ACCT 245 Final Exam | Complete Solutions (Answered)

ACCT 245 Final Exam | Complete Solutions (Answered) When analyzing two alternatives which is NOT true? A) Isolating relevant cost gives a different answer than using all costs B) Isolating relevant costs is classed the differential cost approach C) Mining irrelevant costs may cause confusion and distract attention from the information that is critical When a company does not have enough capacity to produce all of the products and sales volume demanded by their customers, this leads to ______. A) Keep or drop decisions B) Volume trade-off decisions C) Sell or process further decisions D) Make or buy decisions Target cost is determined by subtracting the ______ from the anticipated selling price. A) Manufacturing Overhead B) Desired Profit C) After-Sales Service Costs D) Marketing Costs Which of the following is NOT correct? A) EVC = Reference Value + Differential Value B) Reference Value = Value-Based Price = EVC C) Reference Value = Value-Based = EVC D) Reference Value = The price of the best alternatives Reasons to Isolate Relevant Cost Enough information rarely available to prepare income statements Prairie, Inc. produces a single product. It has an annual capacity of 10,000 units, but currently uses only 80% of it. Each units is sold for $50 and requires direct material worth $30 and direct labor worth $5. Manufacturing overhead cost is $10 per unit of which 70% is variable. What is Prairie's total incremental cost incurred to produce each unit? A) $30 B) $42 C) $35 D) $45 Decision Making: Concepts -Keep or Drop Decisions -Make or Buy Decisions -Special order Decisions -Sell or Process Further Decisions Decision Making: Six Key Concepts 1) Define the alternatives 2) Distinguish between relevant and irrelevant costs and benefits 3) Perform differential analysis 4) Identify sunk costs 5) Identify future costs and benefits that do not differ between alternatives 6) Identify opportunity costs The involvement by a company in more than one of the activities in the entire value chain from development though production distractions, sales, and after-sales service is called ______. A) Opportunity Cost B) Vertical Integration C) Relevant Cost D) Avoidable Cost Which of the following of decisions involves deciding whether to accept or reject an order that is outside the scope of normal sales? A) Make or Buy B) Special Order C) Sell of Process Further D) Keep or Drop Costs that have been incurred and cannot be eliminated regardless of the alternative chose are ______. A) Sunk Costs B) Unavoidable Costs C) Relevant Costs D) Irrelevant Costs The sensitivity of unit sales to changes in price is called ______. A) Markup Percentage B) Profit- Maximizing Price C) Elasticity of Demand D) Latitude The potential benefit that is given up when one alternative is selected over another is called _______. A) Relevant Cost B) Avoidable Cost C) Differential Cost D) Opportunity Cost Latitude and private information are two components of _______ influence that impact the determination of selling price. A) Customers' B) Competitors' C) Costs' D) Revenues" All of the following are relevant to sell or process further decision except ______. A) Costs incurred beyond the split-off point B) Revenues at the split-off point C) Joint costs incurred before the split-off point D) Revenue beyond the spilt-off point Superware, Inc. produces multiple produces multiple products out of a common input. Geratin is one such product, which has a sales value of $15,000 at the spilt-off point. Joint costs allocated to Geratin are $12,000. Sales vale of Geratin increases to $25,000 after further processing, and this processing will cost $7,000. What is net profit or loss of Superware processes the product further? A) ($3,000) loss B) $3,000 profit C) $20,000 profit D) $18,000 profit Avoidable or Unavoidable: Wages paid to the division's employees who will be downsized if the division is dropped. Avoidable Avoidable or Unavoidable: General management expenses allocated to the Orange County division. Unavoidable Avoidable or Unavoidable: Cost of machinery purchased for the Orange County division. Unavoidable Avoidable or Unavoidable: Rent paid for the division's regional office Avoidable Avoidable or Unavoidable: Cost of the private jet purchased for the company management's use. Unavoidable Irrelevant costs include: A) Sunk Costs B) Future costs that differ between alternatives C) All fixed costs D) Future costs that do not differ between alternatives The first step in decision making is to: A) Define the alternative B) Perform a differential analysis C) Identify relevant costs and benefits True or False: When deciding whether to take a train or drive fir a weekend trip to visit an out-of-town friend, the monthly fee a student pays to park at school is not relevant to the decision. True Anticipated selling price - Desired profit = ______ ______. Target Cost The potential benefit given up when selecting one alternative over another is a(n) ______ cost. A) Opportunity B) Avoidable C) Irrelevent D) Sunk True or False: Opportunity costs are not found in accounting records because they are not relevant to decisions. False When making decisions to either buy a movie ticket or rent a DVD, the cost of the movie ticket is a(n) _______ cost. A) Incremental B) Irrelevant C) Avoidable