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Acctg 202
Chapter 14

Choose the best answer. 

1. When it comes to decision making, a managerial accountant is chiefly responsible for the: 
A) collection of data so that a decision can be made. 
B) clarification of the decision problem. 
C) selection of an alternative. 
D) choice of a decision model. 
E) identification of alternatives. 

2. Factors in a decision problem that cannot be expressed in numerical terms are: 
A) qualitative in nature. 
B) quantitative in nature. 
C) predictive in nature. 
D) sensitive in nature. 
E) uncertain in nature. 

3. At which step or steps in the decision-making process do qualitative considerations generally have the greatest impact? 
A) Specifying the criterion and identifying the alternatives. 
B) Developing a decision model. 
C) Collecting the data. 
D) Making a decision. 
E) Identifying the alternatives. 

4. An accounting information system should be designed to provide information that is useful. To be useful the information must be: 
A) qualitative rather than quantitative. 
B) unique and unavailable through other sources. 
C) historical in nature and not purport to predict the future. 
D) marginal between two alternatives. 
E) relevant, accurate, and timely. 

5. Which of the following costs can be ignored when making a decision? 
A) Opportunity costs. 
B) Differential costs. 
C) Sunk costs. 
D) Relevant costs. 
E) All future costs. 

6. The book value of equipment is an example of a(n): 
A) future cost. 
B) differential cost. 
C) comparative cost. 
D) opportunity cost. 
E) sunk cost. 

7. The term "outsourcing" is most closely associated with: 
A) special order decisions. 
B) make-or-buy decisions. 
C) equipment replacement decisions. 
D) decisions to process joint products beyond the split-off point. 
E) decisions that involve limited resources. 

8. The City of Miami is about to replace an old fire truck with a new vehicle in an effort to save maintenance and other operating costs. Which of the following items, all related to the transaction, would not be considered in the decision? 
A) Purchase price of the new vehicle. 
B) Purchase price of the old vehicle. 
C) Savings in operating costs as a result of the new vehicle. 
D) Proceeds from disposal of the old vehicle. 
E) Future depreciation on the new vehicle. 

9. When deciding whether to sell a product at the split-off point or process it further, joint costs are not usually relevant because: 
A) such amounts do not help to increase sales revenue. 
B) such amounts only slightly increase a company's sales margin. 
C) such amounts are sunk and do not change with the decision. 
D) the sales revenue does not decrease to the extent that it should, if compared with separable processing. 
E) such amounts reflect opportunity costs. 

10. Joe is contemplating a job offer with an advertising agency where he will make $40,000 in his first year of employment. Alternatively, Joe can begin to work in his father's business where he will earn an annual salary of $34,000. If Joe decides to work with his father, the opportunity cost would be: 
A) $6,000. 
B) $34,000. 
C) $40,000. 
D) $74,000. 
E) irrelevant in deciding which job offer to accept. 

11. The Fashion Shack has $40,000 of inventory that suffered minor smoke damage from a fire in the warehouse. The company can sell the goods "as is" for $10,000; alternatively, the goods can be cleaned and shipped to the firm's outlet center at a cost of $4,000. There the goods could be sold for $19,000. What alternative is more desirable and what are the total relevant costs for that alternative? 
A) Sell "as is," $40,000. 
B) Clean and ship to outlet center, $4,000. 
C) Clean and ship to outlet center, $34,000. 
D) Clean and ship to outlet center, $44,000. 
E) Neither alternative is desirable, as both produce a loss for the firm. 

Xebex Company is considering whether to make or buy a component that is used in the production of fax machines. The annual cost of producing the 100,000 units needed by the company is as follows:

Traceable variable manufacturing costs 


Traceable fixed manufacturing costs 


Allocated corporate overhead 


If Xebex were to discontinue production of the component, traceable fixed manufacturing costs would be reduced by 80%. 

12. Xebex should buy the 100,000 components if the per-unit cost of purchasing is less than what amount? 
A) $3.00. 
B) $3.50. 
C) $3.80. 
D) $4.00. 
E) $4.50. 

13. The irrelevant costs in the company's make-or-buy decision total: 
A) $50,000. 
B) $70,000. 
C) $80,000. 
D) $100,000. 
E) $130,000. 

14. An architecture firm currently offers services that appeal to both individuals and commercial clients. If the firm decides to discontinue services to individuals because of ongoing losses, which of the following costs could likely be avoided? 
A) Allocated corporate overhead. 
B) Building depreciation. 
C) Insurance. 
D) Variable operating costs. 
E) Monthly installment payments on computer drafting equipment. 

15. Occidental is contemplating dropping a product because of ongoing losses. Costs that would be relevant in this situation would include variable manufacturing costs as well as: 
A) factory depreciation. 
B) avoidable fixed costs. 
C) unavoidable fixed costs. 
D) allocated corporate administrative costs. 
E) general corporate advertising.

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