Managerial Accounting, 7e (Wild)Chapter 10 Relevant Costing for Managerial Decisions

An possibility expense is the potential advantage lost by taking a specific action when two or morealternate selections are obtainable.

You are watching: An additional cost incurred only if a company pursues a particular course of action is a(n):

Answer: TRUEDifficulty: 1 EasyTopic: Relevant Costs and BenefitsLearning Objective: 10-C1 Describe the importance of relevant expenses for momentary decisions.Bloom"s: RememberAACSB/Accessibility: Communication / Keyboard NavigationAICPA: BB Resource Management; FN Decision Making

Incremental costs are the additional expenses incurred if a company pursues a certain course ofactivity.

Answer: TRUEDifficulty: 1 EasyTopic: Relevant Costs and BenefitsLearning Objective: 10-C1 Describe the prominence of appropriate expenses for temporary decisions.Bloom"s: RememberAACSB/Accessibility: Communication / Keyboard NavigationAICPA: BB Reresource Management; FN Decision Making

Opportunity expenses are the extra or incremental revenues produced by choosing a certaincourse of activity.

Answer: FALSEDifficulty: 1 EasyTopic: Relevant Costs and BenefitsLearning Objective: 10-C1 Describe the prominence of pertinent expenses for temporary decisions.Bloom"s: RememberAACSB/Accessibility: Communication / Keyboard NavigationAICPA: BB Reresource Management; FN Decision Making

A sunk price will certainly readjust via a future course of activity.

Answer: FALSEDifficulty: 1 EasyTopic: Relevant Costs and BenefitsLearning Objective: 10-C1 Describe the prestige of relevant expenses for short-lived decisions.Bloom"s: RememberAACSB/Accessibility: Communication / Keyboard NavigationAICPA: BB Resource Management; FN Decision Making

A sunk expense arises from a previous decision and cannot be avoided or readjusted.

Answer: TRUEDifficulty: 1 EasyTopic: Relevant Costs and BenefitsLearning Objective: 10-C1 Describe the importance of appropriate prices for momentary decisions.Bloom"s: RememberAACSB/Accessibility: Communication / Keyboard NavigationAICPA: BB Reresource Management; FN Decision Making

Sunk prices are irappropriate to future decisions.

Answer: TRUEDifficulty: 1 EasyTopic: Relevant Costs and also BenefitsLearning Objective: 10-C1 Describe the importance of appropriate costs for short-lived decisions.Bloom"s: RememberAACSB/Accessibility: Communication / Keyboard NavigationAICPA: BB Reresource Management; FN Decision Making

An out-of-pocket expense calls for a future outlay of cash and also is relevant for present and futuredecision making.

Answer: TRUEDifficulty: 1 EasyTopic: Relevant Costs and also BenefitsLearning Objective: 10-C1 Describe the prominence of pertinent costs for short-lived decisions.Bloom"s: RememberAACSB/Accessibility: Communication / Keyboard NavigationAICPA: BB Reresource Management; FN Decision Making

Anvarious other name for pertinent expense is inescapable price.

Answer: FALSEDifficulty: 1 EasyTopic: Relevant Costs and BenefitsLearning Objective: 10-C1 Describe the prominence of relevant costs for momentary decisions.Bloom"s: RememberAACSB/Accessibility: Communication / Keyboard NavigationAICPA: BB Resource Management; FN Decision Making

In a make or buy decision, monitoring need to focus on expenses that are the exact same under thetwo options.

Answer: FALSEDifficulty: 2 MediumTopic: Make or BuyLearning Objective: 10-P1 Evaluate make or buy decisions.Bloom"s: UnderstandAACSB/Accessibility: Analytical Thinking / Keyboard NavigationAICPA: BB Reresource Management; FN Decision Making

Part of the decision to accept additional organization should be based on a comparikid of theincremental (differential) costs of the included manufacturing through the additional earnings to beobtained.

Answer: TRUEDifficulty: 2 MediumTopic: Special OffersLearning Objective: 10-P7 Evaluate one-of-a-kind offer decisions.Bloom"s: UnderstandAACSB/Accessibility: Analytical Thinking / Keyboard NavigationAICPA: BB Resource Management; FN Decision Making

Increpsychological costs should be considered in a make or buy decision.

