Question 1

The choice of the absorption or contribution approach affects the manufacturing cost per unit because the:
A) manufacturing cost per unit is independent of the approach
B) manufacturing cost per unit is the same regardless of the approach
C) manufacturing cost per unit is higher if the absorption approach is used
D) manufacturing cost per unit is higher if the contribution approach is used

Accepted Answer

Under the absorption approach, fixed manufacturing overhead is included in the product cost, leading to a higher manufacturing cost per unit compared to the contribution approach, which treats fixed manufacturing overhead as a period cost.

Question 2

Sharon is considering leaving her current position to open a coffee shop. Sharon's current salary is $83,000. Annual coffee shop revenue and costs are estimated at $250,000 and $210,000, respectively.
Is the opportunity cost of opening the coffee shop.
A) $333,000
B) $40,000
C) $210,000
D) $83,000

Accepted Answer

The opportunity cost is the salary Sharon foregoes by leaving her current job, which is $83,000.

Question 3

Lemon Manufacturing Company produces three products using a joint process that accumulates $25,000 in joint costs. The products, A, B, and C, can be sold at split- off or processed further and then sold. The production level for each product is 10,000 units. The following unit information is also available: $\begin{array}{llll}
&&\text { Separable }\&&\text { Processing }\
\text { Product } & \begin{array}{l}
\text { Sales Value at } \
\text { Split-off }
\end{array} & \begin{array}{l}
\text { Costs after } \
\text { Split-off }
\end{array} & \begin{array}{l}
\text { Sales Value at } \
\text { Completion }
\end{array}\
\mathrm{A} & \$ 12 & \$ 9 & \$ 21 \
\mathrm{~B} & 10 & 4 & 17 \
\mathrm{C} & 15 & 6 & 19
\end{array}$ Product B:
A) can be processed further or sold at split- off; it makes no difference.
B) should be processed further to increase profits by $3 per unit
C) should be processed further to increase profits by $70,000
D) should be sold at split- off to maximize profits

Accepted Answer

The additional profit from processing Product B further is $3 per unit ($17 - $10 - $4 = $3).

Question 4

Melissa Company produces and sells a product that has variable costs of $7 per unit and fixed costs of $240,000 per year. is the cost per unit if 20,000 units per year are produced and sold.
A) $5
B) $7
C) $12
D) $19

Accepted Answer

The answer of Melissa Company produces and sells a product...

Question 5

Which of the following is correct?
A) The contribution income statement provides a gross margin.
B) The absorption income statement provides a contribution margin.
C) Both statements are correct.
D) Neither statement is correct.

Accepted Answer

The contribution income statement provides a contribution margin, not a gross margin. The absorption income statement includes gross margin but does not provide a contribution margin as its focus is on allocating all manufacturing costs to the product, whether they are variable or fixed.

Question 6

Joshua Company produces and sells a product that has variable costs of $7 per unit and fixed costs of $200,000 per year. If production increases from 20,000 units to 25,000 units, the unit cost will:
A) decrease by $2 per unit
B) decrease by $8 per unit
C) increase by $35,000
D) not change

Accepted Answer

The unit cost decreases because the fixed costs are spread over more units. Initially, the fixed cost per unit is $200,000/20,000 = $10. When production increases to 25,000 units, the fixed cost per unit becomes $200,000/25,000 = $8. Thus, the unit cost decreases by $2 per unit.

Question 7

In a decision to keep or replace existing equipment, is a false statement.
A) the book value of the old equipment is irrelevant
B) the disposal value of the old equipment is irrelevant
C) depreciation on the new equipment is relevant
D) the cost of the new equipment is relevant

Accepted Answer

The disposal value of the old equipment is relevant because it affects the net cost of replacing the equipment.

Question 8

Wholesome Company paid $130,000 for a machine used to mill oats. The annual contribution margin from oat sales is $60,000. The machine could be sold for $90,000. The opportunity cost of producing wheat flour is:
A) $90,000
B) $130,000
C) $30,000
D) $60,000

Accepted Answer

The opportunity cost is the value of the next best alternative foregone, which in this case is the $90,000 that could be obtained by selling the machine.

