Question 1

A sunk cost is a cost

Accepted Answer

A sunk cost is a cost that has already been incurred and cannot be recovered. Therefore, it is not relevant for future decisions since the cost cannot be changed or recovered.

Question 2

Opportunity costs are

Accepted Answer

Opportunity costs are the benefits that are lost or forgone when one decision alternative is selected over another. This cost is a valuable concept for decision-making because it allows decision-makers to compare the benefits of alternatives and to make a choice that minimizes the opportunity cost. Therefore, the best choice is D.

Question 3

Which one of the following is most likely to make use of Ralston Enterprises' managerial accounting information?

Accepted Answer

The production manager of Ralston's plant in Georgia is most likely to make use of the managerial accounting information as they are responsible for overseeing the plant's operations and would need to use this information to make decisions that impact production. The IRS may use financial accounting information for tax purposes, an individual contemplating an investment in Ralston Enterprises would likely look at financial statements, and a company that is one of Ralston's main suppliers would likely use financial information to evaluate Ralston's ability to pay them.

Question 4

Which of the following costs will change when the level of business activity changes?

Accepted Answer

C) A company's total costs will change when the level of business activity changes because this includes both fixed and variable costs. Variable costs change with the level of production, affecting the total costs. Fixed costs remain constant in total, but variable costs per unit remain the same, influencing the total cost as activity levels change. Sunk costs are past costs that are not affected by current or future business decisions.

Question 5

A retailer purchased some trendy clothes that have gone out of style and must be marked down to 60% of the original selling price in order to be sold.Which of the following is a sunk cost in this situation?

Accepted Answer

The original purchase price is a sunk cost because it has already been incurred and cannot be recovered, regardless of whether or not the clothes sell at the marked down price. The current selling price, original selling price, and anticipated profit are all prospective costs or revenues that may still be affected by the decision to mark down the clothes.

Question 6

Which of the following is most likely to be a fixed cost?

Accepted Answer

Rent on a factory building is a fixed cost as it remains the same regardless of the level of production or sales. The cost of wheels, labor, and supplies used by housekeeping staff can vary depending on the level of production or sales, making them more likely to be variable costs.

Question 7

On which of the following costs should a manager not be evaluated?

Accepted Answer

Noncontrollable costs are costs that are not under the control of a specific manager, therefore it would not be fair to evaluate them solely based on these costs. Managers should be evaluated based on costs that they can control, such as variable costs and opportunity costs. Fixed costs are also not under the control of a specific manager, but they are still important to consider in overall profitability analysis.

Question 8

Bagel Time produced and sold 2,500 bagels last month and incurred fixed costs totaling $8,000.If production and sales are expected to decrease by 10% next month, which of the following statements is true?

Accepted Answer

Fixed costs remain constant regardless of the level of production or sales. Therefore, if production and sales decrease, the fixed cost per unit will increase because the same amount of fixed costs is spread over fewer units.

Question 9

Which of the following statements regarding direct and indirect costs is true?

Accepted Answer

The distinction between direct and indirect costs depends on the specific product, activity, or department being analyzed. For example, a cost may be direct for one product but indirect for another, depending on the nature of the cost and how it is allocated. Therefore, it is not accurate to say that direct costs are always variable and indirect costs are always fixed, or that sunk costs are always direct and opportunity costs are always fixed. Additionally, just because a cost is indirect for a specific department does not mean it will be indirect for the plant as a whole, as the allocation of indirect costs can change when analyzing the organization at different levels.

Question 10

Which of the following is likely to be a noncontrollable cost of a department supervisor?

Accepted Answer

Insurance on the plant is considered a noncontrollable cost for a department supervisor because it is typically a decision made at a higher level of management and affects the entire plant, not just one department.

Question 11

Variable cost per unit

Accepted Answer

Variable cost per unit does not change when the number of units produced increases. Variable costs change in total with production volume, but the cost per unit remains constant.

Question 12

Costs incurred in the past that are not incremental to present decisions are

Accepted Answer

Sunk costs are costs that have already been incurred and cannot be recovered or changed by present decisions. They should not be considered in decision-making processes as they are not relevant to future costs or benefits.

Question 13

Sunk costs

Accepted Answer

Sunk costs are costs that have already been incurred and cannot be recovered or changed by any current or future action. They are not incremental (since they do not change with the decision at hand), do not include all incremental costs (since incremental costs are those that change with the decision), and are not defined by their inability to be directly traced to a product, activity, or department.

Question 14

A cost which is directly traceable to a product, activity, or department is a(n)

Accepted Answer

Direct cost is a cost that can be directly traced to a product, activity, or department. Fixed cost is a cost that does not vary with the level of production or sales, managerial cost is a cost associated with management activities, and opportunity cost is the cost of an opportunity foregone in choosing one alternative over another.

Question 15

Kilwin's Candies produced and sold 600 boxes of chocolate covered popcorn last month and had total variable costs of $2,100 that reflected the costs of chocolate and popcorn (ingredients).Each box of popcorn sells for $12.00.If production and sales are expected to increase by 10% next month, which of the following statements is true?

Accepted Answer

Variable cost per unit is calculated by dividing total variable costs by the number of units produced. $2,100 / 600 = $3.50 per unit.

Question 16

Which of the following is a benefit given up when one decision alternative is selected over another?

Accepted Answer

Opportunity cost is the benefit or value that is given up when one decision alternative is chosen over another. It represents the cost of foregone opportunities and should be considered when making decisions. Sunk cost (A) is a cost that has already been incurred and cannot be recovered. Controllable cost (B) is a cost that can be directly influenced or managed by a decision-maker. Incremental cost (D) is the cost of an additional or incremental unit of a product or service.

Question 17

Which of the following is a direct cost in relation to the cost of teaching the managerial accounting course in a college?

Accepted Answer

The cost of the paper is a direct cost because it is specifically related to the cost of teaching the managerial accounting course. The cost of electricity, registration system, and financial aid department are indirect costs as they are not directly related to the course.

Question 18

Which of the following statements regarding fixed costs is true?

Accepted Answer

Fixed costs are costs that do not change with the level of production. Therefore, when production increases, the fixed cost per unit decreases because the same total fixed costs are spread over more units.

Question 19

A company has a cost that is $3.00 per unit at a volume of 9,000 units and $3.00 per unit at a volume of 11,000 units.What type of cost is this?

Accepted Answer

The cost per unit remains the same at both volume levels, indicating that it is a variable cost. Fixed costs would stay constant regardless of volume, while sunk costs are costs that have already been incurred and cannot be recovered. Noncontrollable costs are not relevant to this scenario.

Question 20

You own a car and are trying to decide whether to trade it in and buy a new car.Which of the following costs is an opportunity cost in this situation?

Accepted Answer

The trip to Europe that you will not be able to take if you buy the car is an opportunity cost because it represents the benefits that you are giving up by making this decision. The cost of the car you are trading in is a sunk cost, meaning it has already been incurred and cannot be recovered. The cost of toothpaste and soap and the cost of your meals for the last week are both irrelevant to the decision of whether or not to trade in your car.

Quiz 1: Managerial Accounting in the Information Age