs will be eliminated is a segment or product line is eliminated within a company.

If a segment is eliminated simply because it is unprofitable, and the fixed costs associated with

the eliminated segment are totally allocated fixed costs, the operating income for the company

is expected to

decrease.
increase.
not be affected.
either increase or decrease depending on the contribution margin for the eliminated

segment.

Ans: A, LO 5, Bloom: K, Difficulty: Easy, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Business Acumen & Operations: Operational Knowledge.

Solution: If a segment is eliminated simply because it is unprofitable, and the fixed costs associated with the eliminated segment are totally allocated fixed costs, the operation income for the company is expected to decrease because the fixed costs are not avoidable but the company loses the contribution margin related to the eliminated segment.

Wilson Racquet Manufacturers produces three different types of tennis racquets: Control

Racquet, Tweener Racquet, and a Power Racquet. Financial information for the three racquet

product lines is shown below:

Control Tweener Power Total

Sales $450,000 $250,000 $65,000 $765,000

Variable expenses 325,000 140,000 58,000 523,000

Contribution margin 125,000 110,000 7,000 242,000

Fixed expenses 75,000 35,000 22,000 132,000

Oper. income (loss) $ 50,000 $ 75,000 $(15,000) $110,000

If the fixed expenses for the Power Racquet line are not avoidable since they are allocated fixed

costs, what will be total operating income be if the Power Racquet line is dropped?

$125,000
$103,000
$105,000
$140,000

Ans: B, LO 5, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution: (Control: Oper. Income + Tweener: Oper. Income – Power: Fixed Expenses = Total Oper. Income if the line is dropped) = $50,000 + $75,000 – 22,000 = $103,000.

Which fixed costs are not avoidable but can be reduced by corporate restructuring or

layoffs?

Direct fixed costs
Common fixed costs
Allocated fixed costs
Joint fixed costs

Ans: C, LO 5, Bloom: AN, Difficulty: Easy, AACSB: Analytic, AICPA: FC, Measurement Analysis and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management.

Solution: Allocated fixed costs are not avoidable but can be reduced by corporate restructuring or layoffs.

Ajax company has four product lines, one of which reported the following financial results for

the current year:

Sales $260,000

Variable expenses 220,000

Contribution margin 40,000

Fixed expenses 90,000

Net loss $ (50,000)

If this product line is eliminated, 60% of the fixed expenses can be eliminated because they

are direct fixed costs, and the remaining 40% of the fixed costs will be allocated to other

product lines because they are allocated fixed costs. If management decides to eliminate

this product line, the company’s operating income is expected to

increase by $50,000.
decrease by $14,000.
decrease by $104,000.
increase by $14,000.

Ans: D, LO 5, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution: (Contribution margin – Fixed expenses eliminated = Net Income increase or net loss decrease); $40,000 – ($90,000 x .60) = $14,000 (increase)

BRIEF Exercises

Grano Cereals, Inc, has four product lines. It is very concerned about one of its product

lines, which reported unprofitable for the current year as shown below:

Sales $1,500,000

Variable expenses 940,000

Fixed expenses 700,000

Net loss $ (140,000)

If this product line was to be dropped, 40% of the fixed expenses can be eliminated.

Using the decision-making framework, how much are the relevant costs in the decision to

eliminate this product line? Show all computations.

Ans: N/A, LO 1 and 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management.

Ans: $1,220,000

Solution: (Variable expenses + Fixed Expenses eliminated = Relevant costs in the

decision to eliminate this product); $940,000 + ($700,000 x 40%) = $1,220,000

Memorable Moments sells customizable gifts with a unit selling price per gift is $50, a unit

variable cost of $27, and unit fixed cost of $13. It has recently been approached by a local

high school with a request to make a custom graduation picture frame for each of the 1,200

students in the current graduating class at a price of $30 per frame. Memorable Moments

management is very concerned that by accepting this special order, it may impact the

profitability of the company but would like to be socially responsible to the local community.

Using the decision-making framework, what are the total relevant costs and total relevant

revenues in this management decision scenario? Show all computations.

Ans: N/A, LO: 1 and 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA

FN: Measurement, AICPA PC: Problem Solving, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Ans: The relevant costs in this management decision scenario are the variable cost per unit,

$27 x the units to be produced to meet the special order requirements of 1,200 for a total of

$32,400 of relevant costs. Total relevant revenues in this management decision scenario are

computed as $36,000 (Special order unit selling price, $30 x Special order unit, 1,200). To

determine the differential impact, deduct the relevant costs from the relevant revenues

($36,000 - $32,400) to arrive at $3,600. The unit selling price for external customers and the

unit fixed cost are not relevant to this decision-making scenario.

Power Industries is considering two alternatives: Solar and Wind. The Solar option will

generate relevant revenues of $200,000 and relevant costs of $140,000. The Wind option is

expected to generate relevant revenues of $180,000 and relevant costs of $90,000. Applying

the decision-making framework, which option should Power Industries select? Show all

computations.

Ans: N/A, LO: 1 and 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Ans: Power Industries should select the Wind option since it will produce operating income of

$90,000, which is $30,000 than the operating income to be produced by Solar of $60,000.

Solution:

	Solar	Wind	Difference
Relevant Revenues	$200,000	$180,000	($20,000)
Relevant Costs	(140,000)	(90,000)	50,000
Operating Income	$60,000	$90,000	($30,000)

Tuffin Trinkets Company can sell any mix of Trinket A and Trinket B at full capacity. The

company has 80,000 hours of capacity. The demand for each product exceeds the current

operating capacity. The following information is available for the trinkets:

Trinket A Trinket B

Units produced from capacity available 80,000 40,000

Contribution margin per unit $20 $30

Required Production Time (machine hours) 1 2

If production capacity is the constraining factor, which trinket should be produced to maximize

operating income and why?

Ans: N/A, LO: 1, 2, and 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Answer: 80,000 units of Trinket A and 0 units of Trinket B

Solution: Selection of the trinket to produce, since there is a constraint, is to use the

contribution margin per unit of constraint, which in this case is the machine hours. As such,

dividing the given Contribution margin per unit by the required production time will give the

contribution margin per unit of constraint for each trinket as follows: Trinket A: $20/1 = $20

and Trinket B: $30/2 = $15. The trinket with the highest contribution margin per unit of

constraint is Trinket A with $20, so all 80,000 units of production should be dedicated

exclusively to Trinket A.

Ember Industries incurs a unit cost of $20 (unit variable cost of $14 and unit fixed cost of

$6) to produce the electronic lighting switch in its outdoor propane fire pits. A supplier has

offered to make 10,000 of the parts at a price per unit of $15. If this offer is accepted by

Ember Industries, it will save all variable costs but no fixed costs. Should Ember Industries

outsource its production for this part or should it continue to insource the production?

Show all computations.

Ans: Insource production (make parts) to save $10,000.

Solution: Current cost to insource = $20 x 10,000 units = $200,000; Cost to outsource =

Purchase price + unavoidable fixed costs = [($15 x 10,000) + ($6 x 10,000 units)] =

$210,000; costs $10,000 more to outsource production, it should continue to make the parts.

Flameco, Inc. incurs a unit cost of $20 (unit variable cost of $16 and unit fixed cost of

$4) to produce the electronic lighting switch in its outdoor propane fire pits. A supplier has

offered to make 10,000 of the parts at a price per unit of $15. If this offer is accepted by

Flameco, Inc., it will save all variable costs but no fixed costs. Should Flameco, Inc.

outsource its production for this part or should it continue to insource the production?

Show all computations.

Ans: Outsource production to save $10,000.

Solution: Current cost to insource = $20 x 10,000 units = $200,000; Cost to outsource =

Purchase price + unavoidable fixed costs = [($15 x 10,000) + ($4 x 10,000 units)] =

$190,000; Since it would cost $10,000 more for Flameco, Inc. to insource production, it

should outsource, or buy the parts from the supplier.

The steps in the management decision-making framework are shown in random order below.

Indicate the correct order in which the steps should be performed (1 – 5).

______ Calculate relevant costs and benefits for each option.

______ Implement your decision.

______ Clearly outline the problem and its related unknowns.

______ Select the option that maximizes the benefit to the organization and meets

required qualitative criteria.

______ Identify suitable options and gather relevant qualitative and quantitative

information, making informed assumptions as need be.

Ans: N/A, LO: 1, Bloom: C, Difficulty: Medium, AACSB: Analytic, AICPA: FC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Decision Analysis.

Ans:

___3___ Calculate relevant costs and benefits for each option.

___5___ Implement your decision.

___1___ Clearly outline the problem and its related unknowns.

___4___ Select the option that maximizes the benefit to the organization and meets

required qualitative criteria.

___2___ Identify suitable options and gather relevant qualitative and quantitative

information, making informed assumptions as need be.