Question 9

Book value is defined as:
A) cost less accumulated depreciation
B) disposal value
C) disposal value less original cost
D) disposal value less accumulated depreciation

Accepted Answer

Book value is the original cost of an asset minus the accumulated depreciation.

Question 10

Deuce Company currently produces 10,000 units of a key part at a total cost of $512,000. Variable costs are $300,000. Of the fixed cost, $140,000 relate specifically to this part. The remaining fixed costs are unavoidable. Another manufacturer has offered to supply the part for $48 per unit. The facilities currently used to manufacture the part could be used to manufacture a new product with an expected contribution margin of $30,000. Alternately, the facilities could be rented out at $60,000. Given all of these alternatives, is Deuce Company's lowest net cost per unit for the part.
A) $42
B) $48
C) $44
D) $30

Accepted Answer

The answer of Deuce Company currently produces 10,000 units of...

Question 11

The choice of the absorption or contribution approach affects a firm's contribution margin because:
A) contribution margin is higher if the contribution approach is used
B) contribution margin is independent of the approach
C) contribution margin is lower if the contribution approach is used
D) None of these answers is correct.

Accepted Answer

The answer of The choice of the absorption or contribution...

Question 12

Joint products should be processed beyond the split- off point if:
A) additional net revenue exceeds the sales value at split- off
B) there is a market for the joint products
C) incremental expenses exceed incremental revenues
D) sale of the product is guaranteed

Accepted Answer

Additional net revenue exceeds the sales value at split-off means that further processing will result in a higher total revenue than selling the products at the split-off point.

Question 13

Joe Smith has paid off the mortgage on his house and continues to live in the house. The interest income forgone by not selling the house and investing the proceeds is an example of a(n):
A) sunk cost
B) outlay cost
C) opportunity cost
D) detrimental cost

Accepted Answer

The interest income forgone by not selling the house and investing the proceeds is an opportunity cost, as it represents the potential benefits that Joe Smith misses out on by choosing to keep the house instead of selling it and investing the money elsewhere.

Question 14

is an example of a joint product.
A) Lumber
B) Flour
C) Chemicals
D) All of these answers are correct.

Accepted Answer

Joint products are multiple products generated from a single production process. Lumber, flour, and chemicals can all be considered joint products depending on the context of their production processes.

Question 15

Depreciation is:
A) the decline in equipment value due to obsolescence
B) the periodic cost of equipment spread over the future periods in which the equipment is expected to be used
C) the difference between the original cost and current market value
D) All of these answers are correct.

Accepted Answer

The answer of Depreciation is:
A) the decline in equipment value...

Question 16

Partridge Company provided the following information regarding its one and only product-ice skates. $\begin{array}{ll}
\text { Direct materials used } & \$ 200,000 \
\text { Direct labor } & \$ 0,000 \
\text { Fixed overhead } & 100,000 \
\text { Fixed s elling and administrative costs } & 150,000\\text { Variable overhead } & 20,000 \
\text { Variable selling and administrative } & 60,000 \
\text { Selling unit price } & 75 \
\text { Units produced and sold } & 10,000
\end{array}$ The difference in manufacturing cost per unit between the absorption approach and contribution approach is:
A) $10 higher if absorption cost is used
B) $36 higher if contribution is used
C) $10 higher if contribution cost is used
D) $36 higher if absorption is used

Accepted Answer

The answer of Partridge Company provided the following information regarding...