D) Sunk A) Incremental Steps in the absorption costing approach are: A) Multiply unit production costs by 1+ markup percentage B) determine markup percentage on absorption cost C) Calculate unit product costs D) Calculate the price elastically of demand If, by dropping a product line, a company cannot avoid as mush in fixed costs as it loses in contribution margin, the company should ______ the product line Keep Synonyms for differential costs include _______ cost. Avoidance Incremental When a shortage or limited resources of some type restricts a company's ability to satisfy demand, the company has a(n) _______. Constraint If a price change has little effect on unit sales, the demand is considered to be: Inelastic Customers and competitors play important role that in determining a company price Ceiling The lowest price a company can charge and still makes incremental profits the sale is the price ______. Floor A product's markup is the difference between its selling _______ and its _______. Price Cost Applying a predetermined markup percentage to a cost base to determine the selling price is called: Cost-Plus Pricing Generally speaking, managers should set higher prices when demand is: Inelastic The higher price customers are willing to pay is called the price ______. Ceiling Product markup is generally expressed as a(n) _______ of costs. Percentage If price change significantly impact product sales, demand for the product is said to be ______. If the change in price does not gnarly impact sales demand is ______. Elastic, Inelastic A product's markup is the difference between its selling ______ and its ______. Price, Cost Factors in determining the markup percentage using the absorption costing approach cost-plus pricing includes: -Selling, general, and administrative expenses -Absorption costing unit product cost -Adequate return on investment The formula used to calculate markup percentage on absorption cost includes: -Selling, general and absorption expenses -Required ROI multiplied by investment -Unit product cost multiplied by unit sales Differential revenue is an example of a(n) _______ benefit. Relevant A cost that can be eliminated by choosing one alternative over another is a(n) ______. Avoidable If a company has a resource that could be used for something else, the _______ cost is the profit that could be derived from the best alternative use fo the resource. Opportunity A decision to carry one of the activists in the call chain internally, rather to buy externally from a supplier, is called a(n) ______ or _______ decision. Make or Buy A one-time order that is not considered part of the company's normal ongoing business is a _______ order. Special When panning a trip and deciding whether to drive or fly, the ______ is a suck costs and should be ignored. Original cost of the car Deciding what to do a joint product at the split-off a(n) ______ or ______ ______ decision. Sell or Process Further The costs incurred to the split-off in a process in which two or more products are produced from a common input are known as ______ costs. Joint When considering accepting a special order: -Normal sales must not be affected -There must be idle capacity -Incremental revenue should equal increment cost Costs and benefits that should be ignored when making decisions are called _______ costs and benefits. Irrelevant Focusing on future costs and benefits that are not the same between alternatives is: Differential Analysis Costs and benefits that always differ between alternatives are _______ costs and benefits. Relevant When making a decision only ______ costs and benefits should be included in the analysis. Relevant Two or more products that are produced from a common input are known as ______ products. Joint Which of the following may be an advantage go making a part rather than buying it. -Less dependence on outside suppliers -A smooth flow of parts and materials for production Which of the following are ways to increase the capacity of a bottleneck? -Investing in additional machines as the bottleneck -Shifting workers from process that are bottlenecks to the process that is the bottleneck A product's economic value to the customer is based on the _______ value and the ______ value. Reference, differentiation Isolating relevant costs is desirable because: -Critical information may be overlooked with the total cost approach -All information needed for the total cost approach is rarely available - Irrelevant costs may be used incorrectly in the analysis Less dependence on supplies is in an advantage of: Vertical Integration Some decision only have one alternative False Effectively managing an organization's continents is a key to increased Profits If a company prices all of its products above the price flow, try will always make a profit. False A company must make a volume trade-off decision when they -Do not have enough capacity to satisfy the demand for all its products -Must trade of units of one product for units of another due to limited production capacity The split-off point in the manufacturing process at which the ______ products can be recognized as separate products. Joint To effectively deal with a constraint -Improvements should focus on the constraint -Efforts should be focused on the weakest link The target costing approach was developed because: -Most