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Exam 30: Cost-Revenue Analysis for Decision Making

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Question 61

Multiple Choice

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When the balance in ending finished goods inventory increases,net income under absorption costing

A) is lower than under direct costing.
B) is higher than under direct costing.
C) is the same under direct costing.
D) is unaffected by the increase.

E) All of the above
F) C) and D)

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Question 62

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What is the differential cost of Alternative Y over Alternative X in the example below?

A) $142,000.
B) $103,000.
C) $93,000.
D) $39,000.

E) None of the above
F) B) and D)

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Question 63

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A segment of a business reported a contribution margin of $36,000 and common costs of $12,000.If the segment had been eliminated,the company-wide net income would have been

The following information relates to a one-time special order from a flood relief organization for 200 of its book bags at $8.50.Current manufacturing costs are as follows. Fixed manufacturing overhead is based on capacity of 4,500 units per year.Normal sales is 4,000 book bags per year.Only $0.46 of the selling costs will be incurred for this special order.What are the relevant costs regarding this special order? Pose one nonfinancial consideration regarding the acceptance or rejection of this special offer.

The excess of net sales over the cost of goods sold,based on variable costs only,is referred to as the ___________________.

A segment of a business reported a contribution margin of $36,000 and controllable fixed costs of $12,000.If the segment had been eliminated,the company-wide net income would have been

Direct costing is the process of tracing only direct material and direct labor costs through the factory cost centers and into the cost of goods sold.

Which of the following is not relevant in decision making?

Before deciding whether to purchase new equipment,a firm should consider employee morale and the quality of the new equipment's output.

Costs that are not directly traceable to a segment of a business are called

Direct costing differs from absorption costing in that

Direct costing is extremely useful in setting prices of products in special-order situations.

Timkon Manufacturing has provided the following operating results for its recent operations: Net income under the absorption costing method is:

Income statements prepared on an absorption-costing basis normally are more useful for internal decision making than income statements prepared on a direct costing basis.

The difference in net income reported under direct costing versus reported under absorption costing is calculated based on the increase or decrease in the units available for sale.

In making a decision to replace a machine,which of the following is not relevant?

Company A's inventory increased 400 units over the prior year end.Its variable manufacturing costs are $5 per unit and fixed costs for the period were $250,000.During the current year,Company A produced 12,500 units.Absorption costing net income will be:

The difference in net income reported under direct costing versus reported under absorption costing is calculated based on the change in the inventory levels times the unit fixed manufacturing overhead cost.

Companies often consider buying the parts for the products they make or making the parts they buy.List the factors management should consider when looking into making a part they have been purchasing.

Company Zee produces a widget that requires $15 of material per unit along with ½ hour of labor,the average rate being $18/hour.The company's predetermined overhead rate includes $5 of variable cost and $6 of fixed cost per labor hour when the activity level is 10,000 labor hours.Direct costing would cost this widget at $29.50 per unit.