Multiple Choice
1. Information is relevant in business decisions if it is a(n)
________.
A) expected future revenue or it differs among alternatives
B) expected future revenue and it differs among alternatives
C) past revenue and it differs among alternatives
D) expected future revenue that differs from past revenue
2. What are the qualitative aspects of an accounting decision
around accepting a special order?
A) those which are not relevant to a decision
B) those with a concrete dollar amount
C) those for which measurement in dollars and cents is difficult
and imprecise
D) those which are always relevant to a decision
3. Incremental benefits are the ________ generated by a
proposed alternative.
A) reduced revenues
B) additional costs
C) additional profits
D) additional revenues or reduced costs
4. The key to determining the financial difference between two
alternative courses of action is to identify the ________.
A) opportunity cost of each alternative
B) marginal cost
C) differential costs and revenues
D) joint cost of both alternatives
5. The term opportunity cost applies to a resource that a

company ________.
A) is thinking about purchasing
B) already owns only
C) has committed to purchase only
D) gives up or loses when a certain alternative is accepted.
6. The salary foregone by a person who quits a job to start a
business is an example of a(n) ________.
A) sunk cost
B) opportunity cost
C) depreciable cost
D) outlay cost
7. Sue is considering leaving her current position to open a
coffee shop. Sue's current annual salary is $83,000. Annual
coffee shop revenue and costs are estimated at $260,000 and
$210,000, respectively. What is Sue's opportunity cost of
staying at her current work position?
A) $50,000
B) $83,000
C) $210,000
D) $343,000
8. In a make-or-buy decision for a part for a product, which of
the following qualitative factors play a role?
A) quality of purchased part
B) credit terms offered by supplier of part
C) timeliness of delivery of purchased part by supplier
D) all of the above
9. In make-or-buy decisions for a part for a product, relevant
costs include ________.
A) some variable costs of making the part
B) all variable costs of making the part

C) fixed costs that can be avoided in the future if the part is
purchased
D) B and C
10. Fixed overhead costs that will continue regardless of a
make-or-buy decision are ________ to the make-or-buy
decision.
A) relevant
B) irrelevant
C) opportunity costs
D) incremental costs
11. If a department in a department store is eliminated,
________ costs will not continue.
A) unavoidable
B) common
C) corporate
D) avoidable
12. When deciding whether to add or delete a department,
managers should keep the department as long as ________ from
the department exceeds ________.
A) contribution margin; variable costs
B) contribution margin; common costs
C) contribution margin; net income
D) contribution margin; fixed costs
13. In deciding whether to add or delete a product, the insurance
expense associated with the custom-built equipment used to
produce the product is an ________ cost. Assume the equipment
will be sold if the company discontinues the product.
A) avoidable fixed
B) avoidable variable
C) unavoidable fixed
D) unavoidable variable

14. In deciding whether to add or delete a product, the salary of
the plant manager is an ________. Assume the plant manager
supervised the production of several products.
A) avoidable fixed cost
B) avoidable variable cost
C) unavoidable fixed cost
D) unavoidable variable cost
15. In evaluating a special order which of the following should
be a major factor on whether to accept or reject the order?
A) depreciation
B) the sales budget
C) existing customers finding out
D) Mixed costs
1. Bonneville Company is producing a subassembly used in the
production of a product. The costs incurred for the subassembly

follow:
Per Unit
Direct materials $6.00
Direct labor 4.00
Variable factory overhead 1.00
Fixed supervisor salary 3.00
Depreciation expense on factory equipment 2.00
General fixed factory overhead allocated 5.00
Total costs $21.00
The above per unit costs are based on 8,000 units. An outside
supplier will provide 8,000 subassemblies for $19 per unit
which at first glance looks like a $2 per unit savings. The
supervisor will be terminated if the subassemblies are not
produced in house as that position will no longer be needed.
The idle factory will be used to manufacture another product
which will bring in $60,000. What should Bonneville do?
2. Central Industries has three product lines: A, B and C. The
following information is available:

Product A Product B Product C
Sales $100,000 $90,000 $44,000
Variable costs 76,00048,00035,000
Contribution margin 24,000 42,000 9,000
Avoidable fixed costs 9,000 18,000 3,000
Unavoidable fixed costs 6,0009,0007,700
Operating income(loss) $9,000$15,000$(1,700)
Central Industries is thinking about dropping Product C because
it is reporting a loss. Assume Central Industries drops Product C
and does not replace it. What will happen to operating income?
Would your answer change if all fixed costs were avoidable?

3. Donald Company has the following information:
Cash Balance, May 31 $45,000
Dividends paid in June 12,000
Cash paid for operating expenses in June 36,800
Equipment depreciation expense in June 4,500
Patent amortization expense in June 2,000
Cash collections on sales in June 99,000
Merchandise purchases paid in June 56,200
Purchase equipment for cash in June 17,500
Donald Company wants to keep a minimum cash balance of
$10,000. Assume that borrowing occurs at the beginning of the
month and repayments occur at the end of the month. Interest of
1% is paid in cash at the end of each month when debt is
outstanding. Given this information prepare the cash budget for
June.

4. The following data was obtained for a company that makes
statues:
Standard Inputs Expected Standard Price
For Each Unit of Output Per Unit of Input
Direct material 5 pounds $12 per pound
Direct labor 1.5 hours $12 per hour
During the month of July, the company actually produced 1,000
statutes, which is 100 units less than expected. Direct material
purchased and used amounted to 5,500 pounds at a cost of
$12.50 per pound. Actual direct labor was 1,450 hours at an
actual cost of $13.00 per hour.
Required:
A) Compute the price and quantity variances for direct
materials.
B) Compute the price and quantity variances for direct labor.
Be sure to comment on whether or not each variance is
favorable or unfavorable.
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