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Managers are often motivated to reject desirable economic decisions because of a conflict between the measures used in decision making and those used in performance evaluation.

A) True
B) False

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Van Sickle Corporation has a joint process which produces three products, D, E and F. Each product may be sold at split-off or processed further and then sold. Joint processing costs for a year amount to $150,000. Other relevant data are as follows: Van Sickle Corporation has a joint process which produces three products, D, E and F. Each product may be sold at split-off or processed further and then sold. Joint processing costs for a year amount to $150,000. Other relevant data are as follows: Required: a. Which products should Van Sickle process further? b. What will be the effect on profits of processing each product further? Required: a. Which products should Van Sickle process further? b. What will be the effect on profits of processing each product further?

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a. Van Sickle should process Product F f...

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Pett Company produces a part that is used in the manufacture of one of its products. The costs associated with the production of 5,000 units of this part are as follows: Pett Company produces a part that is used in the manufacture of one of its products. The costs associated with the production of 5,000 units of this part are as follows: Of the fixed factory overhead costs, $15,000 is avoidable. -Assume that Pett can buy 5,000 units of the part from another producer for $22 each. The facilities currently used to make the part could be rented out to another manufacturer for $20,000 a year. Pett should A) make the part as that would save $4 per unit. B) make the part as that would save the company $5,000. C) buy the part as that would save $3 per unit. D) buy the part as that would save the company $20,000. Of the fixed factory overhead costs, $15,000 is avoidable. -Assume that Pett can buy 5,000 units of the part from another producer for $22 each. The facilities currently used to make the part could be rented out to another manufacturer for $20,000 a year. Pett should


A) make the part as that would save $4 per unit.
B) make the part as that would save the company $5,000.
C) buy the part as that would save $3 per unit.
D) buy the part as that would save the company $20,000.

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

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B

A cost that requires a cash disbursement is called a(n)


A) sunk cost.
B) opportunity cost.
C) outlay cost.
D) common cost.

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

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The Wamsley Company is thinking about replacing its existing fleet of delivery vans. The following information relates to this decision: The Wamsley Company is thinking about replacing its existing fleet of delivery vans. The following information relates to this decision: Required: Ignoring income taxes, prepare a cost comparison of all relevant items for the next four years together. Include in your analysis the best choice for Wamsley Company and explain your reasons. Required: Ignoring income taxes, prepare a cost comparison of all relevant items for the next four years together. Include in your analysis the best choice for Wamsley Company and explain your reasons.

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An outlay cost is a cost that requires a cash disbursement.

A) True
B) False

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Expected future fixed costs are


A) always relevant.
B) always irrelevant.
C) relevant whenever they differ among alternatives.
D) irrelevant whenever they differ among alternatives.

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

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Bovee Company manufactures a part for its production cycle. The costs per unit for 10,000 units of this part are as follows: Bovee Company manufactures a part for its production cycle. The costs per unit for 10,000 units of this part are as follows: The fixed factory overhead costs are unavoidable. -Assume that Bovee can buy 10,000 units of the part from another producer for $112 each. The current facilities could be used to make 10,000 units of a product that has a contribution margin of $40 per unit. No additional fixed costs would be incurred. Bovee should A) make the new product and buy the part to earn an extra $8 per unit contribution to profit. B) continue to make the part to earn an extra $8 per unit contribution to profit. C) continue to make the part to earn an extra $24 per unit contribution to profit. D) make the new product and buy the part to earn an extra $24 per unit contribution to profit. The fixed factory overhead costs are unavoidable. -Assume that Bovee can buy 10,000 units of the part from another producer for $112 each. The current facilities could be used to make 10,000 units of a product that has a contribution margin of $40 per unit. No additional fixed costs would be incurred. Bovee should


A) make the new product and buy the part to earn an extra $8 per unit contribution to profit.
B) continue to make the part to earn an extra $8 per unit contribution to profit.
C) continue to make the part to earn an extra $24 per unit contribution to profit.
D) make the new product and buy the part to earn an extra $24 per unit contribution to profit.

E) All of the above
F) A) and D)

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Barker Company produces a part that is used in the manufacture of one of its products. The costs associated with the production of 5,000 units of this part are as follows: Barker Company produces a part that is used in the manufacture of one of its products. The costs associated with the production of 5,000 units of this part are as follows: Of the fixed factory overhead costs, $60,000 is avoidable. -Assume that Barker can buy 5,000 units of the part from another producer for $88 each. The facilities currently used to make the part could be rented out to another manufacturer for $80,000 a year. Barker should A) make the part as that would save $16 per unit. B) make the part as that would save the company $20,000. C) buy the part as that would save $12 per unit. D) buy the part as that would save the company $80,000. Of the fixed factory overhead costs, $60,000 is avoidable. -Assume that Barker can buy 5,000 units of the part from another producer for $88 each. The facilities currently used to make the part could be rented out to another manufacturer for $80,000 a year. Barker should


A) make the part as that would save $16 per unit.
B) make the part as that would save the company $20,000.
C) buy the part as that would save $12 per unit.
D) buy the part as that would save the company $80,000.

