Decision Making MCQs

What is the opportunity cost of making a component part in a factory given no alternative use of the capacity?

The variable manufacturing cost of the component.
The total manufacturing cost of the component.
The total variable cost of the component.
Zero.

The opportunity cost of making a component part in a factory with no excess capacity is the

Variable manufacturing cost of the component.
Fixed manufacturing cost of the component.
Cost of the production given up in order to manufacture the component.
Net benefit given up from the best alternative use of the capacity.

Power Systems, Inc., manufactures jet engines for the United States armed forces on a cost-plus basis. The cost of a particular jet engine the company...

$408,000
$365,000
$397,000
$385,000

Hermo Company has just completed a hydro-electric plant at a cost of $21,000,000 The plant will provide the companyâ€™s power needs for the next ...

$450,000
$630,000
$990,000
Some amount other than those given.

Hermo Company has just completed a hydro-electric plant at a cost of $21,000,000 The plant will provide the companyâ€™s power needs for the next ...

$600,000
$1,050,000
$1,200,000
Some amount other than those given.

JJ Motors, Inc., employs 45 sales personnel to market its line of luxury automobiles. The average car sells for $23,000, and a 6% commission is paid t...

$2,250,000
$3,000,000
$1,500,000
$1,250,000

A company wants to open a new store in one of two nearby shopping malls. In Mall A, the rent will be $250,000 per year. In Mall B, the rent will be 4%...

$1,000,000
$4,000,000
$6,250,000
$12,500,000

A company wants to open a new store in one of three nearby shopping malls. In Mall A, the rent will be $300,000 per year. In Mall B, the rent will be ...

Mall A.
Mall B.
Mall C.
The company will be indifferent between two of the choices.

A company wants to open a new store in one of three nearby shopping malls. In Mall A, the rent will be $300,000 per year. In Mall B, the rent will be ...

Mall A.
Mall B.
Mall C.
The company will be indifferent between two of the choices.

A company wants to open a new store in one of three nearby shopping malls. In Mall A, the rent will be $300,000 per year. In Mall B, the rent will be ...

$149,999
$5,000,000
$15,000,000
Mall C will never be the most desirable choice.

Sunshine Corporation is considering the purchase of a new machine for $800,000. The machine is capable of producing 1.6 million units of product over ...

No, the machine-related cost of producing each unit is $2.00.
No, the machine-related cost of producing each unit is $.67.
No, the machine-related cost of producing each unit is $.90.
Yes, the machine-related cost of producing each unit is $.50.

Jack Blaze wants to rent store space in a new shopping mall for the 3-month holiday shopping season. Blaze believes he has a new product available tha...

Choose the first option no matter what Blaze expects the revenues to be.
Choose the second option no matter what Blaze expects the revenues to be.
Choose the second option only if Blaze expects revenues to exceed $5,700.
Choose the third option no matter what Blaze expects the revenues to be.

Sudden economic changes have forced Auto Facsimilie Co. to alter its business strategy. The company is considering eliminating product lines, laying o...

Production workers’ wages severance and advertising
Utility costs at the closed factory and real estate taxes.
Research and development costs of eliminated product lines.
The costs of selling or demolishing the factory.

Joe Cooper owns and operates an ice cream truck that he drives through residential neighborhoods to sell five different treats to the area’s childre...

Discontinue the sales of Creamy Delight to increase his profits by $1,200.
Discontinue the sales of Creamy Delight to increase his profits by $240.
Continue to sell Creamy Delight to avoid a decrease in profit of $6,960.
Continue to sell Creamy Delight to avoid a decrease in profit of $11,400.

Teen Co. recently reviewed the profitability of each of its segments The companyâ€™s Western Unit projected a loss for the coming period and was ...

Western Unitâ€™s projected loss was less than the allocated home office cost
Western Unitâ€™s projected contribution margin was negative.
Western Unitâ€™s inventory was transferred to other divisions
Western Unitâ€™s projected fixed costs were eliminated

Kator Co. is a manufacturer of industrial components. One of their products that is used as a subcomponent in auto manufacturing is KB-96. This produc...

$60
$70
$87
$100

The Sommers Company manufactures a variety of industrial valves. Currently, the company is operating at about 70% capacity and is earning a satisfacto...

10,000
15,000
30,000
120,000

The Sommers Company manufactures a variety of industrial valves. Currently, the company is operating at about 70% capacity and is earning a satisfacto...

$500,000
$168,000
$552,000
$600,000

The Sommers Company manufactures a variety of industrial valves. Currently, the company is operating at about 70% capacity and is earning a satisfacto...

$14
$14.40
$20
$20.40

Panyer Co. is a producer of a tank component. This product, J-5, has the following selling price and costs per unit: .tg {border-collapse:collapse...

$155
$205
$230
$300

Panyer Co. is a producer of a tank component. This product, J-5, has the following selling price and costs per unit: .tg {border-collapse:collapse...

$205
$260
$230
$300

Pontotoc Industries manufactures a product that is used as a subcomponent by other manufacturers. It has the following price and cost structure: .t...

$180
$120
$100
$160

Pontotoc Industries manufactures a product that is used as a subcomponent by other manufacturers. It has the following price and cost structure: .t...

$200
$180
$140
$120

Production of a special order will increase gross profit when the additional revenue from the special order is greater than

The direct materials and labor costs in producing the order.
The fixed costs incurred in producing the order.
The indirect costs of producing the order.
The marginal cost of producing the order.

When considering a special order that will enable a company to make use of currently idle capacity, which of the following costs is irrelevant?

Materials.
Depreciation.
Direct labor.
Variable overhead.

Which of the following cost allocation methods is used to determine the lowest price that can be quoted for a special order that will use idle capaci...

Job order.
Process.
Variable.
Standard.

When only differential manufacturing costs are taken into account for special-order pricing, an essential assumption is that

Manufacturing fixed and variable costs are linear.
Selling and administrative fixed and variable costs are linear.
Acceptance of the order will not affect regular sales.
Acceptance of the order will not cause unit selling and administrative variable costs to increase.

Clay Co has considerable excess manufacturing capacity A special job order’s cost sheet includes the following applied manufacturing overhead costs:...

$36,700
$40,750
$54,000
$58,750

A mail-order confectioner sells fine candy in one-pound boxes. It has the capacity to produce 600,000 boxes annually, but forecasts that it will produ...

$7.05
$8.85
$9.05
$9.55

A mail-order confectioner sells fine candy in one-pound boxes. It has the capacity to produce 600,000 boxes annually, but forecasts that it will produ...

$9.70
$11.05
$11.50
$11.86

The loss of a key customer has temporarily caused Bedford Machining to have some excess manufacturing capacity. Bedford is considering the acceptance ...

I and II.
I and IV.
II and III.
I, III, and IV.

Raymund currently sells its only product to a single customer. Raymund has received a one-time-only order for 2,000 units from another buyer. Sale of ...

$10
$13
$17
$18

In a make-versus-buy decision, the relevant costs include variable manufacturing costs as well as

Factory management costs.
General office costs.
Avoidable fixed costs.
Depreciation costs.

A company’s approach to an insourcing vs outsourcing decision

Depends on whether the company is operating at or below normal volume.
Involves an analysis of avoidable costs.
Should use absorption (full) costing.
Should use activity-based costing.

Costs relevant to an insourcing vs. outsourcing decision include variable manufacturing costs as well as

Avoidable fixed costs.
Factory depreciation.
Property taxes.
Factory management costs.

In an insourcing vs. outsourcing situation, which of the following qualitative factors is usually considered?

Special technology.
Skilled labor.
Special materials requirements.
All of the answers are correct.

In an insourcing vs. outsourcing decision, the decision process favors the use of total costs rather than unit costs. The reason is that

Unit cost may be calculated based on different volumes.
Irrelevant costs may be included in the unit amounts.
Allocated costs may be included in the unit amounts.
All of the answers are correct.

Which of the following qualitative factors favors the buy choice in an insourcing vs. outsourcing decision?

Maintaining a long-run relationship with suppliers is desirable.
Quality control is critical.
Idle capacity is available.
All of the answers are correct

Regis Company manufactures plugs used in its manufacturing cycle at a cost of $36 per unit that includes $8 of fixed overhead. Regis needs 30,000 of t...

Save $3.00 per unit.
Lose $6.00 per unit.
Save $2.00 per unit.
Lose $3.00 per unit.

Regis Company manufactures plugs used in its manufacturing cycle at a cost of $36 per unit that includes $8 of fixed overhead. Regis needs 30,000 of t...

$10,000
$40,000
$70,000
$190,000

Richardson Motors uses 10 units of Part No. T305 each month in the production of large diesel engines. The cost to manufacture one unit of T305 is pre...

Decrease $6,400.
Increase $3,600.
Increase $9,600.
Decrease $12,400.

Richardson Motors uses 10 units of Part No. T305 each month in the production of large diesel engines. The cost to manufacture one unit of T305 is pre...

Decrease $14,000.
Increase $46,000.
Decrease $64,000.
Increase $96,000.

Richardson Motors uses 10 units of Part No. T305 each month in the production of large diesel engines. The cost to manufacture one unit of T305 is pre...

$68000
$88000
$8000
$9000

Aril Industries is a multiproduct company that currently manufactures 30,000 units of Part 730 each month for use in production. The facilities now be...

$11
$12
$13
$14

GiantCo has received an offer from PatriotCo to produce units that GiantCo currently produces and sells The unit price quoted by PatriotCo is higher t...

Market demand for the product exceeds GiantCo’s capacity
GiantCo’s fixed overhead would remain the same if GiantCo purchased units from PatriotCo.
GiantCo has significant sunk costs.
GiantCo’s administrative costs are zero

When a multiproduct plant operates at full capacity, quite often decisions must be made as to which products to emphasize. These decisions are frequen...

Sales price per unit.
Individual unit contribution margin.
Sales volume potential.
Contribution margin per unit of the constraining resource.

Whitehall Corporation produces chemicals used in the cleaning industry. During the previous month, Whitehall incurred $300,000 of joint costs in produ...

Whitehall should process further and sell to Flank if the total selling price per unit after further processing is greater than $3.00, which covers the joint costs.
Whitehall should continue to sell at split-off unless Flank offers at least $4.50 per unit after further processing which covers Whitehall’s total costs
Whitehall should process further and sell to Flank if the total selling price per unit after further processing is greater than $5.00.
Whitehall should process further and sell to Flank if the total selling price per unit after further processing is greater than $5.25, which maintains the same gross profit percentage.

Whitehall Corporation produces chemicals used in the cleaning industry. During the previous month, Whitehall incurred $300,000 of joint costs in produ...

The operating profit last month was $50,000, and the inventory value is $15,000.
The operating profit last month was $50,000, and the inventory value is $45,000.
The operating profit last month was $125,000, and the inventory value is $30,000.
The operating profit last month was $200,000, and the inventory value is $30,000.

In joint-product costing and analysis, which one of the following costs is relevant when deciding the point at which a product should be sold to maxim...

Separable costs after the split-off point.
Joint costs to the split-off point.
Sales salaries for the period when the units were produced.
Purchase costs of the materials required for the joint products.

Copeland, Inc., produces X-547 in a joint manufacturing process. The company is studying whether to sell X-547 at the split-off point or upgrade the p...

I, II, and IV only.
I, II, III, and IV only.
I, II, IV, and V only.
II and III only.

A firm produces two joint products (A and B) from one unit of raw material, which costs $1,000. Product A can be sold for $700 and product B can be so...

Both A and B should be processed further.
Only B should be processed further.
Only A should be processed further.
Neither product should be processed further.

A company has 7,000 obsolete toys carried in inventory at a manufacturing cost of $6 per unit. If the toys are reworked for $2 per unit, they could be...

Scrap, $5,950.
Rework, $36,050.
Scrap, $47,950.
Rework, $8,050.

Grapevine Corporation produces two joint products, JP-1 and JP-2, and a single by-product, BP-1, in Department 2 of its manufacturing plant. JP-1 is s...

2,3,4
1,2,3
2,3,5,6
1,2,3,4,5

Buchanan Corporation manufactures two products in a joint process incurring $150,000 of joint costs per batch that are allocated using the physical-me...

$57
$52
$37
$32

Conway Corporation manufactures two products that are considered joint products. Common costs of $350,000, allocated using the physical measures metho...

Decrease by $45,000.
Increase by $5,000.
Increase by $55,000.
Increase by $105,000.

If the coefficient of elasticity is zero, then the consumer demand for the product is said to be

Perfectly inelastic.
Perfectly elastic.
Unit inelastic.
Unit elastic.

Last week, the quantity of apples demanded fell by 6%. If this was a result of a 10% price increase, what is the price elasticity of demand for apples...

1.67
1.06
0.16
0.60

The amount of boysenberries demanded for the third quarter rose from 1,250 units to 1,750 units from last year. This was due to a decrease in price fr...

1/3
3/2
1
2/3

Suppose the price of mood rings rises from $3 to $4 when the quantity demanded of mood rings decreases from 1,000 to 900. What would be the price elas...

3
2.7
0.37
0.33

In the pharmaceutical industry where a diabetic must have insulin no matter what the cost and where there is no substitute the diabetic’s demand cur...

Perfectly elastic.
Perfectly inelastic.
Relatively elastic.
Relatively inelastic.

