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ADMS 1500 Lecture : ADMS 1500 8

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erindog215
3 Jan 2013
School
York University
Department
Administrative Studies
Course
ADMS 1500
Professor
Paul Evans

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Document Summary

Differential cost and revenues vs. sunk costs. How to decide whether to make or buy. The difference between a short-term and a long-term decision. Information is relevant to a decision problem when . Revenues are typically variable (they rise or fall in proportion to output). A simple approach to cost behaviour is that any cost may be classified as either: variable (rises or falls in proportion to output); or, fixed (it is not affected by output). This is closely related to the idea of differential costs and revenues: a differential cost or revenue is one that occurs as a result of a decision. Some fixed cost could be relevant (i. e. outsourcing) Sunk costs: costs that have already been incurred. They do not affect any future cost and cannot be changed by any current or future action. A travel agency offers worldwide airways ,000 for a round-trip flight from hawaii to japan on a jumbo jet.

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Related Questions

#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 investment’s net present value is related to the firm’s
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 company’s 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 company’s contribution margin per unit?

Question 1 10 pts A segment of a business probably should bediscontinued if its contribution margin exceeds its controllablefixed costs and its common costs. it cannot produce a contributionmargin. its common costs exceed its contribution margin. it has anet loss. Flag this Question Question 2 10 pts Contribution marginis calculated by deducting fixed costs from revenue. deductingvariable costs and controllable fixed costs from revenue. deductingvariable costs and common costs from revenue. deducting variablecosts from revenue. Flag this Question Question 3 10 pts Which ofthe following is the first step in the decision-making process?Identify workable alternatives Define the problem Considerappropriate nonfinancial factors Evaluate the cost and revenue dataFlag this Question Question 4 10 pts Fixed manufacturing costs arewritten off as current expenses of the period in which theyoccurred when using direct costing. standard costing. absorptioncosting. differential costing. Flag this Question Question 5 10 ptsDirect costing differs from absorption costing in that underabsorption costing all fixed manufacturing overhead is expensed inthe current period. under direct costing all fixed overhead isexpensed in the current period. under absorption costing anincrease in finished goods inventory does not affect the amount offixed costs expensed. under direct costing a portion of the fixedmanufacturing overhead is included in the finished goods inventory.Flag this Question Question 6 10 pts Which is the final step in thedecision-making process? Evaluate the cost and revenue dataIdentify workable alternatives Consider appropriate nonfinancialfactors Make a decision Flag this Question Question 7 10 pts Whichof the following is NOT a consideration when determining whether tocontinue making a part or to buy that part? the opportunity costthe timing of the cash receipts and expenditures the impact onemployees the sunk cost Flag this Question Question 8 10 pts Coststhat are not directly traceable to a segment of a business arecalled sunk costs. common costs. fixed costs. incremental costs.Flag this Question Question 9 10 pts Which of the following shouldNOT be a consideration when deciding whether to make or buy a part?impact on continued supply of the part impact on quality of thepart under each set of circumstances impact on sales to existingcustomers impact on factory employee morale Flag this QuestionQuestion 10 10 pts In making a decision to replace a machine, whichof the following is not relevant? the variable costs of operatingthe old machine the training that workers will need in order to usethe new machine the book value of the old machine the variablecosts of operating the new machine

please answere all mutiple quistions

3- In short run production
a. all factors are variable.
b. two factors are variable.
c. two factor is fixed.
d. At least one factor is fixed.
4. When average product is at its maximum
a. Marginal cost is also at its maximum.
b. Marginal revenue product is also at its maximum.
c. Marginal cost is at its minimum.
d. Average variable cost is at its minimum.
e. None of the above.