E) A) and D)
F) All of the above

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Opportunity cost is the maximum available contribution to profit foregone by using limited resources for a particular purpose.

A) True
B) False

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Speck Company manufactures a part for its production cycle. The costs per unit for 10,000 units of this part are as follows: Speck Company manufactures a part for its production cycle. The costs per unit for 10,000 units of this part are as follows: The fixed factory overhead costs are unavoidable. -Troxel Company has offered to sell 10,000 units of the same part to Speck for $26 a unit. Assuming no other use for the facilities, Speck should A) buy from Troxel as this would save $2 per unit. B) make the part as this would save $2 per unit. C) buy from Troxel as this would save $10 per unit. D) make the part as this would save $10 per unit. The fixed factory overhead costs are unavoidable. -Troxel Company has offered to sell 10,000 units of the same part to Speck for $26 a unit. Assuming no other use for the facilities, Speck should


A) buy from Troxel as this would save $2 per unit.
B) make the part as this would save $2 per unit.
C) buy from Troxel as this would save $10 per unit.
D) make the part as this would save $10 per unit.

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

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The maximum available contribution to profit foregone by using limited resources for a particular purpose.

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Which of the following would NOT be a consideration in a make or buy decision?


A) Excess capacity
B) Unavoidable fixed costs
C) Variable factory overhead
D) Rental income from unused facilities

E) All of the above
F) B) and C)

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B

Peters Company produces a product with the following unit cost. Peters Company produces a product with the following unit cost. Fixed selling costs are $600,000 per year and variable selling costs are $1.50 per unit sold. Production capacity is 500,000 units per year. However, the company expects to produce only 300,000 units next year. The product normally sells for $15 each. A customer has offered to buy 150,000 units for $10 each. The units would be sold in an area outside the market area currently served. -If the firm produces the special order, the effect on income would be A) $75,000 increase. B) $90,000 increase. C) $2,500 decrease. D) $12,500 decrease. Fixed selling costs are $600,000 per year and variable selling costs are $1.50 per unit sold. Production capacity is 500,000 units per year. However, the company expects to produce only 300,000 units next year. The product normally sells for $15 each. A customer has offered to buy 150,000 units for $10 each. The units would be sold in an area outside the market area currently served. -If the firm produces the special order, the effect on income would be


A) $75,000 increase.
B) $90,000 increase.
C) $2,500 decrease.
D) $12,500 decrease.

E) A) and D)
F) A) and C)

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Mann Corporation has a joint process, which produces three products, A, B and C. Each product may be sold at split-off or processed further and then sold. Joint processing costs for a year amount to $125,000. Other relevant data are as follows: Mann Corporation has a joint process, which produces three products, A, B and C. Each product may be sold at split-off or processed further and then sold. Joint processing costs for a year amount to $125,000. Other relevant data are as follows: -To maximize profits, which products should Mann process further? A) Product C only B) Product B only C) Product A only D) Products A, B and C -To maximize profits, which products should Mann process further?


A) Product C only
B) Product B only
C) Product A only
D) Products A, B and C

E) C) and D)
F) None of the above

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The Enger Company is contemplating replacing some old equipment. The pertinent information is as follows: The Enger Company is contemplating replacing some old equipment. The pertinent information is as follows: -Which of the data provided in the table is a sunk cost? A) The annual cash operating costs of the old equipment B) The annual cash operating costs of the replacement equipment C) The disposal value of the old equipment D) The original cost of the old equipment -Which of the data provided in the table is a sunk cost?


A) The annual cash operating costs of the old equipment
B) The annual cash operating costs of the replacement equipment
C) The disposal value of the old equipment
D) The original cost of the old equipment

E) A) and C)
F) A) and D)

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Obsolete inventory costs are not relevant, because they are not an expected future cost but a past cost.

A) True
B) False

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If a company has excess capacity, the most it would pay for buying a product that it currently makes would be the


A) total cost of producing the product.
B) market value of the product.
C) market value less usual markup on the product.
D) total variable cost of producing the product.

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

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D

The juncture in manufacturing where the joint products become individually identifiable is known as the


A) joint processing juncture.
B) split-off point.
C) common point.
D) significant juncture.

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

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Conflicts in the decision-making process can arise when superiors evaluate a manager's performance using a model consistent with the decision model.

A) True
B) False

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