ACCT 1B Lecture Notes - Lecture 28: Management Accounting, Capital Budgeting, Opportunity Cost

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amaranthgrasshopper262

29 Aug 2020

School

Irvine Valley College

Department

Accounting

Course

ACCT 1B

Professor

johnson

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Document Summary

Cost that differs among the alternatives in a particular decision and will be incurred in the. Depreciation is not relevant to a make or buy decision . because it is a sunk cost. Gasoline for a car if you take the train this cost will not be incurred . Choosing one alternative over another in a decision-making situation can eliminate any. Avoidable cost are relevant cost cost that. Irrelevant costs are: sunk cost, future costs. Relevant costs and benefits: contribution margin lost if dropped, fixed costs avoided if dropped, cm lost/gained on other products. Irrelevant costs: allocated common costs, sunk costs. Keep if cm lost (all products/segments) > fixed costs avoided + cm gained (other products) Drop if cm lost (all products/segments) < fixed costs avoided + cm gained (other products) Incremental costs of making the product (variable and fixed) Opportunity cost of utilizing space to make the product. Total relevant costs of making = incremental costs + opportunity costs.

Related Questions

MULTIPLE CHOICE:

1. Which of the following is never considered in incrementalanalysis?

A. Incremental revenue

B. Sunk costs

C. Incremental profit

D. Differential costs

2. When deciding between two alternatives, the preferredalternative always has:

A. No opportunity costs

B. Greater revenues than the other alternatives

C. Less expense than the other alternatives

D. Greater incremental profit than the other alternatives

3. A company is trying to decide whether to keep or drop thesporting goods department in its department store. If the segmentis dropped, the manager will be fired. The managerâs salary, inrelation to the decision ti keep or drop the sporting department,is:

A. Avoidable and therefore relevant

B. Not avoidable and therefore relevant

C. Sunk and therefore not relevant

D. The same for all alternatives and therefore not relevant

4. A product line should be dropped when:

A. It has a negative contribution margin

B. Its avoidable fixed cost are greater than its contributionmargin

C. There will be a positive change in income if the product lineis dropped

D. All of above

5. Joint cost are:

A. The cost of the common inputs for joint products

B. Greater when there are more joint products

C. Unnecessary if the accounting system is moresophisticated

D. Only used when there are no opportunity costs involved in thedecision

tanduck521

1. Which of the following costs is not relevant in aspecial-order decision?
A. Direct labor
B. Direct materials
C. Variable overhead
D. Fixed overhead

2. Costs that change across decision alternatives are
A. accounting costs.
B. activity-based costs.
C. incremental costs.
D. capital costs.

4. The potential benefit of one alternative that is lost bychoosing another is known as a(n):
A. Sunk cost
B. Out-of-pocket cost
C. Differential cost
D. Opportunity cost

5. A cost that cannot be avoided or changed because it arisesfrom a past decision, and is irrelevant to future decisions, iscalled a(n):
A. Uncontrollable cost
B. Incremental cost
C. Opportunity cost
D. Sunk cost

6. An additional cost that is incurred only if a particularaction is taken is a(n):
A. Period cost
B. Pocket cost
C. Discount cost
D. Incremental cost

7. The payback period:
a. Is the length of time necessary to recover the entire cost of aninvestment from its resulting annual net cash flow.
b. Is the length of time necessary to recover the entire cost of aninvestment from its resulting annual net income.
c. Takes into consideration the profitability of an investment overits entire life, but ignores the timing of its future cashflows.
d. Takes into consideration both the profitability of an investmentover its entire life and the timing of its future cash flows.

emeralddeer628

	#1	Which of the following correctly describes fixed and variable cost behavior as total volume increases?
	A.	Unit fixed costs stay the same and unit variable costs increase.
	B.	Total fixed costs stay the same and total variable costs increase.
	C.	Unit fixed costs decrease and total variable costs decrease.
	D.	Unit fixed costs decrease and unit variable costs decrease.

	#2	The incremental profit generated by the sale of one additional unit is equal to the
	A.	contribution margin per unit.
	B.	selling price.
	C.	margin of safety.
	D.	incremental cost.