Poppy’s Plantery has been selling an average of 750 plants per week over the past two

months of this year. Poppy’s sells each plant for $3. Each plant is grown in Poppy’s own

greenhouse, has a unit variable cost of $0.75, and Poppy’s weekly fixed costs are $900.

Poppy’s Plantery is considered buying plants grown by another supplier which have been

offered at a price of $1.00 per plant. If Poppy’s were to purchase the plants instead of growing

them in-house, half of the fixed costs can be avoided. Should Poppy’s Plantery continue to

grow its own plants or purchase them directly from a supplier. Show all computations.

Ans: N/A, LO 1, 2 and 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Ans: Outsource production to save $262.50.

Solution: Current cost to insource = $.75 x 750 plants = $562.50 + $900 = $1,462.50; Cost

to outsource = Purchase price + unavoidable fixed costs = [($1 x 750 plants) + ($900 x 1/2)]

= $750 + $450 = $1,200; $1,462.50 - $1,200.00 = $262.50

Philly Pretzel Company produces specialty pretzels. The cost of box of pretzels is given

below.

Direct materials $8

Direct labor 12

Variable overhead 9

Fixed overhead 14

An outside supplier has offered to produce the pretzels for $20 per batch. How much will

Philly Pretzel Company save if it accepts the offer?

Ans: N/A, LO 1, 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution: [($8 + $12 + $9) - $20 = $9 per box cost savings to Insource (Make)

(Direct materials + Direct Labor + Variable Overhead) - Outsource Offer Price = Savings)

Microplex Company must decide whether to insource or outsource some of its

components. The total costs of producing 20,000 parts for its computers are as follows:

Direct materials	$18,000	Variable overhead	$15,000
Direct labor	$10,000	Fixed overhead	$7,000

Instead of making the parts at an average cost of $2.50 ($50,000 ÷ 20,000), Microplex has

an opportunity to buy the parts at $2.30 per unit. If the company purchases the parts, all

the variable costs will be eliminated and one-fourth (25%) of the fixed costs will be

eliminated. Should Microplex outsource its components?

Ans: N/A, LO: 1, 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Ans: Microplex should not outsource some of its components because it will cost the

company an additional $1,250 with the additional costs translating to a decrease

in operating income of $1,250.

Solution:

	Plan A (Insource)	Plan B (Outsource)	Cost Difference
Direct Materials	$18,000	$0
Direct Labor	10,000	0
Variable Overhead	15,000	0
Fixed Overhead	7,000	1,250*
Purchase Price		46,000**
Total Costs	$50,000	$51,250	($1,250)

*[$7,000 x (1 – 25%)] **($2.30 x 20,000)

Microplex Company must decide whether to insource or outsource some of its

components. The total costs of producing 20,000 parts for its computers are as follows:

Direct materials	$18,000	Variable overhead	$15,000
Direct labor	$10,000	Fixed overhead	$7,000

Instead of making the parts at an average cost of $2.50 ($50,000 ÷ 20,000), Microplex has

an opportunity to buy the parts at $2.30 per unit. If the company purchases the parts, all

the variable costs will be eliminated and three-fourths (75%) of the fixed costs will be

eliminated. Should Microplex outsource its components?

Ans: Microplex should outsource some of its components because it will cost the

company $2,250 less with the cost savings translating to an increase in operating

income of $1,250.

Solution:

	Plan A (Insource)	Plan B (Outsource)	Cost Difference
Direct Materials	$18,000	$0
Direct Labor	10,000	0
Variable Overhead	15,000	0
Fixed Overhead	7,000	1,750*
Purchase Price		46,000**
Total Costs	$50,000	$47,750	$2,250

*[$7,000 x (1 – 75%)] **($2.30 x 20,000)

Memorable Moments sells customizable gifts with a unit selling price per gift is $50, a unit

variable cost of $27, and unit fixed cost of $13. It has recently been approached by a local

high school with a request to make a custom graduation picture frame for each of the 1,200

students in the current graduating class at a price of $30 per frame. Memorable Moments

management is very concerned that by accepting this special order, it may impact the

profitability of the company but would like to be socially responsible to the local community.

Using the decision-making framework, determine if Memorable Moments should accept the

special order request assuming that they have sufficient operating capacity.

Ans: N/A, LO: 1 and 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA

FN: Measurement, AICPA PC: Problem Solving, IMA: Strategy, Planning & Performance: Strategic Cost Management and

Decision Analysis.

Ans: Memorable Moment should accept the special order since operating income will increase

by $3,600.

Solution: (Unit Selling Price for Special Order – Unit Variable Cost for Special Order) = Unit

Contribution Margin; (Unit Contribution Margin x Special Order Units) = Change in Operating

Income; ($30 - $27) = $3 x 1,200 units = $3,600 increase in operating income

Memorable Moments sells customizable gifts with a unit selling price per gift is $50, a unit

variable cost of $27, and unit fixed cost of $13. It has recently been approached by a local

high school with a request to make a custom graduation picture frame for each of the 1,200

students in the current graduating class at a price of $30 per frame. Memorable Moments

management is very concerned that by accepting this special order, it may impact the

profitability of the company but would like to be socially responsible to the local community.

Memorable Moments is currently operating at capacity, and in order to fulfill the special order,

will have to add additional factory capacity of $4,000 for this job. Using the decision-making

framework, determine if Memorable Moments should accept the special-order request

assuming that they do not have sufficient operating capacity using quantitative considerations

only.

Ans: N/A, LO: 1 and 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA

FN: Measurement, AICPA PC: Problem Solving, IMA: Strategy, Planning & Performance: Strategic Cost Management and

Decision Analysis.

Ans: Memorable Moment should not accept the special order since operating income will

decrease $400.

Solution: (Unit Selling Price for Special Order – Unit Variable Cost for Special Order) = Unit

Contribution Margin; (Unit Contribution Margin x Special Order Units) + Add’l Fixed Costs

for Special Order = Change in Operating Income; ($30 - $27) = ($3 x 1,200 units) - $4,000 =

$3,600 - $4,000 = $400 decrease in operating income

Azure Company has 10,000 hours of capacity and manufactures two products. Product EZT

takes 2 hours per unit. Product GLA takes 3 hours per unit. The contribution margin per unit

for Product EZT is $5. The contribution margin per unit for Product GLA is $6. The demand for

either product exceeds the factory capacity. Which product or products should be

manufactured?

Ans: N/A, LO: 1 and 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA

FN: Measurement, AICPA PC: Problem Solving, IMA: Strategy, Planning & Performance: Strategic Cost Management and

Decision Analysis.

Answer: 5,000 units of Product EZT and 0 units of Product GLA

Solution: Selection of the product to produce, since there is a constraint, is to use the

contribution margin per unit of constraint, which in this case is the manufacturing hours. As

such, dividing the given contribution margin per unit by the required production time will give

the contribution margin per unit of constraint for each product as follows: Product EZT: $5/2 =

$2.50 and Product GLA: $6/3 = $2. The product with the highest contribution margin per unit

of constraint is Product EZT with $2.50, so all 10,000 hours of manufacturing time should be

used to produce Product EZT resulting in (10,000 hours/ 2 hours per unit) 5,000 units of

Product EZT exclusively manufactured.

Mejor Medical Machines sells three types of hospital equipment. Information on these

machines is as follows:

Xray Production time = 2 hours Unit contribution margin of $600

MRI Production time = 2.5 hours Unit contribution margin of $400

CT Scan Production time = 4 hours Unit contribution margin of $700

Total fixed costs for the year are $2,240,000. Based on this information, if Mejor Medical can

produce any or all of the equipment items, and has no production constraints, what would

the optimal product mix be in order to maximize the operating income of Mejor Medical for

the period?

Ans: N/A, LO 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Ans: CT Scan should be produced solely, since it contributes to operating income at a rate of

$700 per unit, which is the highest unit contribution margin of the 3 products.

Solution: Given that Mejor Medical Equipment has no production constraints, the criteria

in decision-making with product mix with no constraints, in order to maximize operating

income, the company should produce the product with the highest unit contribution margin,

which in this case, is the CT Scan at $700 per unit.

Bear Mountain Sporting Goods has two product lines: Sporting Goods and Hunting Gear.

Bear Mountain incurs $2,660,000 in fixed costs. The unit contribution margin for Sporting

Goods is $300 with an average production time per product of 3 hours, while for Hunting

Gear it is $500 with an average production time per product of 6 hours. If there are no

production constraints, and Bear Mountain Sporting Goods wishes to maximize its operating

income, on which product line should the business focus production efforts?

Ans: Hunting Gear, with a unit contribution margin of $500

Solution: Given that Bear Mountain Sporting Goods has no production constraints, the criteria

in decision-making with product mix with no constraints, in order to maximize operating

income, the company should produce the product with the highest unit contribution margin,

which in this case, is the Hunting Gear at $500 per unit.