5. If a firm has total revenues of ten million, explicit costs of eight million and implicit
costs of one million, then:
a. It is generating an accounting profit and incurring an economic loss.
b. It is generating an economic profit and incurring an accounting loss.
c. It is generating both an accounting and economic profit.
d. It is incurring both an accounting and economic loss.
e. Can’t determine from the information available.
6. Economics usually assumes that individuals:
a. Incur dissatisfaction from working.
b. Enjoy working more than leisure.
c. Want to do a good job while at work.
d. Are encouraged to enjoy themselves while at work.
e. None of the above.
7. Decreasing returns to a variable factor implies
a. Decreasing average variable cost.
b. Increasing average variable cost.
c. Increasing average fixed cost.
d. Constant average total cost.
e. Constant average variable cost.
8. All production for a profit-minded firm should occur in
a. Stage 1 of production
b. Stage 2 of production
c. Stage 3 of production
d. Stage 4 of production.
9. In Stage 2 of production
a. Average total cost is declining.
b. Average fixed cost is increasing.
c. Average variable cost is declining.
d. Marginal cost is increasing.
e. Marginal cost is decreasing.
10. L shaped isoquants imply
a. A perfect substitute production relationship between inputs.
b. A perfect substitute production relationship between outputs.
c. A perfect complementary production relationship between inputs.
d. A quasi substitute production relationship between inputs.
e. Output must be increasing faster than inputs.
11. In oligopolistic industries firms typically
a. attempt to avoid competing with each other.
b. are not concerned with their competitors.
c. choose a strategy based on creative destruction.
d. operate in the inelastic range of their demand curve.
e. all of the above.

12. The optimal input mix implies
a. That all output is increasing at an increasing rate.
b. That the marginal product of the inputs divided by their prices are equal.
c. That the marginal cost of the inputs is declining at a declining rate.
d. That increasing returns to scale is inevitable.
e. That decreasing returns to scale is inevitable.
13. If an industry’s MES is 5 percent
a. Then there is a 10 percent inefficiency in the industry.
b. Then there is room for twenty efficiently functioning firms in the industry.
c. Then there is an economies of scope issue in production.
d. Then there is an opportunity for increasing output at no additional cost.
14. Economies of scope imply
a. That all costs increase as the firm’s scope increases.
b. That all costs decrease as the firm’s scope decreases.
c. That average total costs may decrease as a firm’s scope increases.
d. That average fixed costs are not relevant to production decisions.
e. None of the above.
15. If a firm is on a learning curve this implies
a. That the firm’ s variable resources are not efficiently employed.
b. That the firm is enjoying a comparative advantage in the industry.
c. That the firm is enjoying economies of scale.
d. That the firm’s cumulative average total costs are declining.
e. That the firm’s cumulative average fixed costs are increasing.
16. The Law of Diminishing Marginal Returns suggests
a. That average total costs will go up and then down.
b. That average total costs will continually decline as more output is produced.
c. That marginal product will beyond some point begin to decline.
d. That marginal product is subject to an increasing cost situation.
e. That marginal cost and average variable cost are continually declining.
17. A key feature of oligopoly is
a. Lots of product promotion.
b. Mutual interdependence.
c. Mutual independence.
d. Excess capacity.
e. None of the above.
18. A key feature of monopolistic competition is
a. Mutual interdependence.
b. Formidable barriers to entry.
c. Only a few firms in the industry.
d. Traditionally large firms in the market.
e. Lots of product promotion.

19. In long run production
a. All costs are fixed.
b. Average fixed costs are declining.
c. Total variable costs are usually declining.
d. a firm’s planning period is represented.
e. Total Fixed costs are not usually very high.
20. In short run pure competition
a. A firm should not produce anything if P>AFC.
b. A firm should produce only if P>AFC.
c. A firm should produce only if P<ATC.
d. Both A and C.
e. None of the above.
21. In long run pure competition
a. A firm should produce as long as P > AVC.
b. A firm should produce as long as P < MC
c. A firm should produce as long as P > AFC.
d. A firm not produce as long as P < ATC.
e. A firm should produce as long as P > ATC.
22. Allocative efficiency occurs when
a. P equals ATC.
b. P equals AVC.
c. P equals MC.
d. P equals AFC.
e. P equals TVC.
23. Productive efficiency occurs when
a. P equals the minimum of ATC.
b. P equals the minimum of AVC.
c. P equals MC.
d. P equals AFC at its maximum.
e. P equals TC, but only in the long run.
24. Barriers to entry into an industry
a. Will prevent exit out of the industry.
b. Will prevent allocative efficiency from being realized in the long run.
c. Will prevent productive efficiency from being realized in the short run.
d. Will prevent all firms from using the newest technologies in their industry.
e. Will usually not harm competition in the industry.
25. Which of the following is considered an economically justified barrier to entry?
a. Government sanctioned barriers.
b. Pioneering brand name advantages.
c. Various pricing policies.
d. Reputation effects.
e. Economies of scale.