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Exam 7: Fraud, Internal Control, and Cash

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Question 51

Multiple Choice

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Which of the following is a true statement about cost behaviors in incremental analysis? 1. Fixed costs will not change between alternatives. 2. Fixed costs may change between alternatives. 3. Variable costs will always change between alternatives.

A) 1
B) 2
C) 3
D) 2 and 3

E) None of the above
F) A) and B)

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Question 52

Multiple Choice

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If a company must expand capacity to accept a special order, it is likely that there will be

A) an increase in unit variable costs.
B) no increase in fixed costs.
C) an increase in variable and fixed costs per unit.
D) an increase in fixed costs.

E) B) and D)
F) C) and D)

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Question 53

Multiple Choice

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Which of the following is not a true statement?

Which statement is true concerning the decision rule on whether to make or buy?

Use the following information for questions Chung Inc. is considering the replacement of a piece of equipment with a newer model. The following data has been collected: $\begin{array}{lrr}&\text { Old Equipment }&\text { New Equipment }\\\text { Purchase price } & \$ 225,000 & \$ 375,000 \\\text { Accumulated depreciation } & 90,000 & -0- \\\text { Annual operating costs } & 300,000 & 240,000\end{array}$ If the old equipment is replaced now, it can be sold for $60,000. Both the old equipment's remaining useful life and the new equipment's useful life is 5 years. -The net advantage (disadvantage) of replacing the old equipment with the new equipment is

It is better not to replace old equipment if it is not fully depreciated.

Ruth Company produces 1,000 units of a necessary component with the following costs: $\begin{array} { l r } \text { Direct Materials } & \$ 34,000 \\\text { Direct Labor } & 15,000 \\\text { Variable Overhead } & 9,000 \\\text { Fixed Overhead } & 10,000\end{array}$ Ruth Company could avoid $6,000 in fixed overhead costs if it acquires the components externally.If cost minimization is the major consideration and the company would prefer to buy the components, what is the maximum external price that Ruth Company would accept to acquire the 1,000 units externally?

Bell's Shop can make 1,000 units of a necessary component with the following costs: $\begin{array}{lr}\text { Direct Materials } & \$ 24,000 \\\text { Direct Labor } & 6,000 \\\text { Variable Overhead } & 3,000 \\\text { Fixed Overhead } & ?\end{array}$ The company can purchase the 1,000 units externally for $39,000.The unavoidable fixed costs are $2,000 if the units are purchased externally.An analysis shows that at this external price, the company is indifferent between making or buying the part.What are the fixed overhead costs of making the component?

Which of the following is not involved in the sell or process further decision?

If a plant is operating at full capacity and receives a one-time opportunity to accept an order at a special price below its usual price, then

Tex's Manufacturing Company can make 100 units of a necessary component part with the following costs: $\begin{array} { l r } \text { Direct Materials } & \$ 120,000 \\\text { Direct Labor } & 25,000 \\\text { Variable Overhead } & 45,000 \\\text { Fixed Overhead } & 30,000\end{array}$ If Tex's Manufacturing Company purchases the component externally, $20,000 of the fixed costs can be avoided.At what external price for the 100 units is the company indifferent between making or buying?

In incremental analysis, total variable costs will always change under alternative courses of action, and total fixed costs will always remain constant.

In a decision concerning replacing old equipment with new equipment, the book value of the old equipment can be considered an opportunity cost.

A company has a process that results in 24,000 pounds of Product A that can be sold for $8 per pound.An alternative would be to process Product A further at a cost of $160,000 and then sell it for $14 per pound.Should management sell Product A now or should Product A be processed further and then sold? What is the effect of the action?

A factory is operating at less than 100% capacity.Potential additional business will not use up the remainder of the plant capacity.Given the following list of costs, which one should be ignored in a decision to produce additional units of product?

What role does a trade-in allowance on old equipment play in a decision to retain or replace equipment?

Which of the following is not a qualitative factor to be considered in a make-or-buy decision?

Use the following information for questions A company's unit costs based on 100,000 units are: $\begin{array}{l}\text { Variable costs } \quad \$ 75\\\text { Fixed costs } \quad 30\end{array}$ The normal unit sales price per unit is $165. A special order from a foreign company has been received for 5,000 units at $135 a unit. In order to fulfill the order, 3,000 units of regular sales would have to be foregone. -The incremental profit (loss) from accepting the order would be

It costs Garner Company $12 of variable and $5 of fixed costs to produce one bathroom scale which normally sells for $35.A foreign wholesaler offers to purchase 3,000 scales at $15 each.Garner would incur special shipping costs of $1 per scale if the order were accepted.Garner has sufficient unused capacity to produce the 3,000 scales.If the special order is accepted, what will be the effect on net income?

Able Company's unit manufacturing cost is: $\begin{array}{lr}\text { Variable Costs } & \$ 50 \\\text { Fixed Costs } & 25\end{array}$ A special order for 2,000 units has been received from a foreign company.The unit price requested is $55.The normal unit price is $80.If the order is accepted, unit variable costs will increase by $2 for additional freight costs.If the order is accepted, incremental profit (loss) will be