Question 17

Woods Corporation has a joint process that produces three products: P, G, and A. Each product may be sold at split- off or processed further and then sold. Joint processing costs for a year amount to $25,000. Other relevant data are as follows: $\begin{array}{llll}
&&\text { Separable }\&&\text { Processing }\
\text { Product } & \begin{array}{l}
\text { Sales Value at } \
\text { Split-off }
\end{array} & \begin{array}{l}
\text { Costs after } \
\text { Split-off }
\end{array} & \begin{array}{l}
\text { Sales Value at } \
\text { Completion }
\end{array}\
\mathrm{P} & \$ 32,000 & \$ 5,000 & \$ 88,000 \
\mathrm{G} & 12,500 & 6,500 & 19,000 \
\mathrm{~A} & 9,400 & 5,000 & 12,000
\end{array}$ Product G:
A) should be processed further to increase profits by $6,500
B) can be processed further or sold at split- off; there is no difference in profit.
C) should be sold at split- off since processing further would only reduce profits by $6,500
D) should be processed further to increase profits by $19,000

Accepted Answer

The additional revenue from processing G further is $6,500 ($19,000 - $12,500), which equals the additional processing cost of $6,500. Therefore, there is no difference in profit whether G is sold at split-off or processed further.

Question 18

Lynnette is considering leaving her current position to open an ice cream shop. Lynnette's current salary is $77,000. Annual ice cream shop revenue and costs are estimated at $250,000 and $210,000, respectively. is the opportunity cost of remaining employed.
A) $287,000
B) $210,000
C) $40,000
D) $77,000

Accepted Answer

The opportunity cost of remaining employed is the net benefit Lynnette foregoes by not opening the ice cream shop, which is the difference between the shop's revenue and costs ($250,000 - $210,000 = $40,000).

Question 19

The gain or loss on the disposal of equipment is determined by:
A) subtracting the book value of the old equipment from the cost of the new equipment
B) adding the disposal value and the book value of the old equipment
C) subtracting the book value from the cash received for the old equipment
D) adding the book value of the old equipment to the cost of the new equipment

Accepted Answer

The gain or loss on the disposal of equipment is calculated by subtracting the book value of the equipment from the cash received upon its disposal. If the cash received is greater than the book value, there is a gain; if it is less, there is a loss.

Question 20

Agua Company provided the following information regarding its one and only product -skateboards. $\begin{array}{ll}\text { Direct materials used } & \$ 200,000 \
\text { Direct labor } & \$ 0,000 \
\text { Fixed overhead } & 100,000 \
\text { Fixed selling and adminis trative costs } & 150,000\
\text { Variable overhead } & 20,000 \
\text { Variable selling and administrative } & 60,000 \
\text { Selling unit price } & 75 \
\text { Units produced and sold } & 10,000
\end{array}$ is the gross margin if the absorption approach is used.
A) $450,000
B) $390,000
C) $470,000
D) $350,000

Accepted Answer

The answer of Agua Company provided the following information regarding...

Quiz 6: Relevant Information and Decision-Making: Product Decisions

The choice of the absorption or contribution approach affects the manufacturing cost per unit because the:

Sharon is considering leaving her current position to open a coffee shop. Sharon's current salary is $83,000. Annual coffee shop revenue and costs are estimated at $250,000 and $210,000, respectively. Is the opportunity cost of opening the coffee shop.

Melissa Company produces and sells a product that has variable costs of $7 per unit and fixed costs of $240,000 per year. is the cost per unit if 20,000 units per year are produced and sold.

Which of the following is correct?

Joshua Company produces and sells a product that has variable costs of $7 per unit and fixed costs of $200,000 per year. If production increases from 20,000 units to 25,000 units, the unit cost will:

In a decision to keep or replace existing equipment, is a false statement.

Wholesome Company paid $130,000 for a machine used to mill oats. The annual contribution margin from oat sales is $60,000. The machine could be sold for $90,000. The opportunity cost of producing wheat flour is:

Book value is defined as:

The choice of the absorption or contribution approach affects a firm's contribution margin because:

Joint products should be processed beyond the split- off point if:

Joe Smith has paid off the mortgage on his house and continues to live in the house. The interest income forgone by not selling the house and investing the proceeds is an example of a(n) :

is an example of a joint product.

Depreciation is:

Lynnette is considering leaving her current position to open an ice cream shop. Lynnette's current salary is $77,000. Annual ice cream shop revenue and costs are estimated at $250,000 and $210,000, respectively. is the opportunity cost of remaining employed.

The gain or loss on the disposal of equipment is determined by: