Cost Accounting – Week 8

Average Rating

5 out of 5 stars. 1 votes.

Question 1

True or False: Sunk costs are always relevant to a short-term incremental analysis.

True
Selected:FalseThis answer is correct.

Correct! A sunk cost is typically not relevant to a short-term incremental analysis.

0/1

Question 2

The Swiss Chocolate Manufacturing Company manufactures chocolate truffles. Its volume is 5,000 boxes per month. It is deciding whether to automate its chocolate dipping operations, which are currently completed by hand. Recently, the company received a special offer from an outside supplier regarding the automating equipment. The costs to make each box of chocolate include:

Direct materials	$2.50
Labor	$2.00
Variable overhead	$1.50
Fixed overhead	$2.00

All labor is attributable to dipping operations. The cost of the machine is $240,000; it has a two-year life and there is no salvage value. Should the company replace the machine?

yes, because even though the impact on total operating income per year is zero, it will mean less administration for the company
no, because the impact on total operating income per year is a $5,000 loss
Selected: yes, because the impact on total operating income per year is a $25,000 gainThis answer is incorrect.
no, because the impact on total operating income is zero, and employee morale will likely be negatively affected

Reconsider your response. Review the information in Module 8, Page III regarding the decision for an equipment replacement.

0/1

Question 3

Swiss Chocolate Manufacturing Company produces boxes of luxury truffles in heart-shaped boxes. The company received a special order from a discount retailer for 30,000 units of product at $16 per box. The company has excess capacity available to accommodate this additional production. Details of the company’s normal revenue and costs are:

Normal revenue	$22
Unit manufacturing costs:
Variable	$11
Fixed	$6

The effect on operating income if the order is accepted will be a ________.

$30,000 loss
Selected: $40,000 gainThis answer is incorrect.
$150,000 gain
$50,000 gain

Reconsider your response. Look at Module 8 again, specifically Page II, to understand the critical points in assessing a special order.

0/1

Question 4

Which of these decisions involves a consideration to manufacture a product within the company or source the product from a supplier?

Selected: special-orderThis answer is incorrect.
continue or discontinue
opportunity manufacturing
make-or-buy

Reconsider your response. Look at Module 8 again, specifically Page II.

0/1

Question 5

Swiss Chocolate Manufacturing Company produces boxes of luxury truffles in heart-shaped boxes. Its volume is 10,000 units per month. Recently, the company received a special offer from an outside supplier regarding the manufacture of its boxes, which Swiss Chocolate currently makes in-house. The costs to make the boxes include:

Direct materials	$2.50
Labor	$1.00
Variable overhead	$1.50
Fixed overhead	$2.00

The supplier’s offer was $4.50 per box. The effect on operating income if the offer is accepted will be ________.

Selected: a $135,000 gainThis answer is incorrect.
a $5,000 gain
a $135,000 loss
no change

Reconsider your response. Look at Module 8 again, specifically Page II, to understand the critical points in assessing a make-or-buy decision.

0/1

Question 6

Twisty Taffy Company produces bags of saltwater taffy that are sold in cases, and retailed at seaside resorts. Its normal selling price is $30 per case; each case contains 15 bags of taffy. The variable costs are $15 per case. Fixed costs are $25,000 for a normal production run of 5,000 cases per month. Twisty Taffy received a special order from an existing customer which it could accommodate without displacing current capacity. The order was for 1,500 units at a special price of $17 per unit; a variable shipping cost of $2 per unit is not included in the variable costs and would be applicable for this order. Should the order be accepted, and what is its impact on operating income?

No answer provided

It should be rejected; there is zero profit on the transaction.
It should be accepted; there is zero profit so the company is indifferent in the decision.
It should be accepted; although there is zero profit on the transaction, it is for an existing customer.
The answer cannot be determined from the information given.

Reconsider your response. Review Chapter 11 in your text and the example in Module 7, Page II to calculate the operating income effect of a special order.