If a product has a price elasticity of demand of 2.0, the demand is said to be

Perfectly elastic.
Perfectly inelastic.
Relatively elastic.
Relatively inelastic.

When a 5% fall in the price of velcro shoes causes the quantity demanded to increase by 10%, the demand for velcro shoes is said to be

Perfectly inelastic.
Relatively elastic.
Unit elastic.
Relatively inelastic.

If oil producers and retailers were to increase the price of gasoline for cars during the summer season by $.05 per gallon, these suppliers anticipate...

Is relatively elastic.
Is relatively inelastic.
Responds as an inferior good.
Is perfectly inelastic.

If the price of apples declines and total revenue received by the firm increases, the

Demand for apples is elastic.
Demand for apples is inelastic.
Elasticity of demand for apples is 1.0.
Elasticity of demand for apples is less than 1.0.

If a product’s demand is elastic and there is a decrease in price the effect will be

A decrease in total revenue.
No change in total revenue.
A decrease in total revenue and the demand curve shifts to the left.
An increase in total revenue.

Suppose that a stairway manufacturer’s price elasticity of demand was inelastic. If this manufacturer decided to increase the price of its stairways...

Total revenues decreased.
Total revenues increased.
Total revenues remain unchanged.
Total revenues were perfectly inelastic.

If demand for a product is elastic, which one of the following would be true?

A decrease in price would increase total revenue.
An increase in price would be total revenue neutral.
A decrease in price would decrease total revenue.
An increase in price would increase total revenue.

The price elasticity of demand is most appropriately defined as the

Change in price in relation to quantity demanded.
Elastic response of price in relation to demand.
Change in demand in relation to a change in price.
Change in quantity demanded in relation to a change in price.

Which one of the following statements is the best definition of inelastic demand?

Products where a consumer needs or wants only a limited amount, and demand decreases when the minimum is obtained.
Product demand for which the percentage change in quantity demanded is less than the percentage change in price.
Product demand for which the percentage change in quantity demanded is greater than the percentage change in price.
Products where a consumer is more likely to continue to purchase, but demand is impacted by a limited product variety.

Buyer-based pricing involves

Adding a standard markup to the cost of the product.
Determining the price at which the product will earn a target profit.
Basing prices on the product’s perceived value
Basing prices on competitors’ prices

Which of the following price adjustment strategies is designed to stabilize production for the selling firm?

Cash discounts.
Quantity discounts.
Functional discounts.
Seasonal discounts.

Market-skimming pricing strategies could be appropriate when

No buyers want the product at a high price.
The costs of producing a small volume are low.
Competitors can easily enter the market.
The product is of poor quality.

Which of the following pricing policies involves the selling company setting freight charges to customers at the actual average freight cost?

Freight absorption pricing.
Uniform delivered pricing.
Zone pricing.
FOB-origin pricing.

In which product-mix pricing strategy is it appropriate for the seller to accept any price that exceeds the storage and delivery costs for the product...

By-product pricing.
Optional-product pricing.
Captive-product pricing.
Product-bundle pricing.

Several surveys point out that most managers use full product costs, including unit fixed costs and unit variable costs, in developing cost-based pric...

Price stability.
Price justification.
Target pricing.
Fixed-cost recovery.

If a U.S. manufacturer’s price in the U S market is below an appropriate measure of costs and the seller has a reasonable prospect of recovering the...

Collusive pricing.
Dumping.
Predatory pricing.
Price discrimination.

Which one of the following will not occur in an organization that gives managers throughout the organization maximum freedom to make decisions?

Individual managers regarding the managers of other segments as they do external parties.
Two divisions of the organization having competing models that aim for the same market segments.
Delays in securing approval for the introduction of new products.
Greater knowledge of the marketplace and improved service to customers.

The most fundamental responsibility center affected by the use of market-based transfer prices is a(n)

Production center.
Investment center.
Cost center.
Profit center.

Transfer pricing should encourage goal congruence and managerial effort. In a decentralized organization, it should also encourage autonomous decision...

Desire and the commitment to achieve a specific goal.
Sharing of goals by supervisors and subordinates.
Extent to which individuals have the authority to make decisions.
Extent of the attempt to accomplish a specific goal.

A proposed transfer price may be based upon the outlay cost. Outlay cost plus opportunity cost is the

Retail price.
Price representing the cash outflows of the supplying division plus the contribution to the supplying division from an outside sale.
Price usually set by an absorption-costing calculation.
Price set by charging for variable costs plus a lump sum or an additional markup, but less than full markup.

A proposed transfer price may be a cost-plus price. Variable-cost-plus price is the price

On the open market.
Representing the cash outflows of the supplying division plus the contribution to the supplying division from an outside sale.
Usually set by an absorption-costing calculation.
Set by charging for variable costs plus a lump sum or an additional markup, but less than full markup.

A proposed transfer price may be based upon the full-cost price. Full-cost price is the price

A limitation of transfer prices based on actual cost is that they

Charge inefficiencies to the department that is transferring the goods.
Can lead to suboptimal decisions for the company as a whole.
Must be adjusted by some markup.
Lack clarity and administrative convenience.

Brent Co. has intracompany service transfers from Division Core, a cost center, to Division Pro, a profit center. Under stable economic conditions, wh...

Actual cost.
Standard variable cost.
Actual cost plus markup.
Negotiated price.

Pazer Inc produces portable televisions Pazer’s product manager proposes to increase the cost structure by adding voice-activated volume/channel con...

Value-added Value-added
Value-added Nonvalue-added
Nonvalue-added Value-added
Nonvalue-added Nonvalue-added

Systematic evaluation of the trade-offs between product functionality and product cost while still satisfying customer needs is the definition of

Activity-based management.
Theory of constraints.
Total quality management.
Value engineering.

Vince, Inc., has developed and patented a new laser disc reading device that will be marketed internationally. Which of the following factors should V...

I and II only.
I and III only.
II and III only.
I, II, and III.

The advantages of incorporating full product costs in pricing decisions include all the following except

Ease in identifying unit fixed costs with individual products.
Full product cost recovery.
The promotion of price stability.
A pricing formula that meets the cost-benefit test, i.e., simplicity.

Which one of the following situations best lends itself to a cost-based pricing approach?

A paper manufacturer negotiating the price for supplying copy paper to a new mass merchandiser of office products.
An industrial equipment fabricator negotiating pricing for one of its standard models with a major steel manufacturer.
A computer component manufacturer debating pricing terms with a customer in a new channel of distribution.
A computer component manufacturer debating pricing with a new customer for a made-to-order, state-of-the-art application.

Companies that manufacture made-to-order industrial equipment typically use which one of the following?

Cost-based pricing.
Market-based pricing.
Material-based pricing.
Price discrimination.

Which one of the following statements best describes characteristics of the growth phase of the product life cycle?

There is limited competition, and prices are high.
Competition increases, and prices are falling.
Competition increases, and prices are high.
There is limited competition, and prices are falling.

Which one of the following is not a characteristic of market-based costing?

It has a customer-driven external focus.
It is used by companies facing stiff competition.
It is used by companies facing minimal competition.
It starts with a target selling price and target profit.

Edward Sporting Ltd. is introducing a new product. Management considers the sales life cycle to strategically determine pricing on this innovative pro...

Price skimming.
Market-based pricing.
Penetration pricing.
Cost-based pricing.

Harding, Inc., prices its main product by adding 30% to the manufacturing cost per unit. Hardingâ€™s variable manufacturing costs are $12 per un...

$80.6
$66.6
$63
$60

A corporation produces and sells floor tiles. The corporation has five retail stores, each located in a different city. Each store has a different pri...

Market comparable pricing.
Cost-plus pricing.
Break-even pricing.
Price gouging.

Which one of the following pricing methods takes into consideration a productâ€™s entire life cycle?

Target pricing.
Transfer pricing.
Market-based pricing.
Cost-based pricing.

Which one of the following statements best represents the order of the steps in developing target prices?

Use value engineering and kaizen costing to reduce costs and determine desired price.
Use kaizen costing to reduce costs, determine desired mark-up, and set market price.
Determine market price, calculate target cost, and use value engineering to reduce costs.
Use value engineering to reduce costs, calculate target costs, and set desired price.

A firm in which of the following industries is most likely to use a market-based as opposed to a cost-based approach to pricing decisions?

Non-competitive market competitors’ products similar
Non-competitive market competitors’ products dissimilar.
Competitive market competitors’ products similar
Competitive market competitors’ products dissimilar

A pharmaceutical company is preparing to release a new medication. The controller would like to consider the product life cycle in pricing, costing, a...

Sale of a product to the time that customer service and support is no longer offered on that product.
Sale of a new product to the time that sales mature and begin to decline.
Research and development on a product to the time that customer service and support is no longer offered on that product.
Research and development on a product to the time that sales mature and begin to decline.

Target cost per unit is the difference between target

Gross income per unit and the target price.
Operating income per unit and the target price.
Variable cost and budgeted fixed cost.
Variable cost and historical fixed cost.

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Decision Making MCQs