Question

2.         In deciding on whether to keep or drop a segment, the segment should be kept as long as its contribution margin exceeds:

1. all costs.
2. all variable costs.
3. avoidable fixed costs.
4. allocated common costs.

                  

3.         A firm decided to emphasize those goods with the highest contribution margin per unit. It may have made an incorrect decision when the firm:

1. is highly automated.
2. has excess capacity.
3. has a limited supply of manufacturing resources.
4. has a high level of sunk costs.
5. has a high operating leverage or low safety margin.

4.         Which of the following should always be ignored in making decisions?

            a.   avoidable costs                                                              

            b.   qualitative factors

            c.   sunk costs

            d.   opportunity costs

5.         A company is making a decision regarding whether it will make a part or buy it? If the part is purchased, the production supervisor’s salary will be eliminated. The salary is a(n):

            a.   relevant cost of Make.

            b.   unavoidable cost.

            c.   opportunity cost of Buy.

            d. qualitative factor.

6.         In making a decision regarding which college to go, which of the following is a relevant qualitative factor?

            a.   College A’s tuition is $3,000 higher than that of College B.

            b.   Both Colleges A and B offer a $5,000 scholarship.

            c.   College A has a Division 1-A basketball team.

d.   Both Colleges are located in a rural area.

7.         Which of the following costs are relevant in making decisions?

            a.   unavoidable costs and opportunity cost

b.   avoidable costs and opportunity costs

      c.   Unavoidable costs and avoidable costs

d.   Unavoidable costs

Answer 1

2 Answer [c] avoidable fixed costs

In deciding on whether to keep or drop a segment, the segment should be kept as long as its contribution margin exceeds avoidable fixed.

                  

3 Answer [c] has a limited supply of manufacturing resources.

A firm decided to emphasize those goods with the highest contribution margin per unit. It may have made an incorrect decision when the firm has a limited supply of manufacturing resource

4. Answer [c] Sunk Costs

Sunk costs is historical costs/ past costs should always be ignored in making decisions.

5. Answer [a] relevant cost of Make

In making a decision regarding whether it will make a part or buy it.If the part is purchased, the production supervisor’s salary will be eliminated. The salary is a relevant cost of Make.

6. Answer [b]   Both Colleges A and B offer a $5,000 scholarship

In making a decision regarding which college to go, Both Colleges A and B offer a $5,000 scholarship is a relevant qualitative factor.

7.Answer [b] avoidable costs & opportunity costs.

avoidable costs and opportunity costs are relevant in making decisions.