0/1

Question 7

Tasty Toffee Company sells toffee and chocolate bars in cases at a price of $40 per case. Tasty Toffee’s cost per case based on the full capacity of 500,000 cases follows:
Direct materials $ 6
Direct labor 3
Indirect manufacturing (60% of which is fixed)
10
Case cost $19
A customer contacts Tasty Toffee to fill a special order, offering to buy 50,000 cases at $15. The incremental distribution costs are $4 per case, which must be incurred by Tasty Toffee for shipping. The company has idle capacity to accommodate the order. Should the order be accepted?

no, since the result is a loss of $100,000
no, since the result is a loss of $15,000
Selected: yes, since the result is a gain of $100,000This answer is incorrect.
cannot be determined from the information given

Reconsider your response. Review Module 8, Page II. Also, review Chapter 11 of your text for the costs relevant to making a special-order decision.

0/1

Question 8

True or False: When a company has idle capacity, it should not consider equipment replacement decisions, since it should conserve cash while it is not absorbing all fixed overhead.

TrueThis answer is incorrect.
False

Reconsider your response. Review Chapter 11 in your text for considerations regarding idle capacity.

1/1

Question 9

True or False: If a product-mix decision is undertaken, the product with the highest gross margin should be prioritized, as it will contribute the most to the breakeven point.

True
Selected:FalseThis answer is correct.

Correct! The product with the highest contribution margin rather than the highest gross margin should be prioritized. The impact of the highest gross margin item on the breakeven point is indeterminable without specific amounts to consider.

0/1

Question 10

Swiss Chocolate Manufacturing Company produces boxes of luxury truffles in heart-shaped boxes. The company received a special order from a discount retailer for 30,000 units of product at $13 per box. The company has excess capacity available to accommodate this additional production. Details of the company’s normal revenue and costs are:

Normal revenue	$22
Unit manufacturing costs:
Variable	$11
Fixed	$6

If Swiss Chocolate Manufacturing Company must incur $3 per unit to customize packaging and drop ship each box, should the order be accepted?

no, since the special order results in a $30,000 loss
Selected: yes, since the special order results in a $40,000 gainThis answer is incorrect.
yes, since the special order results in a $150,000 gain
no, since the special order results in a $50,000 loss

Reconsider your response. Look at Module 8 again, specifically Page II, to understand the critical points in assessing a special order.

0/1

Question 1

no, since the result is a loss of $100,000
no, since the result is a loss of $15,000
yes, since the result is a gain of $100,000
Selected: cannot be determined from the information givenThis answer is incorrect.

Reconsider your response. Review Module 8, Page II. Also, review Chapter 11 of your text for the costs relevant to making a special-order decision.

0/1

Question 2

True or False: The book value of a particular piece of equipment is very important in the consideration of its replacement.

TrueThis answer is incorrect.
False

Reconsider your response. Review Chapter 11 of your text and Module 8, page III.

1/1

Question 3

Twisty Taffy Company produces bags of saltwater taffy that are sold in cases, and retailed at seaside resorts. Its normal selling price is $30 per case; each case contains 15 bags of taffy. The variable costs are $19 per case. Fixed costs are $25,000 for a normal production run of 5,000 cases per month. Twisty Taffy received a special order from an existing customer which it could accommodate without displacing current capacity. The order was for 1,500 units at a special price of $20 per unit; a variable selling cost of $1 per unit included in the variable costs would not be relevant for this order. If the order is accepted, the impact on operating income would be a(n) ________.

decrease of $750
decrease of $4,500
Selected: increase of $3,000This answer is correct.
increase of $1,500

Correct! The contribution margin per unit of the order is: $20 – ($19 – $1) = $2 per unit; $2 per unit X 1,500 units = $3,000.

1/1

Question 4

A viable approach in managing a bottleneck is to ________.

Selected: identify the bottleneck by reviewing work-in-processThis answer is correct.
identify the non-bottleneck resources by process of elimination
prioritize all other operations to the non-bottleneck operation
increase the efficiency of the non-bottleneck operation, and the bottleneck will be eliminated eventually

Correct! Identifying a bottleneck is the first step in its elimination. Therefore, review work-in-process for the best approach.

1/1

Question 5

True or False: If a product-mix decision is undertaken, the product with the highest gross margin should be prioritized, as it will contribute the most to the breakeven point.

True
Selected:FalseThis answer is correct.

1/1

Question 6

True or False: Time value of money effects are irrelevant for short-term decision-making under one year.

Selected:TrueThis answer is correct.
False

Correct! If the proposed expenses will only be applicable for a year, then no time value of money effects are relevant.

0/1

Question 7

Selected: It should be rejected; there is zero profit on the transaction.This answer is incorrect.
It should be accepted; there is zero profit so the company is indifferent in the decision.
It should be accepted; although there is zero profit on the transaction, it is for an existing customer.
The answer cannot be determined from the information given.

Reconsider your response. Review Chapter 11 in your text and the example in Module 7, Page II to calculate the operating income effect of a special order.

1/1

Question 8

True or False: Sunk costs are always relevant to a short-term incremental analysis.

True
Selected:FalseThis answer is correct.

Correct! A sunk cost is typically not relevant to a short-term incremental analysis.

0/1

Question 9

True or False: When a company has idle capacity, it should not consider equipment replacement decisions, since it should conserve cash while it is not absorbing all fixed overhead.

TrueThis answer is incorrect.
False

Reconsider your response. Review Chapter 11 in your text for considerations regarding idle capacity.

0/1

Question 10

Direct materials	$2.50
Labor	$2.00
Variable overhead	$1.50
Fixed overhead	$2.00

All labor is attributable to dipping operations. The cost of the machine is $250,000; it has a two-year life and there is no salvage value. Should the company replace the machine?

Selected: yes, because the impact on total operating income per year is a $5,000 gainThis answer is incorrect.
no, because the impact on total operating income per year is a $5,000 loss
yes, because the impact on total operating income per year is a $25,000 gain
no, because the impact on the unemployment rate will result in bad publicity for the company

Reconsider your response. Review the information in Module 8, Page III regarding the decision for an equipment replacement.

1/1

Question 1

Tasty Toffee Company sells toffee and chocolate bars in cases at a price of $40 per case. Tasty Toffee’s cost per case based on the full capacity of 500,000 cases follows:
Direct materials $ 6
Direct labor 3
Indirect manufacturing (60% of which is fixed)
10
Case cost $19
A customer contacts Tasty Toffee to fill a special order, offering to buy 50,000 cases. The incremental distribution costs are $4 per case, which must be incurred by Tasty Toffee for shipping. The company has idle capacity to accommodate the order. The minimum selling price per case should be at least ________.

Selected: $17This answer is correct.
$19
$21
$23

Correct! Total variable cost of the order per case = $6 + $3 + (40% X 10 = $4) + $4 = $17.

0/1

Question 2

Normal revenue	$22
Unit manufacturing costs:
Variable	$11
Fixed	$6

The effect on operating income if the order is accepted will be a ________.

$30,000 loss
$40,000 gain
$150,000 gain
Selected: $50,000 gainThis answer is incorrect.

Reconsider your response. Look at Module 8 again, specifically Page II, to understand the critical points in assessing a special order.

1/1

Question 3

Direct materials	$2.50
Labor	$2.00
Variable overhead	$1.50
Fixed overhead	$2.00

All labor is attributable to dipping operations. The cost of the machine is $250,000; it has a two-year life and there is no salvage value. Should the company replace the machine?

yes, because the impact on total operating income per year is a $5,000 gain
Selected: no, because the impact on total operating income per year is a $5,000 lossThis answer is correct.
yes, because the impact on total operating income per year is a $25,000 gain
no, because the impact on the unemployment rate will result in bad publicity for the company

Correct! The total cost of the machine per year is $250,000/2 = $125,000. The annual cost of current dipping operations is $2 X 5,000 X 12 = $120,000. Therefore, the manual labor is less expensive.

1/1

Question 4

Twisty Taffy Company produces bags of saltwater taffy that are sold in cases, and retailed at seaside resorts. Its normal selling price is $30 per case; each case contains 15 bags of taffy. The variable costs are $19 per case. Fixed costs are $25,000 for a normal production run of 5,000 cases per month. Twisty Taffy received a special order from an existing customer which it could accommodate without displacing current capacity. The order was for 1,500 units at a special price of $20 per unit; a variable selling cost of $1 per unit included in the variable costs would not be relevant for this order. If the order is accepted, the impact on operating income would be a(n) ________.

decrease of $750
decrease of $4,500
Selected: increase of $3,000This answer is correct.
increase of $1,500

Correct! The contribution margin per unit of the order is: $20 – ($19 – $1) = $2 per unit; $2 per unit X 1,500 units = $3,000.

0/1

Question 5

It should be rejected; there is zero profit on the transaction.
It should be accepted; there is zero profit so the company is indifferent in the decision.
It should be accepted; although there is zero profit on the transaction, it is for an existing customer.
Selected: The answer cannot be determined from the information given.This answer is incorrect.

Reconsider your response. Review Chapter 11 in your text and the example in Module 7, Page II to calculate the operating income effect of a special order.

0/1

Question 6

Direct materials	$2.50
Labor	$1.00
Variable overhead	$1.50
Fixed overhead	$2.00

The supplier’s offer was $4.50 per box. The effect on operating income if the offer is accepted will be ________.

a $135,000 gain
a $5,000 gain
Selected: a $135,000 lossThis answer is incorrect.
no change

Reconsider your response. Look at Module 8 again, specifically Page II, to understand the critical points in assessing a make-or-buy decision.

1/1

Question 7

Selected: no, since the result is a loss of $100,000This answer is correct.
no, since the result is a loss of $15,000
yes, since the result is a gain of $100,000
cannot be determined from the information given

Correct! Total variable cost of the order per case = $6 + $3 + (40% X 10 = $4) + $4 = $17. The offer is for $15 per case, so there would be a net loss of $2 per case. The order should not be accepted as it will result in a $100,000 loss.

1/1

Question 8

A viable approach in managing a bottleneck is to ________.

Selected: identify the bottleneck by reviewing work-in-processThis answer is correct.
identify the non-bottleneck resources by process of elimination
prioritize all other operations to the non-bottleneck operation
increase the efficiency of the non-bottleneck operation, and the bottleneck will be eliminated eventually

Correct! Identifying a bottleneck is the first step in its elimination. Therefore, review work-in-process for the best approach.

1/1

Question 9

True or False: The book value of a particular piece of equipment is very important in the consideration of its replacement.

True
Selected:FalseThis answer is correct.

Correct! The book value of a particular piece of equipment is not a consideration in its replacement, since it is a sunk cost.

1/1

Question 10

The most constrained resource is called the ________.

lost opportunity
Selected: bottleneckThis answer is correct.
negative contribution margin
negative capacity

Correct! The most constrained resource is called the bottleneck.

0/1

Question 1

Direct materials	$2.50
Labor	$1.00
Variable overhead	$1.50
Fixed overhead	$2.00

The supplier’s offer was $6.50 per box. The effect on operating income if the offer is accepted will be ________.

a $200,000 gain
a $15,000 loss
Selected: a $50,000 gainThis answer is incorrect.
no change

Reconsider your response. Look at Module 8 again, specifically Page II, to understand the critical points in assessing a make-or-buy decision.

0/1

Question 2

Normal revenue	$22
Unit manufacturing costs:
Variable	$11
Fixed	$6

The effect on operating income if the order is accepted will be a ________.

Selected: $30,000 lossThis answer is incorrect.
$40,000 gain
$150,000 gain
$50,000 gain

Reconsider your response. Look at Module 8 again, specifically Page II, to understand the critical points in assessing a special order.

1/1

Question 3

It should be rejected; there is zero profit on the transaction.
It should be accepted; there is zero profit so the company is indifferent in the decision.
Selected: It should be accepted; although there is zero profit on the transaction, it is for an existing customer.This answer is correct.
The answer cannot be determined from the information given.

Correct! The contribution margin per unit of the order is: $20 – ($19 – $1) = $2 per unit; $2 per unit X 1,500 units = $3,000.

1/1

Question 4

True or False: If a product-mix decision is undertaken, the product with the highest gross margin should be prioritized, as it will contribute the most to the breakeven point.

True
Selected:FalseThis answer is correct.

1/1

Question 5

Twisty Taffy Company produces bags of saltwater taffy that are sold in cases, and retailed at seaside resorts. Its normal selling price is $30 per case; each case contains 15 bags of taffy. The variable costs are $19 per case. Fixed costs are $25,000 for a normal production run of 5,000 cases per month. Twisty Taffy received a special order from an existing customer which it could accommodate without displacing current capacity. The order was for 1,500 units at a special price of $20 per unit; a variable selling cost of $1 per unit included in the variable costs would not be relevant for this order. If the order is accepted, the impact on operating income would be a(n) ________.

decrease of $750
decrease of $4,500
Selected: increase of $3,000This answer is correct.
increase of $1,500

Correct! The contribution margin per unit of the order is: $20 – ($19 – $1) = $2 per unit; $2 per unit X 1,500 units = $3,000.

1/1

Question 6

Which of these decisions involves a consideration to manufacture a product within the company or source the product from a supplier?

special-order
continue or discontinue
opportunity manufacturing
Selected: make-or-buyThis answer is correct.

Correct! A make-or-buy decision relates to the choice of external purchase or internal manufacture of a specific product.

1/1

Question 7

True or False: The book value of a particular piece of equipment is very important in the consideration of its replacement.

True
Selected:FalseThis answer is correct.

Correct! The book value of a particular piece of equipment is not a consideration in its replacement, since it is a sunk cost.

1/1

Question 8

Direct materials	$2.50
Labor	$2.00
Variable overhead	$1.50
Fixed overhead	$2.00

All labor is attributable to dipping operations. The cost of the machine is $250,000; it has a two-year life and there is no salvage value. Should the company replace the machine?

yes, because the impact on total operating income per year is a $5,000 gain
Selected: no, because the impact on total operating income per year is a $5,000 lossThis answer is correct.
yes, because the impact on total operating income per year is a $25,000 gain
no, because the impact on the unemployment rate will result in bad publicity for the company

Correct! The total cost of the machine per year is $250,000/2 = $125,000. The annual cost of current dipping operations is $2 X 5,000 X 12 = $120,000. Therefore, the manual labor is less expensive.

1/1

Question 9

True or False: When a company has idle capacity, it should not consider equipment replacement decisions, since it should conserve cash while it is not absorbing all fixed overhead.

True
Selected:FalseThis answer is correct.

Correct! Equipment replacement decisions may allow the company to manufacture different products and thus attract different customers. This would ideally allow the company to fill idle capacity.

1/1

Question 10

The most constrained resource is called the ________.

lost opportunity
Selected: bottleneckThis answer is correct.
negative contribution margin
negative capacity

Correct! The most constrained resource is called the bottleneck.

1/1

Question 1

Swiss Chocolate Manufacturing Company produces boxes of luxury truffles in heart-shaped boxes. The company received a special order from a discount retailer for 30,000 units of product at $13 per box. The company has excess capacity available to accommodate this additional production. Details of the company’s normal revenue and costs are:

Normal revenue	$22
Unit manufacturing costs:
Variable	$11
Fixed	$6

If Swiss Chocolate Manufacturing Company must incur $3 per unit to customize packaging and drop ship each box, should the order be accepted?

Selected: no, since the special order results in a $30,000 lossThis answer is correct.
yes, since the special order results in a $40,000 gain
yes, since the special order results in a $150,000 gain
no, since the special order results in a $50,000 loss

Correct! The unit contribution margin of the order is $13 – $11 – $3 = – $1. No, it should not be accepted, since the total effect on operating income is the contribution margin per unit multiplied by the total units: -$1 X 30,000 = -$30,000.

1/1

Question 2

The most constrained resource is called the ________.

lost opportunity
Selected: bottleneckThis answer is correct.
negative contribution margin
negative capacity

Correct! The most constrained resource is called the bottleneck.