Bear Mountain Sporting Goods has two product lines: Sporting Goods and Hunting Gear.

Bear Mountain incurs $2,660,000 in fixed costs. The unit contribution margin for Sporting

Goods is $300 with an average production time per product of 3 hours, while for Hunting

Gear it is $500 with an average production time per product of 6 hours. If there is a

production constraint that Bear Mountain has only 1,700 machine hours per month for

production, and Bear Mountain Sporting Goods wishes to maximize its operating

income, on which product line should the business focus production efforts?

Ans: Sporting Goods, with a contribution margin per unit of constraint (machine hours) of

$100

Solution: Given that Bear Mountain Sporting Goods has production constraints of 1,700

machine hours per month for production, the criteria in decision-making with product mix

with constraints, in order to maximize operating income, is that the company should

produce the product with the highest contribution margin per unit of constrained resource

(machine hours). To compute this, the unit contribution margin for each product line should

be divided by the required production time as follows: Sporting Goods, $100 ($300 ÷ 3)

and Hunting Gear, $83.33 ($500 ÷ 6).

Classify each cost shown below according to the type of fixed cost that it reflects, using the

letter associated with the fixed cost type.

Cost Type of Fixed Cost

_____ 1. CEO salary

_____ 2. Depreciation on equipment used a. Direct Fixed Cost

in multiple product lines

_____ 3. Utilities cost for one product line b. Common Fixed Cost

_____ 4. Property taxes on the factory.

_____ 5. Depreciation on equipment used c. Allocated Fixed Cost

in one product line

_____ 6. Supervisor salary for one product line

Ans: N/A, LO 5, Bloom: AN, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management.

Solution:

Cost

___c__ 1. CEO salary

___b__ 2. Depreciation on equipment used

in multiple product lines

__a___ 3. Utilities cost for one product line

__b___ 4. Property taxes on the factory.

__a___ 5. Depreciation on equipment used

in one product line

__a___ 6. Supervisor salary for one product line

Exercises

Vintendo normally produces video games which it sells in the video game stores. The cost

to produce a video game includes $25 unit variable cost and $8 unit fixed cost. The average

price of a video game is $80. Vintendo has been approached by an outside vendor who has

proposed to digitize the video games for Vintendo which can then sell the video games

directly to players as a downloadable option. Using the following independent assumptions,

apply the insource versus outsource decision-making process to determine if Vintendo should

continue to make its video games or outsource for a digitized version.

Vintendo can purchase a digitized version of each video game, the price being offered by the outside vendor will be $20, with Vintendo still incurring $10 of unit variable cost for game design and $4 of unit fixed cost. Although, this means of providing video gaming is trending, should Vintendo continue to make traditional video games or purchase a digitized version to sell?
Vintendo can purchase a digitized version of each video game, the price being offered by the outside vendor will be $15, with Vintendo still incurring $10 of unit variable cost for game design and $4 of unit fixed cost. Although, this means of providing video gaming is trending, should Vintendo continue to make traditional video games or purchase a digitized version to sell?

Ans: N/A, LO 1, 3, and 5, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution:

	Make	Buy	Difference
Unit Variable Cost	$25	$10	$15
Unit Fixed Cost	8	4	4
Purchase Price - Buy		20	(20)
Total	$33	$34	($1)

Vintendo should continue to make its video games since it would lose $1 in operating

income by purchasing the digitized version from the outside vendor.

	Make	Buy	Difference
Unit Variable Cost	$25	$10	$15
Unit Fixed Cost	8	4	4
Purchase Price - Buy		15	(15)
Total	$33	$29	$4

Vintendo should now purchase the digitized version of the video games since recognized

$4 in cost savings which would translate to an increase in operating income of $4 per unit.

Apple continues to trend in the world of technology with its most recent introduction of AirTags.

Apple is trying to decide if it wishes to continue to manufacture the AirTag in-house, or if it

should consider outsourcing the production of this particular accessory. The unit cost to

produce one AirTag is $8 ($3 unit variable cost and $5 unit fixed cost). Apple has found a

vendor that is willing to manufacture and sell the AirTag to Apple for resale at a unit price

of $4 per AirTag.

If Apple is not able to avoid any of the unit fixed costs, should it consider outsourcing the production of the AirTags? Show all computations.
If Apple is able to avoid all of the unit fixed costs, should it consider outsourcing the

production of the AirTags? Show all computations.

Ans: N/A, LO 1 and 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution:

Cost to manufacture (insource) = Unit variable cost + Unit fixed cost = $3 + $5 = $8

Cost to Outsource = Unit selling price + unavoidable fixed cost = $4 + $5 = $9

Apple should continue to make its own AirTags since it is better off by $1 ($8 - $9).

Cost to manufacture (insource) = Unit variable cost + Unit fixed cost = $3 + $5 = $8

Cost to Outsource = Unit selling price + unavoidable fixed cost = $4 + $0 = $4

Apple should outsource the production of AirTags since it is better off by $4 ($8 - $4).

Zapple Ltd. is producing and distributing a new solar light system that it sells for $125. It

uses 500 units of a specific part to manufacture the solar light system. The unit costs that

are incurred to manufacture the light system are as shown below:

Direct Materials	$20
Direct Labor	15
Overhead	50
Total	$85

Overhead costs include variable material handling costs of $10, which are applied to products on the basis of direct material costs which could be eliminated if the production is outsource. The remainder of the overhead costs are comprised of 50% variable costs and 50% fixed costs,

which cannot be avoided if the production is outsourced.

An outside supplier has offered to supply the part at a price of $77 per unit.

Should Zapple purchase the component from the outside vendor?
Should Zapple purchase the component from the outside vendor if it can use its facilities to manufacture another product? What information will Larkin need to make an accurate decision? Show your calculations.

Ans: N/A, LO 1, 3, and 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Insource Outsource Difference

Direct materials $ 20 $ 0 $ 20

Direct labor 15 0 15

Material handling 10 0 10

Variable overhead 20* 0 20

Purchase price 0 77 (77)

Total unit cost $65 $77 $ (12)

*Variable overhead = 50% × ($50 − $10)

The unit should be not be purchased from the outside vendor, as the per unit cost would be

$12 more than if they made it. Fixed costs were not included, as they would not change

between options.

In order for Zapple to make a decision, it would need to know the opportunity cost of manufacturing the other product. As determined in (a), purchasing the product from outside would cost $6,000 more (500 × $12). Zapple would have to increase their contribution margin by more than $6,000 through the manufacture of the other product, before it would be economical for them to purchase the part from the outside vendor.
Crest Canoe Co. produces and distributes three types of oars to accompany its various

canoe product lines. Information for the past year on these three products is as follows:

	Paddler	Stroker Ace	Super Driver
Price per Unit	$50	$120	$300
Units Sold	4,000	3,000	2,000
Unit Variable Costs	$20	$70	$140
Direct Fixed Costs	$40,000	$60,000	$110,000
Production time	2 hours	5 hours	10 hours

If there is no resource constraint, which of the oar types should Crest Canoe

manufacture to maximize its operating income? Show computations

If there is a resource constraint of limited machine hours, which of the oar types should

Crest Canoe manufacture to maximize its operating income if it only has 2,000 machine

hours per month? Show computations

Ans: N/A, LO 1, 2, 3, 4, and 5, Bloom: AP, Difficulty: Hard, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution:

	Paddler	Stroker Ace	Super Driver
Price per Unit	$50	$120	$300
Less: Unit Variable Costs	20	50	170
Unit Contribution Margin	$30	$70	$130
Production time	2 hours	5 hours	10 hours

Crest Canoe should focus production on the Super Driver since it has the highest

unit contribution margin at $130.

	Paddler	Stroker Ace	Super Driver
Price per Unit	$50	$120	$300
Less: Unit Variable Costs	20	50	170
Unit Contribution Margin	$30	$70	$130
Production time	2 hours	5 hours	10 hours
Contribution Margin per Machine hour	$15	$14	$13

Given that Crest Canoe has a resource constraint, it should use the contribution margin

per unit of constrained resource as the basis for selection. As such, Crest Canoe should

therefore, focus production on the Paddler since it has the highest contribution margin per

machine hours at $15.

Mercury Motors produces three different types of engines for its boats with the following

financial information reported for the most recent year:

Coaster Steady Ace Super Drive Total

Sales $490,000 $210,000 $65,000 $765,000

Variable expenses 325,000 140,000 58,000 523,000

Contribution margin 165,000 70,000 7,000 242,000

Fixed expenses 75,000 35,000 22,000 132,000

Oper. income (loss) $ 90,000 $ 35,000 $(15,000) $110,000

If all of the fixed expenses for the Super Drive motor product line are avoidable, since they

are direct fixed costs, what will the total operating income for Mercury Motors be if the line is

dropped using the decision-making framework and the total cost approach? Show all

computations.

