Question

Which of the following costs would be considered relevant when deciding between two products to produce? Select one: A. Level of direct materials required B. Additional investment in factory equipment for one product C. Amount of additional direct and indirect labor D. The opportunity cost associated with one or the other product E. All of the above In the decision to make or buy a new component, if a company is producing at full capacity then the only factors that matter are the costs of materials, direct labor, and variable overhead. Select one: True False Which of the following is a disadvantage of using variable costing? Select one: A. Inventory values tend to be overstated. B. Two sets of accounting records must be maintained. C. CVP relationships are more difficult to determine than under absorption costing. D. Per-customer or per-product contribution margin is obscured. E. All of the above If a business segment is unprofitable, it should always be dropped. Select one: True False Under variable costing, a company expenses all fixed overhead costs in the same period that it incurs them. Select one: True False Which of the following equations is used in break-even analysis? Select one: A. Total Fixed Costs / Contribution Margin B. Total Fixed Costs / Contribution Margin Ratio C. Variable Cost per unit / Fixed Cost per unit D. Sales price per unit / Variable Cost per unit E. Both A and B Even if a business segment reports a loss, it may still be more profitable to keep the segment rather than drop it. Select one: True False Generally, a business segment should be discontinued if the cost savings would exceed the revenue that would be lost. Select one: True False

Answer 1

Solution 1:

The relevant cost in deciding between two product to produce are:

1. Level of direct materials required

2. Additional investment in factory equipment for one product

3. Amount of additional direct and indirect labor

4. The opportunity cost associated with one or the other product

Hence option E, "All of the above" is correct.

solution 2:

False, Additiona fixed cost to be incurred in making the product also matters in decision to make or buy a new component.

Solution 3:

Disadvantage of using variable costing is "Two sets of accounting records must be maintained'

Hence option B is correct.

Solution 4:

False, It is not necessary that it should always be dropped. It may convert in profit based on expected demand in future or measures could be taken to reduce costs.

Solution 5:

True, Under variable costing, a company expenses all fixed overhead costs in the same period that it incurs them

Solution 6:

Equation used in breakeven analysis is = Total Fixed Costs / Contribution Margin Ratio

Hence option B is correct.

Solution 7:

True, "Even if a business segment reports a loss, it may still be more profitable to keep the segment rather than drop it"

Solution 8:

True, "Generally, a business segment should be discontinued if the cost savings would exceed the revenue that would be lost."