of a product's cost is determined in the design stage -The market really determines prices When considering decision alternatives, only relevant costs are included when using the ______ ______ approach. Differential Cost Mingling irrelevant and relevant costs may cause confusion and distract attention from critical information True When considering decision alternatives, both relevant and irrelevant costs are included when using the _______ ______ approach Total Cost The capacity of a bottleneck can be effectively increased by: -Focusing business improvements efforts on the bottleneck -Subcontracting some of the processing that would be done in that area The machine or process that is limited overall output is a(n): Bottleneck Which of the following can make a product line look less profitable than it really is? Allocated common fixed costs Joint costs incurred prior to the split-off point ______ relevant in decisions regarding what to do from the split-off point forward Are not When a manager increases the capacity of constraint or ______, is called relaxing the constraint. Bottleneck Optimal selling prices can be calculated using Microsoft Excel ______. Solver It is profitable to container procession a joint product after the split-off point, so long as the incremental ______ from such processing exceeds the incremental processing cost incurred after the split-off point Revenue To maximize total contribution margin when a constrained resource exists, produce the products with the: Highest contribution margin per unit of the constrained resources Which of the following best describes the price elasticity of demand? This is the degree to which a change in price affects the unit sales of product If a cost is traced to a segment using activity-based costing, out: May or may not be an avoidance cost of this segment When demand for products exceeds the production capacity, a ______ ______-______ decision must be made. Volume trade-off When a company is involved in more than one activity in the entire value chain it is, ______ ______. Vertically Integrated Which of the following techniques describe how a bottleneck should be managed? -Focus business pieces improvement efforts on the bottleneck -Ensure there is minimal lost time at the bottleneck due to breakdowns and set-ups -Find ways to increase the capacity of the bottleneck When making a volume-trade off decision, managers should ignore: Fixed costs Activities raging from development to production to after-sales service are called a(n) ______ ______. Value chain In general, the more sensitive customers are to prices, the ______ the optical selling price will be. Lower When shoal a special order be accepted? When the incremental revenue from special order exceeds the incremental costs of the order One of the great dangers in allocating common ______ costs is that such allocations can make a product lune look less profitable than it really is. Fixed To increase the strength of a chain, efforts should be concentrated on strengthening: The weakest link Mangers may choose to retain an unprofitable product line because it: -Helps sell other products -Attracts customers The degree to which a change in price affects unit sales of a product or service is the ______ ______ of ______ Price elasticity of demand A project with a positive net present value would be ______ and a project with a negative net present value would be ______. Acceptable, Unacceptable Cost of Capital Average rate of return that must be paid to long-term creditors and shareholders for use of their funds Working Capital Current Asset minus(-) Current Liability Initial Investment Funds needed to purchase a capital asset or begin a capital investment project Salvage Value Finds gained from the sale of a capital asset Typical capital budgeting decision include: -Lease or buy decisions -Equipment selection decisions -Cost reduction decisions The two broad categories into which capital budgeting decisions fall are ______ decisions and ______ decisions. Screening, Preference One of the two broad categories of capital budgeting decisions, a ______ decision, relates to whether a proposed project is acceptable based on a preset criterion. Screening The required rate of return is the _______ rate of return a project must yield to be acceptable. Minimum One of the two broad categories of capital budgeting decisions, a ______ decision, relates to selecting from among several acceptable alternatives Preference Working Capital: Often increases when a company takes on a new project Which of the following are true regarding the time value of money? -Project that provides earlier returns are preferable to those that promise later returns -By collecting a project's return quickly, the investors has the opportunity to re-invest that money to earn even more A dollar today is worth ______ than a dollar earned a year from now. More Calculating the present value of money is referred to as ______ cash flows. Discounting Two capital budgeting approaches that use discounted cash flow are the ______ _______ value method and the _______ _______ of return method Net Present, Internal Rate The two broad categories into which capital budgeting decisions fall are ______ and ______ decisions. Preference, Screening Current assets minus current liabilities is called ______ ______. Working capital