Ans: N/A, LO 1, 3, and 5, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Ans: $125,000, total operating income for Mercury Motors

Solution: Coaster Operating Income, $90,000 + Steady Ace Operating Income, $35,000 =

$125,000 total operating income for Mercury Motors

Cache Company manufactures cameras. It has fixed costs of $2,120,000. Cache’s sales

unit contribution margins and required production time per product are shown below:

Contribution Margin Production Time Required

Tourist Model $ 40 1 hour

Amateur Model $ 70 3 hours

Professional Model $ 140 5 hours

Assuming that Cache Company has limited production time, with only 1,500 machine hours

available per month, assuming that all units produced can be sold, which product should

Cache Company manufacture to maximize operating income for the month?

Ans: N/A, LO 1 and 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Ans: Tourist Model should be produced since it has the highest contribution margin

per machine hour of $40.00 as compared those of the other two models.

Solution:

Contribution Margin

Contribution Margin Machine Hours per Machine Hour

Tourist Model $40 ÷ 1 hour $40.00*

Amateur Model $70 ÷ 3 hours $23.33

Professional Model $140 ÷ 5 hours $28.00

Dynamic Designs has three product lines in its retail stores: self-sticking wallpaper,

faux wood panels, and wall decor. Results of the past month are presented below:

Wallpaper Panels Wall Decor Total

Units sold 1,000 2,000 2,000 5,000

Revenue $20,000 $40,000 $25,000 $85,000

Variable departmental costs 17,000 22,000 12,000 51,000

Direct fixed costs 2,000 3,000 1,000 6,000

Allocated fixed costs 8,000 8,000 8,000 24,000

Operating income (loss) $ (7,000) $ 7,000 $ 4,000 $ 4,000

The allocated fixed costs are unavoidable. Demand of individual products are not affected

by changes in other product lines.

What will happen to total operating income if Dynamic Designs discontinues the

wallpaper product line?

Should the wallpaper product line be dropped?
If all fixed costs were direct fixed costs instead of allocated fixed costs, what would be

the effect of dropping the wallpaper product line on the company operation income?

Given the assumption in (c), should the wallpaper product line be discontinued?

Ans: N/A, LO 1 and 3, Bloom: AP, Difficulty: Hard, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution:

Incremental revenue + Incremental costs = Decrease in operating profit if discontinued;

[$20,000 - (Variable costs savings, $17,000 + Direct fixed costs savings, $2,000)] =

Decrease in profits if discontinued, $1,000.

No, the wallpaper product line should not be dropped since operating profits would

decrease by $1,000.

Incremental revenue + Incremental costs = Decrease in operating profit if discontinued;

[$20,000 - (Variable costs savings, $17,000 + Direct fixed costs savings, $10,000)] =

Increase in profits if discontinued, $7,000.

Yes, the wallpaper product line should be dropped since operating profits would

increase by $7,000.

HomeGoods Corporation operates two divisions, the Commercial Division and the

Consumer Division. The Commercial Division manufactures and sells products to

wholesalers. The Consumer Division operates retail outlet which sell products directly to

individuals. The company is considering disposing of the Commercial Division since it has

been consistently unprofitable for a number of years. The income statements for the two

divisions for the year ended December 31 are presented below:

	Commercial	Residential	Total
Sales Revenues	$2,000,000	$1,500,000	$3,500,000
Variable Costs	1,500,000	900,000	2,400,000
Contribution Margin	500,000	600,000	1,100,000
Fixed Costs	550,000	350,000	900,000
Operating Profit	($50,000)	250,000	$ 200,000

If the Commercial Division is to be dropped, half of the fixed costs can be eliminated

since they are direct fixed costs of the Commercial Division. Should HomeGoods drop

the Commercial Division? Show computations.

Solution:

Contribution margin, Commercial, $0 – unavoidable fixed costs, (1/2 x $550,000) =

decrease in operating income = $275,000. No, HomeGoods should not drop the

Commercial Division since the operating income will decrease by $275,000.

The Nut House sells three different types of nuts. The results of the current year are as follows:

Peanuts Brazil nuts Walnuts Total

Units sold 3,000 5,000 2,000 10,000

Revenue $70,000 $50,000 $40,000 $160,000

Less variable costs 32,000 26,000 16,000 74,000

Less direct fixed costs 14,000 19,000 12,000 45,000

Less allocated fixed costs 6,000 10,000 4,000 20,000

Net income $18,000 $ (5,000) $ 8,000 $ 21,000

All of the allocated costs will continue even if a division is discontinued. The Nut House

allocates remaining fixed costs based on the number of units to be sold. Since Brazil nuts

product line experienced a net loss, the Nut House feels that it should be discontinued. The

Nut House feels that if this product line is dropped, that sales of the Peanuts and Walnuts

will stay the same.

Determine the effect on operating income if the Nut House drops the Brazil nuts product line.
Should Nut House drop the Brazil nuts product line? Briefly indicate why or why not.

Ans: N/A, LO 1, 3, and 5 Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution:

Peanuts Walnuts Total

Units sold 3,000 2,000 5,000

Revenue $70,000 $40,000 $110,000

Less variable costs 32,000 16,000 48,000

Less direct fixed costs 14,000 12,000 26,000

Less allocated fixed costs 12,000 8,000 20,000

Net income $12,000 $ 4,000 $ 16,000

Using the total cost approach, the operating income for the company will decrease from

$21,000 to $16,000, or $5,000 if the Nut House drops the Brazil nuts product line.

The Nut House should not drop the Brazil nuts product line, because the operating income

for the company will be $5,000 less ($21,000 – $16,000)

Barton Beverages Inc. sells cases of bottled water at $25 each and has direct labor and

materials costs of $10 for each case of water. Fixed costs per month are $30,000, and the

accountants at Barton have reported to management that operating loss last month was

($7,500) when selling only 1,500 cases of bottled water. Barton is trying to decide

whether to drop the bottled water from its product line since it has been operating at a net

loss.

If Barton is not able to eliminate the fixed costs associated with the bottled water since they are allocated fixed costs, should the business drop the bottled water product line? Show all computations.
If Barton is able to eliminate $5,000 of the fixed costs associated with the bottled water since it they are direct fixed costs, should the business drop the bottled water product line? Show all computations.
If Barton is able to all of eliminate the fixed costs associated with the bottled water since they are direct fixed costs, should the business drop the bottled water product line? Show all computations

Ans: N/A, LO 1, 2, 3 and 5, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution:

If the product line is dropped, all revenues and variable costs will be eliminated, but since none of the fixed costs are avoidable, the operating income for Barton Beverages will decrease by $22,500, which is the amount of the fixed costs of $30,000 less the previous net loss of ($7,500) or the lost contribution margin of ($25 - $10) x 1,500 = $22,500. The produce line should not be dropped because the business worse off by $22,500.
Unit selling price – Unit variable cost = unit contribution margin; $25 - $10 = $15; Assuming that Barton Beverages is still only able to sell 1,500 cases of the bottle water, the unit contribution margin, $15 x 1,500 cases = $22,500 total contribution margin – unavoidable fixed costs ($30,000 - $5,000) of $25,000 = operating loss of ($2,500). Barton Beverages should not eliminate the bottled water line since the operating loss of ($2,500) is less than the original ($7,500), so the business is better off.
Yes, the bottled water product line should be dropped if all of the fixed costs can be eliminated. As such, the company’s operating income will be better off by the amount of the operating loss of $7,500 with operating income for the company increasing by this amount.
Addison Accounting LLP has the following financial information for its two primary

business lines for the current year:

	Auditing	Consulting	Total
Service Revenues	$1,900,000	$2,300,000	$4,200,000
Variable Costs	1,250,000	900,000	2,150,000
Contribution Margin	650,000	1,400,000	2,050,000
Fixed Costs	700,000	400,000	1,100,000
Operating Profit (Loss)	($50,000)	1,000,000	$950,000

Addison is considering dropping the Auditing business line since it has been reporting an

operating losses for the past 3 years. If it eliminated the Auditing, half of the fixed costs
cannot be avoided since they are allocated fixed costs of the entire firm. Should Addison

drop the Auditing business line? Show supporting computations.

Solution: Contribution Margin-Auditing, $0 – Unavoidable fixed costs, (1/2 x $700,000) =

$350,000 less the original reported ($50,000) loss would reflect a net decrease in

operating income for the company of $300,000. Alternatively, using a total approach, total

company operating income (original), $950,000 less company income if Auditing dropped,

[$1,000,000 – ($700,000 x ½)] or $650,000 = decrease in operating income of $300,000.

The Auditing business line should not be dropped.