	#3	Clipper Office Furniture uses cost-plus pricing with a 40% mark-up on total cost at capacity. The company is currently selling 40,000 units at $19.60 per unit. Each unit has a variable cost of $9. In addition, the company incurs $200,000 in fixed costs annually. If demand falls to 32,000 units and the company wants to continue to earn a 40% return, what price should the company charge?
	A.	$15.25
	B.	$21.35
	C.	$19.60
	D.	$27.44

	#4	ABC company has $6.50 per unit in variable costs and $2.20 per unit in fixed costs at a volume of 40,000 units. If the company uses cost-plus 20% for pricing, which of the following should the company use to determine the price?
	A.	The company should use a unit cost of $8.70 per unit only at a volume of 40,000 units.
	B.	The company should use a unit cost of $8.70 at any volume level.
	C.	The company should use a unit price of $10.44 at any volume level.
	D.	The company should ignore fixed costs for cost-plus pricing.

	#5	Which of the following is a grouping of overhead costs whose total is allocated using one allocation base?
	A.	Cost objective
	B.	Cost pool
	C.	Direct cost
	D.	Cost driver

	#6	Which one of the following is the preferred alternative when deciding between two options?
	A.	Incremental profit is greater than under the other alternatives.
	B.	Revenues are greater than under the other alternatives.
	C.	Expenses are less than under the other alternatives.
	D.	No opportunity or sunk costs exist.

#7	The required rate of return used to calculate an investmentâs net present value is related to the firmâs
A.	contribution margin.
B.	cost of capital.
C.	total assets.
D.	Price/Earnings ratio.

#8	A company is trying to decide whether to keep or drop the organic foods department in its grocery store. If organic foods are dropped, the manager will be laid off. What is the manager's salary in relation to the decision to keep or drop the department?
A.	A variable cost and therefore relevant
B.	Avoidable and therefore incremental
C.	Sunk and therefore not relevant
D.	A fixed cost and therefore not relevant

#9	The following information relates to Ajax Widgets during the year. There was no beginning inventory.
	Units produced	11,000
	Units sold	10,000
	Units in ending inventory	1,000
	Fixed manufacturing overhead	$220,000
	How much fixed manufacturing overhead will be expensed during the year (included in Cost of Goods Sold) using full costing?
A.	$220,000
B.	$200,000
C.	$20,000
D.	$10,000

#10	If the required rate of return is greater than the internal rate of return of a potential investment, the company should judge the investment as acceptable.
A.	This is a True statement
B.	This is a False statement
C.	Not enough information provided.

#11	The basic concept involved in time value of money calculations is that
A.	it is better to receive a dollar in the future than to receive a dollar today
B.	incremental revenues must exceed incremental costs.
C.	it is better to receive a dollar today than to receive a dollar in the future.
D.	it can only be applied to positive cash flows

#12	Hanson Sports has three product lines: footballs, basketballs, and bats. Common costs are allocated based on relative sales. A product line income statement for the year ended December 31, 2016 follows:
		Footballs	Basketballs	Bats	Total
	Sales	$600,000	$800,000	$400,000	$1,800,000
	Cost of goods sold	260,000	400,000	230,000	890,000
	Gross margin	340,000	400,000	170,000	910,000
	Less other variable costs	85,000	120,000	80,000	285,000
	Contribution margin	255,000	280,000	90,000	625,000
	Less direct salaries	50,000	60,000	45,000	155,000
	Less common fixed costs	85,000	100,000	55,000	240,000
	Net income	$120,000	$120,000	-$10,000	$230,000

	Since the profit for bats is a net loss, the company is considering dropping this product line. What is the incremental $ effect on total net income of dropping the Bats line?


#13	Right Air Supply sells a specialized air filter that has a variable cost of $10 each.
	Fixed costs are estimated to be $700,000 across all levels of sales shown below.
	Units Sold	Unit Price	CM per unit x Qty	Fixed Costs	Profit
	90,000	$33		700,000
	100,000	$31		700,000
	110,000	$30		700,000
	120,000	$28		700,000
	Which price should Right Air Supply charge to maximize profits?


#14	Randolph Corporation sells a single product at a price of $275 per unit. Variable cost per unit is $135 and fixed costs total $356,860. If sales are expected to be $825,000, what is the companyâs margin of safety?


#15	Roger Excavating Company experienced the following costs in 2016:
	Direct materials	$1.75 per unit
	Direct labor	$2.00 per unit
	Variable manufacturing overhead	$2.50 per unit
	Variable selling	$0.75 per unit
	Fixed manufacturing overhead	$50,000
	Fixed selling	$15,000
	Fixed administrative	$5,000
	During 2016, the company manufactured 100,000 units and sold 80,000 units. If the average selling price per unit was $22.65, what is the amount of the companyâs contribution margin per unit?

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ACCT 1B Lecture Notes - Lecture 28: Management Accounting, Capital Budgeting, Opportunity Cost

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