1/1

Question 3

Direct materials	$2.50
Labor	$2.00
Variable overhead	$1.50
Fixed overhead	$2.00

All labor is attributable to dipping operations. The cost of the machine is $250,000; it has a two-year life and there is no salvage value. Should the company replace the machine?

yes, because the impact on total operating income per year is a $5,000 gain
Selected: no, because the impact on total operating income per year is a $5,000 lossThis answer is correct.
yes, because the impact on total operating income per year is a $25,000 gain
no, because the impact on the unemployment rate will result in bad publicity for the company

Correct! The total cost of the machine per year is $250,000/2 = $125,000. The annual cost of current dipping operations is $2 X 5,000 X 12 = $120,000. Therefore, the manual labor is less expensive.

1/1

Question 4

Tasty Toffee Company sells toffee and chocolate bars in cases at a price of $40 per case. Tasty Toffee’s cost per case based on the full capacity of 500,000 cases follows:
Direct materials $ 6
Direct labor 3
Indirect manufacturing (60% of which is fixed)
10
Case cost $19
A customer contacts Tasty Toffee to fill a special order, offering to buy 50,000 cases. The incremental distribution costs are $4 per case, which must be incurred by Tasty Toffee for shipping. The company has idle capacity to accommodate the order. The minimum selling price per case should be at least ________.

Selected: $17This answer is correct.
$19
$21
$23

Correct! Total variable cost of the order per case = $6 + $3 + (40% X 10 = $4) + $4 = $17.

1/1

Question 5

Twisty Taffy Company produces bags of saltwater taffy that are sold in cases, and retailed at seaside resorts. Its normal selling price is $30 per case; each case contains 15 bags of taffy. The variable costs are $19 per case. Fixed costs are $25,000 for a normal production run of 5,000 cases per month. Twisty Taffy received a special order from an existing customer which it could accommodate without displacing current capacity. The order was for 1,500 units at a special price of $20 per unit; a variable selling cost of $1 per unit included in the variable costs would not be relevant for this order. If the order is accepted, the impact on operating income would be a(n) ________.

decrease of $750
decrease of $4,500
Selected: increase of $3,000This answer is correct.
increase of $1,500

Correct! The contribution margin per unit of the order is: $20 – ($19 – $1) = $2 per unit; $2 per unit X 1,500 units = $3,000.

1/1

Question 6

Which of these decisions involves a consideration to manufacture a product within the company or source the product from a supplier?

special-order
continue or discontinue
opportunity manufacturing
Selected: make-or-buyThis answer is correct.

Correct! A make-or-buy decision relates to the choice of external purchase or internal manufacture of a specific product.

1/1

Question 7

Direct materials	$2.50
Labor	$1.00
Variable overhead	$1.50
Fixed overhead	$2.00

The supplier’s offer was $6.50 per box. The effect on operating income if the offer is accepted will be ________.

a $200,000 gain
Selected: a $15,000 lossThis answer is correct.
a $50,000 gain
no change

Correct! The relevant costs are the avoidable costs, which are the variable costs of manufacturing. These total: $2.50 + $1.00 + $1.50 = $5.00. The difference between the price offered and the variable cost of manufacturing is: $6.50 – $5.00 = $1.50 multiplied by 10,000 units = $15,000 loss. The supplier’s offer is more expensive and should not be undertaken.

1/1

Question 8

A viable approach in managing a bottleneck is to ________.

Selected: identify the bottleneck by reviewing work-in-processThis answer is correct.
identify the non-bottleneck resources by process of elimination
prioritize all other operations to the non-bottleneck operation
increase the efficiency of the non-bottleneck operation, and the bottleneck will be eliminated eventually

Correct! Identifying a bottleneck is the first step in its elimination. Therefore, review work-in-process for the best approach.

1/1

Question 9

True or False: When a company has idle capacity, it should not consider equipment replacement decisions, since it should conserve cash while it is not absorbing all fixed overhead.

True
Selected:FalseThis answer is correct.

Correct! Equipment replacement decisions may allow the company to manufacture different products and thus attract different customers. This would ideally allow the company to fill idle capacity.

1/1

Question 10

True or False: The book value of a particular piece of equipment is very important in the consideration of its replacement.

True
Selected:FalseThis answer is correct.

Correct! The book value of a particular piece of equipment is not a consideration in its replacement, since it is a sunk cost.

Leave a Reply Cancel reply