Question 2 When constrained by a limiting resource, managers often seek to produ

Question

Question 2

When constrained by a limiting resource, managers often seek to produce those products which have:

Question options:

a)

The highest selling prices.

b)

The lowest average cost per unit.

c)

The highest contribution margin ratios.

d)

The highest contribution margin per unit of limiting resource.

Question 3

Opportunity costs represent:

Question options:

a)

Costs avoided by making a particular decision.

b)

Benefits foregone.

c)

Costs avoided by making a particular decision.

d)

Cash expenditures for business opportunities.

Question 4

0 / 1 point

When deciding whether to make or buy a component part, the most relevant consideration is often:

Question options:

a)

The sunk cost of equipment used to manufacture the part.

b)

The unavoidable fixed manufacturing costs.

c)

The average total cost of making the part.

d)

The variable manufacturing costs per unit.

Question 5

Which of the following would be least relevant in deciding whether to further process a joint product past the split-off point?

Question options:

a)

Customer demand for the product that emerges from additional processing.

b)

Joint costs allocated to the joint product at the split-off point.

c)

Incremental revenue earned from additional processing.

d)

Incremental costs incurred as a result of additional processing.

Question 6

0 / 1 point

The average total cost of producing Z-12 is $35 per unit. The average variable cost associated with the production of Z-12 is $12 per unit, of which $2 is manufacturing overhead. The normal selling price of Z-12 is $50 per unit. If excess capacity exists, a special order for Z-12 will increase net operating income if it is priced at least:

Question options:

a)

$50 per unit.

b)

$10 per unit.

c)

$35 per unit.

d)

$12 per unit.

Question 7

0 / 1 point

ILF makes 2,000 waterproof mattresses annually to be used in one of its products. The unit cost of the mattresses includes variable costs of $45 and fixed costs of $30. If the mattresses were purchased from an outside supplier, 60% of the fixed costs could be eliminated. Buying mattresses from an outside supplier at a price of $50 each would cause ILF’s operating income to:

Question options:

a)

Increase by $30,000.

b)

Increase by $6,000.

c)

Increase by $26,000.

d)

Decrease by $10,000.

Question 8

The decision to rework a defective branch of products will improve net income whenever the incremental revenue earned as a result of the decision exceeds:

Question options:

a)

The average cost per unit associated with reworking the batch.

b)

The cash expenditure to rework the batch.

c)

The variable costs of reworking the batch.

d)

The incremental cost of reworking the batch.

Question 9

0 / 1 point

Johnson produces 7,000 skateboards each month, which it sells for $60 each. Variable costs are $25 per unit, and fixed costs are $95,000 per month. A Canadian company has offered to buy an additional 1,000 skateboards for $30 per unit. Assuming that normal sales volume and fixed costs remain unchanged, filling this special order will cause Johnson’s operating income to:

Question options:

a)

Decrease by $5,000.

b)

Increase by $5,000.

c)

Decrease by $6,250.

d)

Decrease by $30,000.

Question 10

0 / 1 point

Which of the following costs is generally considered irrelevant in incremental analysis?

Question options:

a)

Opportunity costs.

b)

Sunk costs.

c)

Out-of-pocket costs.

d)

Incremental costs.

Question 2

Explanation / Answer

2. d) The highest contribution margin per unit of limiting resource.

If any resource is limited, the priority is to select those products that shal contribute the most using minimum of such limited resource. This will maximize the overall profitability. hence option d) is correct.

3. b) Benefits foregone.

Pppurtuniy cost is the cost of choosing one alternative over the other. In other words it is the loss of profit that could have been earned if other alternative was chosen.

4 d) The variable manufacturing costs per unit.

Since variable cost is fully avoidable it is most relevant while making a decision to make or buy a product.

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