Elmwood Environmental manufactures compost kits. For the past year, the company

reported the following operating results while operating at 50% of plant capacity:

Sales (500 units) $90,000

Cost of goods sold 52,000

Gross profit 38,000

Operating expenses 24,000

Operating income $14,000

An analysis of costs and expenses reveals that variable cost of goods sold is $95 per unit

and variable operating expenses are $35 per unit. In January, Elmwood Environmental

receives a special order for 500 compost kits at $135 each from a local municipality.

Acceptance of the order require an addition $1,000 of shipping costs, but would not affect

the fixed expenses.

Prepare an analysis to determine if the special order should be accepted.
What decision should Elmwood make regarding the special order, accept or reject? Explain.

Solution:

Unit selling price – Unit variable cost = Unit contribution margin; (Unit contribution margin x special order units) = Special order contribution margin – Special order shipping costs = special order income (loss); ($135 – ($95 + $35)] = $5 x 500 special order units = $2,500 - $1,000 special order shipping costs = $1,500 special order income.
Elmwood environmental should accept the special order because it will generate an additional $1,500 of operating income.
Antsy Labs produced and sold 50,000 fidgets and is operating at 80% of its plant capacity.

Unit information about its product is shown below:

Sales price $7

Variable manufacturing cost $4.50

Fixed manufacturing cost ($25,000 ÷ 50,000) 0.50 5

Profit per unit $2

Antsy Labs received a special order from a local company to buy 10,000 fidgets for $5 per

unit. This is a one-time only order and acceptance of this order will not affect the company’s

regular sales. Management of Antsy Labs is hesitant to a accept the special order since the

price is lower than its current price per unit. What should Antsy Labs do?

Ans: N/A, LO 1, 3, and 5, Bloom: AP, Difficulty: Hard, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution:

Special order price – Unit variable cost = Special Order Contribution Margin; Special Order

Contribution Margin x Special Order Units = Special Order income; ($5 - $4.50) = $.50 per

Unit x 10,000 special order units = $5,000 special order income. Antsy Labs should accept

the special order since it will increase operating income for the company by $5,000.

Vermont Teddy Bear Company makes a special teddy bear called a Lovey Buddy. The

production of each consists of $15 variable costs and $10 of fixed costs, and normally sells

for $70. A children’s hospital would like to purchase 7,000 units of the Lovey Buddy bear for

$20 per bear. The company currently has capacity to produce the special order without

incurring additional fixed costs.

Should Vermont Teddy Bear Company accept the request for this special order? Show computations to support decision.
The children’s hospital has inquired about customizing the Lovey Buddy bears for its patients. Currently, the company does not have the necessary equipment to customize the bears, but is willing to consider purchasing an embroidering machine should it prove cost effective. Research indicates that an embroidering machine will cost $8,500. The company believes that if it charges an additional $2 per Lovey Buddy, that it could accept the special order and customize each of the bears ordered. Can the company do this and still generate operating income on the special order?

Solution:

Special Order revenue (7,000 × $20) $140,000

Special Order variable costs (7,000 x $15) (105,000)

Special Order Income – If Accepted $ 35,000 Special order should be accepted

Special Order revenue [7,000 × ($20 + $2)] $154,000

Special Order variable costs (7,000 x $15) (105,000)

Special Order - Embroidery Machine (8,500)

Special Order Income – If Accepted $ 40,500 Special order is still accepted

Problems

The following operating data was reported by Acer Sports for the month of June, during

which 1,000 rackets and 4,000 packs of racquetballs were produced and sold:

	Rackets	Ball Packs	Total
Sales revenue	$40,000	$20,000	$60,000
Variable costs	23,200	11,000	34,200
Contribution margin	$16,800	$ 9,000	25,800
Fixed costs	9,200	9,200	18,400
Operating income (loss)	$7,600	($200)	$ 7,400

Acer Sports is concerned since this is the sixth consecutive month that the Ball Packs

Has reported an operating loss. Since the company feels that it is not possible to

increase the unit selling price, that it should consider dropping the Ball Packs product

line.

Answer the following questions:

Should companies eliminate segments or product lines if they are unprofitable? Why?
In the case of Acer Sports, prepare an analysis to support whether the Ball Packs line should be dropped or not. Assume that none of the fixed costs can be eliminated.
Should the Ball Packs product line be dropped?
If all $9,200 of Ball Packs fixed costs can be eliminated, should the Ball Packs product line be discontinued?

Ans: N/A, LO 1, 2, 3, and 5, Bloom: AP, Difficulty: Hard, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis.

Solution:

Companies should not eliminate segments or product lines simply because they are unprofitable. A quantitative rule of thumb for a keep versus drop decision is that any fixed costs avoided should be larger than the contribution margin given up by dropping the line. Important factors to consider in this scenario are that by dropping a product line or business segment, the related contribution margin (revenue less variable costs) will be lost, and that there may be related fixed costs that can be avoided.
Contribution Margin – Ball Packs, $0 – Unavoidable fixed costs,$9,200 less original

loss of ($200) results in a decrease in income of $9,000 or the contribution margin

lost of $9,000 will result in the net decrease in operating income of $9,000 for the

company.

The Ball Packs product line should not be dropped, since company income will

decrease.

Since the avoidable fixed costs of $9,200 is greater than the contribution margin of the Ball Packs product line of $9,000, the Ball Packs product line should be eliminated. The

company will be better off, or have $200 ($7,600 - $7,400) more operating income if it

drops the Ball Packs product line.

Speed Tek produces two models of professional swim goggles—Jet and Spirit—both with

fog-free acrylic lenses. Speed Tek has the following information regarding the products for

the month of July:

	Jet	Spirit	Olympian
Number of units	4,400	4,600	4,000
Unit Selling Price	$36	$30	$67
Unit Variable Cost	12	10	38
Unit Contribution Margin	$24	$20	$29
Machine Hours Required	3	4	5

If Speed Tek has no current production constraints, and wishes to maximize its operating income, which product should it produce more of?
If Speed Tek is limited to 4,000 machine hours, which of the products should it produce to maximize its net income?
If Speed Tek were able to get an additional 10,000 machine hours, but only has

demand for the current production in units, which combination of products should it

produce?

Solution:

If Speed Tek has not current production constraints, then it should focus on production

of the Olympian model of the swim goggles since it has the highest unit contribution

margin, to maximize operating income.

	Jet	Spirit	Olympian
Unit Contribution Margin (a)	$24	$20	$29
Machine Hours Required (b)	3	4	5
Contribution Margin per Machine hour (a) ÷ (b)	$8.00	$5.00	$5.80

Now, if Speed Tek has a production constraint of machine hours, the emphasis when

maximizing operating income will be to produce and sell the product with the highest

contribution margin per machine hour, which in this scenario is the Jet model, which

has a contribution margin per machine hour of $8.00.

In order to maximize operating income when an additional 10,000 machine hours are

added, then Speed Tek would first focus on producing as many units of the Jet Model

as demand warrants (4,400 x 3 hours per unit = 13,200 hours). So out of the total

available 14,000 machine hours, Speed Tek would produce the 4,400 units of the Jet

model, and then the remaining 800 machine hours would be allotted to the production

to the next highest contribution margin per machine hour which is $5.80 for the

Olympian model, producing 160 units (800 ÷ 5 hours).

Pate & Murwick, CPAs, employs partners, managers and staff at its center city firm. It is

considering outsourcing some of its accounting work to another firm, thus eliminating the

need for all of the staff positions. The firm believes that it can outsource the work of half of

the staff accountants. A local CPA firm has offered to complete this work for Pate &

Murwick at a rate of $120 per hour.

	Partners	Managers	Staff	Total
Number of employees	2	6	14	22
Billing rate per hour	$280	$180	$120
Labor cost per hour	$220	$140	$90
Target billable hours per employee	1,800	2,500	2,000

The partners estimate the firm will incur variable overhead amounting to 10% of the

professional labor cost and direct fixed overhead amounting to $8 per billable hour of

labor. Total selling and administrative are estimated at $114,000 per year, with 60% of

this being direct fixed costs for the staff accountants.

Determine the savings (if any) if Pate & Murwick were to outsource half of the staff accounting work. Show computations.
Should Pate & Murwick, CPAs outsource half of the work of the staff accountants?
At what rate per hour would Pate & Murwick be willing to consider accepting the proposal to outsource half of the staff accounting work?

Solution:

a.	Insource Staff	Outsource Staff	Difference
Number of employees	14	7
Labor cost per hour	$90	$90
Target billable hours per employee	2,000	2,000

Total Staff Labor cost*	2,520,000	1,260,000	1,260,000
Direct Fixed Overhead (staff)**	224,000	112,000	112,000
Direct Fixed Overhead (staff)***- S & A	68,400	34,200	34,200
Price to Outsource (half of staff)		1,680,000^	(1,680,000)
Total	2,812,400	3,086,200	(273,800)

*Total Staff Labor Cost = Number of employees x Labor cost per hour x Target billable

hours per employee

** Direct Fixed Overhead (staff) = Number of employees x Target billable hours per

employee x $8 per hour

***Direct Fixed Overhead (staff) S & A = $114,000/year x 60% (Insource Staff)

= $114,000/year x 60% x 7/14 (Outsource Staff)

^Price to Ourtsource = 7 x 2,000 x $120

If Pate & Murwick were to outsource half of the staff accounting work, there would be no cost savings. The firm would actually decrease it overall operating income by $273,800 if it outsourced the staff accounting work.
Since the firm would actually decrease it overall operating income by $273,800 if it outsourced the staff accounting work, it should not outsource the staff accounting work
Total Cost (Insource), $2,812,400 – Unavoidable Staff Accounting Costs ($1,260,000 + $112,000 + $34,200) = Total to pay for outsourcing (and not lose income), $1,406,200; $1,406,200 ÷ (7 x 2,000 billable hours) = $100.44 (approximately $100)

A recent accounting hire at Slate Blue Industries, evaluated the operating performance of

company’s various divisions. The following presentation was made to company executives

at a company meeting. During the presentation, the new accountant made the

recommendation to eliminate the Granite Division stating that total net income would

increase by $50,000, as shown in the analysis below.

Other Divisions Granite Division Total

Sales $3,000,000 $990,000 $3,990,000

Cost of Goods Sold 1,850,000 860,000 2,710,000

Gross Profit 1,150,000 130,000 1,280,000

Operating Expenses 700,000 180,000 880,000

Operating Income $ 450,000 $ (50,000) $ 400,000

For the other divisions, cost of goods sold is 80% variable and operating expenses are 75%

variable. The cost of goods sold for the Granite Division is 30% fixed, and its operating

expenses are 80% fixed. If the division is dropped, only $44,000 of the fixed operating costs

will be eliminated.

Is the statement that the new accountant made correct? Should the Granite Division be dropped? Present a schedule to support your answer.
If all of the fixed costs could be eliminated (fixed cost of goods sold and fixed operating expenses) for the Granite Division, would your answer change? Show computations.
What is the minimum amount of fixed costs that must be avoided in order to consider the elimination of the Granite Division to be beneficial for the Slate Blue? Show computations.

Solution:

Net Income

Continue Eliminate Increase (Decrease)

Sales $990,000 $ -0- $(990,000)

Variable Expenses

Cost of goods sold 602,000* -0- 602,000

Operating expenses 36,000 -0- 36,000

Total Variable Costs 638,000 -0- 638,000

Contribution Margin 352,000 -0- (352,000)

Fixed Expenses

Cost of goods sold 258,000* 258,000 -0-

Operating expenses 144,000 100,000 44,000

Operating Income (Loss) $ (50,000) $(358,000) $(308,000)

Cost of goods sold total = $860,000; 70% or $602,000 is variable; 30% or $258,000 is fixed.

Operating expenses = $180,000; 80% or $144,000 is fixed; 20% or $36,000 is variable.

The accountant is not correct. If the Granite Division is dropped, the operating income will be

$308,000 less, not $50,000 greater. Granite Division should not be eliminated. The reduction

in income of $308,000 is the result of the loss of the contribution margin, $352,000, less the

avoidable fixed costs of $44,000.

If all of the fixed costs for the Granite Division could be eliminated, then the impact to

operating income will cause an increase in operating income of $50,000 which results

from the avoidable fixed costs of $402,000 ($258,000 + $144,000) less the

lost contribution margin of $352,000.

The minimum amount of fixed costs which would need to be eliminated in order for it to

be beneficial to Slate Blue to eliminate the Granite Division would be $352,001 ($1 more

than the contribution margin that would be lost if the division was dropped)

Magical Mystery Company makes three different products which most children find

appealing. The following unit price and cost information is available for the three products:

	Wizard Wand	Potion Mixer	Spell Book
Unit Selling Price	$10	$8	$6
Unit Variable Cost	$3	$5	$4

Assuming that Magical Mystery Company can sell all of a particular product that it can produce. On which product should it focus production to maximize its profitability? Would it make sense for Magical Mystery Company to produce only this product and stop producing the other two? Explain your answer. Show computations.
Right after these selling prices and variable cost amounts were specified, there was a significant increase in the price of one of the materials that affected both the cost of the Wizard Wand and the Spell Book. If the unit variable costs for each of the products increased by 30%, on which product should Magical Mystery Company focus on now to maximize operating profit. Show computations.

Solution:

	Wizard Wand	Potion Mixer	Spell Book
Unit Selling Price	$10	$8	$6
Unit Variable Cost	$3	$5	$4
Unit Contribution Margin	$7	$3	$2

Magical Mystery Company should focus on selling more of the Wizard Wand assuming that the demand exists since it has the highest unit contribution margin at $7. It probably would not make sense for the company just to produce the one product given that it has the highest unit contribution margin, because profits are determined also based on the number of units sold. As stated, it assumes that all units produced can be sold, but this may not always be the situation. Demand can change based on customer preference, and by relying on only one product could mean the demise for the company. Also, to promote sales, many companies offering special deals to promote all products by selling a complete package of all of the products, for example, the Magical Mystery Experience which would include a Wizard Wand, Potion Mixer and Spell Book for a price of $20 instead of the $24 that it would be if purchased separately.

	Wizard Wand	Potion Mixer	Spell Book
Unit Selling Price	$10	$8	$6
Unit Variable Cost	$3.90	$5	$5.20
Unit Contribution Margin	$6.10	$3	$.80

Magical Mystery Company should still focus on selling more of the Wizard Wand if the

demand exists since it has the highest unit contribution margin at $6.10.

At Bestco Electronics, it costs $28 per unit ($15 variable and $13 fixed) to make an

EarBuds. The Earbuds normally sell for $40, but a local wholesaler wishes to

buy 3,000 units at $20 each. Bestco Electronics will incur special packaging costs of $1 per

Earbud unit.

Assuming that Bestco Electronics has sufficient operating capacity to accept this special

order, indicate the operating income (loss) Bestco Electronics would realize by accepting

the special order. Show computations.

Now assume that Bestco Electronics has does not have sufficient operating capacity to

accept this special, but that it would need to lease additional equipment for $9,500 for

the special order, indicate the operating income (loss) Bestco Electronics would realize

by accepting the special order. Show computations.

Solution:

	Reject	Accept	Computations
Revenues	$0	$60,000	($2 x 3,000 units)
Unit Variable Cost	0	(45,000)	($15 x 3,000 units)
Additional Packaging	0	(3,000)	($1 x 3,000 units)
Operating Income	$0	$12,000	Accept Special Order

	Reject	Accept	Computations
Revenues	$0	$60,000	($2 x 3,000 units)
Unit Variable Cost	0	(45,000)	($15 x 3,000 units)
Additional Packaging	0	(3,000)	($1 x 3,000 units)
Equipment Lease - Special	0	(9,500)
Operating Income	$0	$2,500	Accept Special Order

Simplex Computer Company must decide whether to make or buy some of its

components. The costs of producing 20,000 cables for its computers are as follows.

Direct materials	$18,000	Variable overhead	$15,000
Direct labor	$10,000	Fixed overhead	$7,000

Instead of making the cables at an average cost of $2.50 ($50,000 / 20,000), the company

has an opportunity to buy the cables at $2.30 per unit. If the company purchases the

cables, all the variable costs and one-fourth of the fixed costs will be eliminated.

	Prepare an analysis showing whether the company should make or buy the cables. Based on your analysis, would you recommend that Simplex continue to make the cables or should the company buy the cables? Show all computations.
b.	Would your answer be different if the released productive capacity will generate additional income of $5,000? Show all computations.

Solution:

a.	Insource	Outsource
Direct Materials	$18,000	$0
Direct Labor	10,000	0
Variable O/H	15,000	0
Fixed O/H	7,000	5,250 (7,000 x ¾)
Purchase Price	0	46,000 ($2.30 x 20,000)
Total Cost	$50,000	$51,250	( $1,250)

Simplex should continue to make the cables in this option, since operating income will

decrease if the production is outsourced.

b.	Insource	Outsource
Total Cost [from (a)]	$50,000	$51,250	($1,250)
Opportunity Cost	5,000	0	5,000
Total Updated Cost	$55,000	$51,250	$3,750

Yes, the answer would be different. Simplex should now outsource the production

of the cables since it would increase the operating income of the company by $3,750.

Crescent Computer Company manufactures tablets and PCs. For the last six months, the

company reported the following operating results while operating at 80% of plant capacity

when 3,000 units were produced and sold:

Sales (3,000 units) $270,000

Variable Costs:

Direct Materials $54,000

Direct Labor 30,000

Variable MOH 12,000

Variable Selling 9,000 105,000

Contribution Margin 165,000

Fixed Costs:

Fixed MOH 38,000

Fixed Selling 104,000 142,000

Operating Income $ 23,000

Orders for the second half of the year have been slower than usual, so when a new

customer contacted the company and requested a special discount, management wanted to

thoroughly evaluate this potential new customer and the possibility of the special order-offer.

Assume that the new customer is requesting 300 units in this special order and offers

$50 per unit. Since the company has contacted the company directly, there are no

variable selling costs associated with the special order. If Crescent Computers has

enough excess capacity to accept this order, how much better or worse off would the

company be? Show computations

Assume now, that the new customer is requesting 200 units in this special order and

offers $40 per unit. Since the company has contacted the company directly, there are no

variable selling costs associated with the special order. Now, though, the new customer

would like special imprinting to put the company name on each tablet which will require

Crescent Computers to purchase a special imprinting machine which will cost $3,000.

If Crescent Computers has enough excess capacity to accept this order, how much better

or worse off would the company be? Show computations

Assume now that the new customer is requesting 150 units in this special order and

offers $45 per unit. Since the company has contacted the company through a sales

representative, the variable selling costs associated with the special order will now be

incurred. If Crescent Computers has enough excess capacity to accept this order, how

much better or worse off would the company be? Show computations

Solution:

	Reject	Accept	Computations
Revenues	$0	$15,000	($50 x 300 units)
Direct Materials	0	(5,400)	($54,000/3,000 units) x 300 units
Direct Labor	0	(3,000)	($30,000/3,000 units) x 300 units
Variable MOH	0	(1,200)	($12,000/3,000 units) x 300 units
Operating Income	$0	$5,400	Accept Special Order

	Reject	Accept	Computations
Revenues	$0	$8,000	($40 x 200 units)
Direct Materials	0	(3,600)	($54,000/3,000 units) x 200 units
Direct Labor	0	(2,000)	($30,000/3,000 units) x 200 units
Variable MOH	0	(800)	($12,000/3,000 units) x 200 units
Special Imprint Machine	0	(3,000)
Operating Income	$0	($1,400)	Do Not Accept Special Order

	Reject	Accept	Computations
Revenues	$0	$6,750	($45 x 150 units)
Direct Materials	0	(2,700)	($54,000/3,000 units) x 150 units
Direct Labor	0	(1,500)	($30,000/3,000 units) x 150 units
Variable MOH	0	(600)	($12,000/3,000 units) x 150 units
Variable Selling	0	(450)	($9,000/3,000 units) x 150 units
Operating Income	$0	$1,500	Accept Special Order

Casper Corporation budgeted 10,000 tablet cases for production during the current year.

Casper has capacity to produce 12,000 units. Fixed factory overhead is allocated to

production. The following estimated costs have been provided:

Direct material ($8/unit) $ 80,000

Direct labor ($15/hr. × 2 hrs./unit) 300,000

Variable manufacturing overhead ($3/unit) 30,000

Fixed factory overhead costs ($5/unit) 50,000

Total $460,000

Cost per unit = $46 ($460,000 ÷ 10,000)

Answer each of the following independent questions:

Casper recently received an order for 1,000 units from a new customer in a state in

which it has never done business. This new customer has offered $43 per tablet

case. Should Casper accept or reject the order? Show calculations.

Casper also received an offer from a different company to manufacture the same

quality widgets for $39. Should Casper outsource the manufacturing all 10,000

widgets and instead, focus only on distribution? Show calculations.

Solution:

Special Order unit revenue per tablet case $43

Special Order unit cost per tablet case: $8 + ($15 × 2) + $3 = 41

Special Order Contribution Margin per unit $ 2

Total Special Order Operating Income = $2 × 1,000 = $2,000; Casper should accept the

special order because it will increase operating income by $2,000.

Unit Cost to make per tablet case: $8 + ($15 × 2) + $3 = $41

Unit Cost to buy per tablet case 39

Cost savings per tablet case if purchased $ 2

Total cost savings if purchased = $2 × 10,000 = $20,000; Yes, Casper should outsource

the tablet case production since it will save $20,000 which will increase operating income

by $20,000.

Speedy Sneaker Co. produces and distributes three types sneakers/running shoes.

Information for the past quarter on these three products is shown below.

	Sport Max	Air Force	Air Max
Price per Unit	$70	$100	$180
Units Sold	4,000	3,000	3,000
Unit Variable Costs	$30	$50	$120
Direct Fixed Costs	$40,000	$60,000	$110,000
Production time	2 hours	4 hours	6 hours

If there is no resource constraint, which type of sneaker should Speedy Sneaker

manufacture to maximize its operating income? Show computations

If there is a resource constraint of limited machine hours, which type of sneaker should

Speedy Sneaker manufacture to maximize its operating income if it only has 2,000

machine hours per month? Show computations

If Speedy Sneaker’s management feels that production should be distributed equally

among all product types, compute the operating income if it is assumed that 3,000 total

units can be produced, with 1/3 allotted to each product line, and then compare the

operating income computed if all 3,000 units were allotted to the sneaker selected in (a).

Solution:

	Sport Max	Air Force	Air Max
Price per Unit	$70	$100	$180
Less: Unit Variable Costs	30	50	120
Unit Contribution Margin	$40	$50	$60
Production time	2 hours	4 hours	6 hours

Speedy Sneaker should focus production on the Air Max since it has the highest

unit contribution margin at $60.

	Sport Max	Air Force	Air Max
Price per Unit	$70	$100	$180
Less: Unit Variable Costs	30	50	120
Unit Contribution Margin	$40	$50	$60
Production time	2 hours	4 hours	6 hours
Contribution Margin per Machine hour	$20	$12.50	$10

Given that Speedy Sneaker has a resource constraint, it should use the contribution

margin per unit of constrained resource as the basis for selection. As such, Speedy

Sneaker should therefore, focus production on the Sport Max since it has the highest

contribution margin per machine hours at $20.

	Sport Max	Air Force	Air Max
Price per Unit	$70	$100	$180
Less: Unit Variable Costs	30	50	120
Unit Contribution Margin	$40	$50	$60
Production/Sales	1,000	1,000	1,000
Operating Income	$40,000	$50,000	$60,000

Total Operating Income = $40,000 + $50,000 + $60,000 = $150,000

	Sport Max	Air Force	Air Max
Price per Unit	$70	$100	$180
Less: Unit Variable Costs	30	50	120
Unit Contribution Margin	$40	$50	$60
Production/Sales	0	0	3,000
Operating Income	$0	$0	$180,000

Total Operating Income = $0 + $0 + $180,000 = $180,000

Speedy Sneaker is better off by $30,000 ($180,000 - $150,000) if it selects to

allot all production and sales to the Air Max sneaker exclusively, instead of splitting

production/sales equally between the three product lines.

SHORT ANSWER

What are the five steps in the decision-making framework?

Solution:

Clearly outline the problem and its related unknowns;
Identify suitable options and gather relevant qualitative and quantitative information,

making informed assumptions as need be;

Calculate relevant costs and benefits for each option;
Select the option that maximizes the benefit to the organization and meet required

qualitative criteria; and

Implement your decision.

Ans: N/A, LO 1, Bloom: K, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis, Business Acumen & Operations: Operational Knowledge.

Assume you are planning to travel to your work conference in a neighboring state. You

have various options for travel to the work conference: plane, train, bus or auto. Obviously,

you can measure the quantitative information, but it is sometimes difficult to identify the

qualitative information. List at least 3 qualitative considerations to be factored into your

decision-making process. (Answers will likely differ for each student’s response)

Solution:

If flying, it will take less time than any other method of transportation. If you get to your

destination faster, you can spend more time sightseeing or attending event activities.

If traveling by plane, train, or bus, you can use the time to do other things such as nap,

work, play a game, listen to music or watch a movie on a device.

If traveling by any other method other than auto, you have less stress and anxiety.
Traveling by automobile, train or bus, you get a chance to see the view of the various

states – sightsee.

If traveling by auto, you can set your own time schedule, and can make frequent stops.

Ans: N/A, LO 1, Bloom: C, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis, Business Acumen & Operations: Operational Knowledge.

In the decision-making framework, why should both relevant quantitative and qualitative

information be gathered to assist in making an informed decision?

Solution: In making an informed decision using the decision-making framework, it is

essential to gather both relevant quantitative and qualitative information, since the

decision-maker may place more weight on qualitative information than quantitative

information. For example, although you may select to use air travel to reach your desired

destination, even though it has a higher overall quantitative cost, qualitative information

such as less time to reach your destination and time and ability to relax or do other

activities while traveling evidently outweigh the additional cost over driving an automobile

to your desired destination.

Identify and explain the types of relevant costs that should be considered when using the

decision-making framework.

Solution: The first costs that should be considered when using the decision-making

framework are differential or incremental costs. These costs differ in amount between

alternatives and help narrow the decision. The second costs that should be include in

decision analysis are avoidable costs. If costs can be avoided, then they only occur under

certain conditions. The last costs to be considered as relevant are future costs. Every

relevant cost happens in the future since any past cost is a sunk cost and irrelevant

because it cannot be changed.

Ans: N/A, LO 2, Bloom: C, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis, Business Acumen & Operations: Operational Knowledge.

Identify the two different types of problem-solving approaches in the decision-making

framework and explain the differences between the two approaches.

Solution: The two types of problem-solving approaches in the decision-making framework

are the total cost approach and the relevant (differential) cost approach. In the total cost

approach, all cost information (relevant and non-relevant) is gathered. This will include a

large pool of costs. In this approach, you may gather too many options and costs, thus

making the choices too complex. An alternative to the total cost approach in the relevant

(differential) cost approach which focuses strictly on the costs that differ between

alternatives. By using the relevant cost approach, you are able to narrow down the

choices, speed up the decision-making process and simplify the process. Nevertheless,

regardless of the approach used, if you have done either of the two approaches

accurately, you will be signaled toward the same option decision in each case.

Describe a sunk cost and give an example of one in the decision-making process.

Solution: Sunk costs are past costs that have already been incurred and cannot be

undone. Sunk costs do not impact the decision-making process since they are not

relevant. Examples of sunk costs are the past purchase of assets such as land, building

or equipment, or expenses incurred in a previous period such are repairs and

maintenance costs on assets.

Identify and describe the four broad categories of management decisions.

Solution:

Insource versus outsource – also known as the make versus buy decision, addresses

whether a business should manufacture a product or buy it from a supplier.

Keep versus drop – addresses whether to retain or eliminate a product line or segment

of a business, because it is experiencing an operating loss or the product is obsolete.

Product mix decisions, with or without constrained resources – involves determining

which specific products or services, and how many of each to make, stock, or offer is a

company’s product mix, which then leads to a company’s sales mix, with or without a

limited resource causing production limitations such as machine hours or labor hours.

Special orders – include sales opportunities that companies contemplate in the short-

term to respond to a customer’s special request, typically at a selling price per unit that is

lower than that charged to normal customers. Companies must always address whether

it has available capacity to fulfill the special order first to effectively make the correct

decision.

Ans: N/A, LO 3, Bloom: K, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis, Business Acumen & Operations: Operational Knowledge.

Describe the insource versus outsource management decision and the criteria for making

this decision.

Solution: Insource versus outsource – also known as the make versus buy decision,

addresses whether a business should manufacture a product or buy it from a supplier.

In the insource versus outsource management decision, managers compare the relevant

costs, including both qualitative and quantitative considerations, using a total cost

approach or a relevant cost approach. Only relevant costs are evaluated in this analysis,

the least costly approach is the optimal decision. Cost savings is translated into increase

in operating income.

Describe the keep versus drop management decision and the criteria for making this

decision.

Solution: Keep versus drop - addresses whether to retain or eliminate a product line or

segment of a business. A quantitative rule of thumb for a keep versus drop decision is

that any fixed costs avoided should be larger than the contribution margin given up by

dropping the line. Important factors to consider in this scenario are that by dropping a

product line or business segment, the related contribution margin (revenue less variable

costs) will be lost, and that there may be related fixed costs that can be avoided.

Describe the product mix decision and the criteria for making this decision.

Solution: Product mix decisions, with or without constrained resources – involves

determining which specific products or services, and how many of each to make, stock, or

offer is a company’s product mix, which then leads to a company’s sales mix. In simple

product mix decisions, products are chosen to maximize the contribution margin per unit,

when then maximize the company’s total contribution margin, and in turn, the operating

income. For product mix decisions with a constrained resource, products are selected that

maximize by using the contribution margin per unit of constrained resource, such as the

contribution margin per machine hour.

Describe the special-order management decision and the criteria for making the

this decision.

Solution: Special orders include sales opportunities that companies contemplate in the

short-term to respond to a customer’s special request, typically at a selling price per unit

that is lower than that charged to normal customers. Companies must always address

whether it has available capacity to fulfill the special order first to effectively make the

correct decision. If the company does have enough available capacity, then it can

determine the special-order decision by comparing the contribution margins of the two

options, excluding the fixed costs in the analysis. If available capacity does not exist to

fulfill the special order, then fixed costs must be factored into the decision-making process,

and operating incomes of the two options would need to be compared instead of using the

contribution margins of the options.

What is an opportunity cost?

Solution: An opportunity cost signifies options and benefits of alternatives in the

management decision-making framework, which were explored but were rejected in

arriving at the chosen outcome. The costs and benefits of those paths not taken

represent the opportunity costs.

Ans: N/A, LO 4, Bloom: C, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis, Business Acumen & Operations: Operational Knowledge.

How are opportunity costs accounted for?

Solution: Since opportunity costs are options and benefits of alternatives in management

decision-making which were explored but were rejected in arriving at the chosen

outcome, they are not recorded anywhere in the accounting records. These costs and

benefits are simply used in the evaluation process of alternatives and options.

Describe direct fixed costs and their impact on the decision-making process.

Solution: Direct fixed costs are fixed costs which are clearly attributable to a specific

product line or business segment. Without these fixed costs, the product or product line

cannot be made or the segment cannot fully function. In the decision-making process, if

the product or product line are eliminated or the business segment is discontinued, then

the direct fixed costs are using avoidable and as such are relevant to the decision-making

process.

Ans: N/A, LO 5, Bloom: C, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management and Decision Analysis, Business Acumen & Operations: Operational Knowledge.

Define segment margin and its importance in the decision-making framework.

Solution: Segment margin is equal to sales revenue less variable costs and direct fixed

costs. Where there is more than one segment or division within a company, an income

statement should show the results by segment. The segment margin measures the

economic value that each segment provides to the organization. If the focus was strictly on

the operating loss for each segment or division when considering whether to keep versus

drop an unprofitable product, product line or segment, it may mask the true economic value

of it.

Describe common fixed costs and how they impact management decision-making.

Solution: Common fixed costs are the overall costs of providing the operations of the

factory. Such costs are shared among the product lines or segments of the company.

Therefore, these costs will still be incurred if one product line or business segment is

dropped or discontinued. Common fixed costs are not differential and thus, are not

relevant in the management decision-making process (make versus buy or keep versus

drop.) These costs can only be avoided or eliminated if the entire company were to go out

of business.

What are allocated fixed costs and what is their impact on management decision-making?

Solution: Allocated fixed costs are centrally-incurred, nonmanufacturing fixed costs. The

typically occur when an organization has a parent company or a head office that supports

multiple branch or subsidiary locations. For example, the head office may provide all of

the legal, accounting, marketing and research and development services for all divisions

within the company. Branch managers will not control over the amount or the allocation of

these costs to their divisions. These costs can only be reduced by corporate restructuring

or only eliminated when the company goes out of business.

Document Information

Document Type:

DOCX

Chapter Number:

Created Date:

Aug 21, 2025

Chapter Name:

Chapter 5 Relevant Costs For The Decision[1]maker

Author:

Karen Congo Farmer

Connected Book

Chapter Test Bank | Cost Accounting & Analytics 1e

By Karen Congo Farmer

Test Bank General

View Product →

Explore recommendations drawn directly from what you're reading

Chapter 3 Cost Behavior And Cost Estimation

DOCX Ch. 3

Chapter 4 Cost Volume Profit Analysis

DOCX Ch. 4

Chapter 5 Relevant Costs For The Decision[1]maker

DOCX Ch. 5 Current

Chapter 6 Mastering The Master Budget

DOCX Ch. 6

Chapter 7 Capital Budgeting Choices And Decisions

DOCX Ch. 7

$24.99

100% satisfaction guarantee

Buy Full Test Bank

Quick Navigation

Preview Document Info Connected Book Recommendations

Benefits

Immediately available after payment

Answers are available after payment

ZIP file includes all related files

Files are in Word format (DOCX)

Check the description to see the contents of each ZIP file

We do not share your information with any third party

Test Bank Chapter 5 Relevant Costs For The Decision[1]maker

Current count is:

Knowledge: 51

Comprehension: 22

Application: 60

Analysis: 2

Evaluation: 0

Synthesis: 0

Total: 134

Number and percentage of questions:

Easy: 35 questions, 26 percent (target of 25%)

Medium: 86 questions, 64 percent (target of 65%)

Hard: 13 questions, 10 percent (target of 10%)

Question types:

Multiple Choice: 75

Brief Exercises: 18

Exercises: 14

Problems: 10

Short Answer: 17

MULTIPLE CHOICE QUESTIONS

Document Information

Connected Book

Chapter Test Bank | Cost Accounting & Analytics 1e

Explore recommendations drawn directly from what you're reading

$24.99

Quick Navigation

Benefits

Report Unauthorized Use

Added to Cart