Answer: TRUEDifficulty: 1 EasyTopic: Make or BuyLearning Objective: 10-P1 Evaluate make or buy decisions.Bloom"s: RememberAACSB/Accessibility: Analytical Thinking / Keyboard NavigationAICPA: BB Reresource Management; FN Decision Making

If a firm has actually the capacity to create either 10,000 units of Product A or 10,000 systems ofProduct B; assuming addressed costs are the very same, manufacturing constraints are the same for bothcommodities, and the industries for both commodities are unlimited; the company need to commit 100% ofits capacity to the product that has the greater contribution margin per unit of operating capacity.

Answer: TRUEDifficulty: 2 MediumTopic: Relevant Costs and also BenefitsLearning Objective: 10-C1 Describe the prestige of pertinent prices for short-lived decisions.Bloom"s: UnderstandAACSB/Accessibility: Analytical Thinking / Keyboard NavigationAICPA: BB Resource Management; FN Decision Making

The decision to accept an additional volume of company must be based on a comparison ofthe revenue from the additional company with the sunk costs of developing that revenue.

Answer: FALSEDifficulty: 1 EasyTopic: Special OffersLearning Objective: 10-P7 Evaluate distinct sell decisions.Bloom"s: RememberAACSB/Accessibility: Analytical Thinking / Keyboard NavigationAICPA: BB Resource Management; FN Decision Making

Sunk prices are irrelevant to future decisions as they cannot be readjusted or avoided.

Answer: TRUEDifficulty: 2 MediumTopic: Relevant Costs and also BenefitsLearning Objective: 10-C1 Describe the prominence of relevant prices for short-term decisions.Bloom"s: UnderstandAACSB/Accessibility: Analytical Thinking / Keyboard NavigationAICPA: BB Industry; FN Measurement

Weras from a project a student gives as much as attfinish summer school would certainly be a sunk cost.

Answer: FALSEDifficulty: 3 HardTopic: Relevant Costs and BenefitsLearning Objective: 10-C1 Describe the importance of appropriate expenses for short-lived decisions.Bloom"s: ApplyAACSB/Accessibility: Analytical Thinking / Keyboard NavigationAICPA: BB Industry; FN Measurement

The price of equipment purchased by a agency last year would certainly be an avoidable cost.

Answer: FALSEDifficulty: 3 HardTopic: Segment EliminationLearning Objective: 10-P4 Evaluate segment elimicountry decisions.Bloom"s: ApplyAACSB/Accessibility: Analytical Thinking / Keyboard NavigationAICPA: BB Industry; FN Measurement

A company"s ideal sales mix is identified making use of contribution margin per unit of scarceresource.

Answer: TRUEDifficulty: 2 MediumTopic: Sales Mix Selection When Resources Are ConstrainedLearning Objective: 10-P3 Determine sales mix through constrained resources.Bloom"s: UnderstandAACSB/Accessibility: Analytical Thinking / Keyboard NavigationAICPA: BB Industry; FN Measurement

The full price strategy determines a selling price equal to a product"s complete prices plus a desiredprofit on the product.

Answer: TRUEDifficulty: 1 EasyTopic: Pricing DecisionsLearning Objective: 10-P6 Determine product offering price making use of price data.Bloom"s: RememberAACSB/Accessibility: Analytical Thinking / Keyboard NavigationAICPA: BB Industry; FN Measurement

Markup percentage amounts to complete prices split by preferred profit.

Answer: FALSEDifficulty: 1 EasyTopic: Pricing DecisionsLearning Objective: 10-P6 Determine product marketing price making use of expense information.Bloom"s: RememberAACSB/Accessibility: Analytical Thinking / Keyboard NavigationAICPA: BB Industry; FN Measurement

Increpsychological expenses are additionally referred to as out-of-pocket prices.

Answer: FALSEDifficulty: 1 EasyTopic: Relevant Costs and also BenefitsLearning Objective: 10-C1 Describe the prominence of pertinent prices for momentary decisions.Bloom"s: RememberAACSB/Accessibility: Analytical Thinking / Keyboard NavigationAICPA: BB Industry; FN Measurement

More costs incurred if a agency pursues a specific course of action are sunk prices.

Answer: FALSEDifficulty: 1 EasyTopic: Relevant Costs and also BenefitsLearning Objective: 10-C1 Describe the importance of appropriate costs for temporary decisions.Bloom"s: RememberAACSB/Accessibility: Analytical Thinking / Keyboard NavigationAICPA: BB Industry; FN Measurement

If accepting extra service would cause existing sales to decline, the offer shouldalways be declined.

Answer: FALSEDifficulty: 2 MediumTopic: Special OffersLearning Objective: 10-P7 Evaluate distinct market decisions.Bloom"s: UnderstandAACSB/Accessibility: Analytical Thinking / Keyboard NavigationAICPA: FN Decision Making; BB Industry

Contribution margin shed from a decrease in sales is an possibility price.

Answer: TRUEDifficulty: 2 MediumTopic: Relevant Costs and BenefitsLearning Objective: 10-C1 Describe the prominence of appropriate costs for short-lived decisions.Bloom"s: UnderstandAACSB/Accessibility: Analytical Thinking / Keyboard NavigationAICPA: BB Industry; FN Measurement

Additional power for operating equipments, additional gives, and also added cleanup costs areexamples of increpsychological overhead costs.

Answer: TRUEDifficulty: 3 HardTopic: Relevant Costs and also BenefitsLearning Objective: 10-C1 Describe the prominence of relevant prices for temporary decisions.Bloom"s: ApplyAACSB/Accessibility: Analytical Thinking / Keyboard NavigationAICPA: BB Industry; FN Measurement

The decision to market or procedure a product further is analyzed by identifying the incrementalprices and also benefits of further handling.

Answer: TRUEDifficulty: 3 HardTopic: Sell or Process FurtherLearning Objective: 10-P2 Evaluate offer or process even more decisions.Bloom"s: ApplyAACSB/Accessibility: Analytical Thinking / Keyboard NavigationAICPA: FN Decision Making; BB Industry

An chance cost:A) Is an inevitable expense bereason it stays the very same regardmuch less of the alternate favored.B) Requires a current outlay of cash.C) Results from previous managerial decisions.D) Is the potential advantage shed by selecting a certain different course of activity among two oreven more.E) Is irrelevant in decision making because it emerged in the past.

Answer: DDifficulty: 1 EasyTopic: Relevant Costs and also BenefitsLearning Objective: 10-C1 Describe the importance of pertinent prices for momentary decisions.Bloom"s: RememberAACSB/Accessibility: Communication / Keyboard NavigationAICPA: BB Resource Management; FN Decision Making

The potential benefits shed by taking a particular action once 2 or more alternative choicesare accessible is well-known as a(n):A) Alterindigenous expense.B) Sunk cost.C) Out-of-pocket expense.D) Differential price.E) Opportunity cost.

Answer: EDifficulty: 1 EasyTopic: Relevant Costs and also BenefitsLearning Objective: 10-C1 Describe the prominence of pertinent prices for temporary decisions.Bloom"s: RememberAACSB/Accessibility: Communication / Keyboard NavigationAICPA: BB Resource Management; FN Decision Making

A expense that needs a future outlay of cash, and is appropriate for present and future decisionmaking, is a(n):A) Out-of-pocket price.B) Sunk expense.C) Opportunity expense.D) Operating cost.E) Uncontrollable price.

Answer: ADifficulty: 1 EasyTopic: Relevant Costs and also BenefitsLearning Objective: 10-C1 Describe the prominence of pertinent costs for momentary decisions.Bloom"s: RememberAACSB/Accessibility: Communication / Keyboard NavigationAICPA: BB Resource Management; FN Decision Making

A cost that cannot be avoided or changed because it arises from a past decision, and isirrelevant to future decisions, is called a(n):A) Uncontrollable expense.B) Increpsychological expense.C) Opportunity cost.D) Out-of-pocket price.E) Sunk price.

Answer: EDifficulty: 1 EasyTopic: Relevant Costs and BenefitsLearning Objective: 10-C1 Describe the prestige of relevant expenses for temporary decisions.Bloom"s: RememberAACSB/Accessibility: Communication / Keyboard NavigationAICPA: BB Resource Management; FN Decision Making

A agency is considering a brand-new task that will price $19,000. This task would certainly outcome inextra annual revenues of $6,000 for the following 5 years. The $19,000 expense is an instance ofa(n):A) Sunk expense.B) Fixed expense.C) Incremental expense.D) Unmanageable cost.E) Opportunity expense.

Answer: CDifficulty: 2 MediumTopic: Relevant Costs and BenefitsLearning Objective: 10-C1 Describe the prominence of pertinent costs for short-term decisions.Bloom"s: UnderstandAACSB/Accessibility: Analytical Thinking / Keyboard NavigationAICPA: BB Resource Management; FN Decision Making

Gordon Corporation created 10,000 digital watches in the current year. Variable costs are$8 per watch. Overhead assigned is $2 per watch. A supplier uses the watches for $9.each. Gordon"s manufacturing manager reports the incremental overhead is $1 per watch. Gordonshould:A) Continue making the watches as a second $1 per watch would be incurred if boughtfrom the supplier.B) Continue making the watches as an additional $0 per watch would be incurred if boughtfrom the supplier.C) Buy the watches as they would certainly save $0 per watch.D) Buy the watches as they would save $1 per watch.E) Buy the watches as they would save $1 per watch.

Answer: BExplanation: Increpsychological expenses if make: $8 variable expenses + $1 incremental overhead = $9.Costs to buy: $9.Cost savings to make: $9 − $9 = ($0)Difficulty: 2 MediumTopic: Make or BuyLearning Objective: 10-P1 Evaluate make or buy decisions.Bloom"s: UnderstandAACSB/Accessibility: Analytical Thinking / Keyboard NavigationAICPA: BB Reresource Management; FN Decision Making

Chang Industries has 2,000 tables that price $115 each to produce. Each table deserve to be sold as isfor $221 or finiburned via a stain or paint. The expense to add a complete to each table is $75. Finishedtables have the right to be marketed for $310. Chang should:A) Finish the table for increpsychological price of $190 per table.B) Sell the unfiniburned tables for profit of $195 per table.C) Finish the table for profit of $89 per table.D) Sell unfiniburned tables for $106 increpsychological revenue per table.E) Finish the table for profit of $14 per table.

Answer: EExplanation:

Incremental revenue $ 89 ($310 − $221)Incremental price 75

Profit $ 14 per table

Difficulty: 2 MediumTopic: Sell or Process FurtherLearning Objective: 10-P2 Evaluate offer or process better decisions.Bloom"s: UnderstandAACSB/Accessibility: Analytical Thinking / Keyboard NavigationAICPA: BB Resource Management; FN Decision Making

Chang Industries has 2,000 defective devices of product that already price $14 each to produce.A salvage company will certainly purchase the defective devices as is for $5 each. Chang"s productionmanager reports that the defects can be corrected for $6 per unit, permitting them to be offered at theirregular industry price of $21. The $14 per unit is a:A) Increpsychological expense.B) Sunk cost.C) Out-of-pocket expense.D) Opportunity cost.E) Period expense.

Answer: BDifficulty: 2 MediumTopic: Relevant Costs and BenefitsLearning Objective: 10-C1 Describe the prestige of relevant expenses for momentary decisions.Bloom"s: UnderstandAACSB/Accessibility: Analytical Thinking / Keyboard NavigationAICPA: BB Reresource Management; FN Decision Making

Epsilon Co. have the right to create a unit of product for the adhering to costs:

Direct material $ 8Direct labor 24Overhead 40

Total product costs per unit $ 72

An outside supplier supplies to provide Epsilon with all the units it requirements at $60 per unit. If Epsilonbuys from the supplier, the firm will certainly still incur 40% of its overhead. Epsilon must chooseto:A) Buy since the pertinent price to make it is $72.B) Make because the pertinent cost to make it is $56.C) Buy since the relevant price to make it is $48.D) Make given that the relevant price to make it is $48.E) Buy since the relevant expense to make it is $56.

Answer: BExplanation:

Relevant expense to make one unit:Direct product $ 8Direct labor 24Overhead conserved (60% × $40) 24

Total product costs per unit $ 56

Difficulty: 3 HardTopic: Make or BuyLearning Objective: 10-P1 Evaluate make or buy decisions.Bloom"s: ApplyAACSB/Accessibility: Analytical Thinking / Keyboard NavigationAICPA: BB Reresource Management; FN Decision Making

Factor Co. have the right to create a unit of product for the following costs:

Direct material $ 8Direct labor 24Overhead 40

Total product cost per unit $ 72

An outside supplier offers to carry out Factor with all the devices it requirements at $46 per unit. If Factorbuys from the supplier, the agency will still incur 60% of its overhead. Factor must chooseto:A) Buy considering that the relevant price to make it is $56.B) Make because the pertinent cost to make it is $48.C) Buy because the pertinent cost to make it is $48.D) Make considering that the pertinent price to make it is $32.E) Buy given that the relevant expense to make it is $32.

Answer: CExplanation:

Relevant expense to make one unit:Direct product $ 8Direct labor 24Overhead conserved (40% × 40) 16

Total appropriate product price to make $ 48

Difficulty: 3 HardTopic: Make or BuyLearning Objective: 10-P1 Evaluate make or buy decisions.Bloom"s: ApplyAACSB/Accessibility: Analytical Thinking / Keyboard NavigationAICPA: BB Reresource Management; FN Decision Making

Maxim manufactures a hamster food product called Eco-friendly Health. Maxim currently has10,000 bags of Green Health on hand. The variable production costs per bag are $1 and totalfixed prices are $10,000. The hamster food have the right to be offered as it is for $9 per bag or be processedeven more right into Premium Eco-friendly and Environment-friendly Deluxe at a secondary price. The additional processingwill yield 10,000 bags of Premium Environment-friendly and 3,000 bags of Eco-friendly Deluxe, which have the right to be sold for$8 and $6 per bag, respectively. Assuming Maxim even more processes Eco-friendly Health better intoPremium Eco-friendly and Eco-friendly Deluxe, revenue from the 2 commodities would certainly be:A) $98,000.B) $96,000.C) $8,000.D) $6,000.E) $2,000.

See more: Why Do Jeans Gap In The Back : Femalefashionadvice, Ask A Stylist: Third Edition

Answer: AExplanation:

Revenue if processed further:Premium Eco-friendly (10,000 bags × $8 per bag) $ 80,Eco-friendly Deluxe (3,000 bags × $6 per bag) 18,

Total revenue if processed additionally $ 98,

Difficulty: 3 HardTopic: Sell or Process FurtherLearning Objective: 10-P2 Evaluate sell or procedure better decisions.Bloom"s: ApplyAACSB/Accessibility: Analytical Thinking / Keyboard NavigationAICPA: BB Resource Management; FN Decision Making

Maxim manufactures a hamster food product referred to as Eco-friendly Health. Maxim presently has10,000 bags of Eco-friendly Health on hand also. The variable production costs per bag are $1 and also totalresolved prices are $10,000. The hamster food have the right to be sold as it is for $9 per bag or be processedadditionally right into Premium Green and also Green Deluxe at a second price. The additional processingwill yield 10,000 bags of Premium Green and also 3,000 bags of Eco-friendly Deluxe, which deserve to be offered for$8 and $6 per bag, respectively. The increpsychological revenue of processing Eco-friendly Health further intoPremium Eco-friendly and also Eco-friendly Deluxe would be:A) $98,000.B) $96,000.C) $8,000.D) $6,000.E) $2,000.

Answer: CExplanation:

Revenue if processed further:Premium Green (10,000 bags * $8 per bag) $ 80,Green Deluxe (3,000 bags * $6 per bag) 18,

Total revenue if processed better $ 98,Revenue if sold as Environment-friendly Health (10,000 bags * $9 per bag) (90,000 )

Increpsychological revenue $ 8,

Difficulty: 3 HardTopic: Sell or Process FurtherLearning Objective: 10-P2 Evaluate market or procedure further decisions.Bloom"s: ApplyAACSB/Accessibility: Analytical Thinking / Keyboard NavigationAICPA: BB Resource Management; FN Decision Making