Question

18. In make-or-buy decisions for a part for a product, relevant costs include ________.

A) all variable costs of making the part

B) some variable costs of making the part

C) fixed costs that can be avoided in the future if the part is purchased

D) A and C

21.  Department A covers one section of a large factory building. Which of the following costs is relevant to the decision to eliminate Department A?

A) Heating expenses of building allocated to Department A

B) General corporate overhead allocated to Department A

C) Salary Expense of Supervisor in Department A; he only works in Department A

D) Depreciation Expense on store building allocated to Department A

24.  The following is a useful rule of thumb when making operational decisions. Managers should NOT use ________.

A) variable cost per unit

B) total variable costs

C) fixed cost per unit

D) total fixed costs

25. Which of the following statements about budgets and budgeting is FALSE?

A) Budgets help coordinate financial and operational activities.

B) The vast majority of managers use budgeting as an effective cost management tool.

C) Budgeting is the process of formulating an organization's plans.

D) Managers do not use budgets for performance evaluation.

Answer 1

18. In make-or-buy decisions for a part for a product, relevant costs include ________.

A) all variable costs of making the part

B) some variable costs of making the part

C) fixed costs that can be avoided in the future if the part is purchased

D) A and C

Answer. A) all variable costs of making the part

Explanation: Under the Cost analysis of Make-or-Buy decision, relevant costs means all the variable costs which are incurred for making the part or eliminated by buying the part. So, we should consider all Variable costs which are varying with the making of each unit of part. These costs are occurring only when the part is made. So, when we buy a part of the product, all of these variable costs will be eliminated. Example of variable cost are material cost, direct labour. Fixed costs will be remaining same even after the buying of part of product.

21.  Department A covers one section of a large factory building. Which of the following costs is relevant to the decision to eliminate Department A?

A) Heating expenses of building allocated to Department A

B) General corporate overhead allocated to Department A

C) Salary Expense of Supervisor in Department A; he only works in Department A

D) Depreciation Expense on store building allocated to Department A

Answer. C) Salary Expense of Supervisor in Department; he only works in Department A

Explanation: Salary Expense of Supervisor in Department A is the relevant cost to the decision to eliminate Department A. Salary Expense of Supervisor is the variable expenses of Department, because he is working only for Department A. So, when we eliminate the Department A, Salary Expense will also be eliminated.

All other costs given in the question such as;

A) Heating expenses of building allocated to Department A,

B) General corporate overhead allocated to Department A and

D) Depreciation Expense on store building allocated to Department A

will be remain same even after the elimination of Department A.

24.  The following is a useful rule of thumb when making operational decisions. Managers should NOT use ________.

A) variable cost per unit

B) total variable costs

C) fixed cost per unit

D) total fixed costs

Answer. C) fixed cost per unit

Explanation: Under the Cost analysis of Make-or-Buy decision, basic equation for calculating the cost of making a product is the following;

Total cost of a product = Total Variable cost + Total Fixed cost

                                      OR

Total cost of a product = Number of Units* Variable cost per unit + Total Fixed cost

Here, Variable cost will vary with each unit of production, so we should consider variable cost per unit to arrive the Total Variable costs.

Fixed cost will be remaining constant for any number of productions. So, there won’t be any fixed cost per unit.

25. Which of the following statements about budgets and budgeting is FALSE?

A) Budgets help coordinate financial and operational activities.

B) The vast majority of managers use budgeting as an effective cost management tool.

C) Budgeting is the process of formulating an organization's plans.

D) Managers do not use budgets for performance evaluation.

Answer. C) Budgeting is the process of formulating an organization's plans.

Explanation: Budgeting is the preparation of quantitative plans for the future. It is the process of forecasting the future financial outflow and inflow of an organisation. It is not the process of formulating an organization's plans, but it helps to achieve the organization's plans by comparing the budgeted items and actual items.