Module 8 Mastery Test

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Feb 20, 2024

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Incorrect Question 1 0 / 1 pts The opportunity cost of making a component part in an existing factory with excess capacity for which there is no alternative use is ________. the fixed manufacturing cost of the component zero the total manufacturing cost of the component the variable manufacturing cost of the component Try again! Review Chapter 11 in the Blocher et al. (2022) textbook, in the section entitled "Other Relevant Information" in order to learn more about opportunity costs. Incorrect Question 2 0 / 1 pts Phoenix Manufacturing Company makes boxes for packaging their products. Its volume is 10,000 boxes per month. Recently, the company received a special offer from an outside supplier regarding the manufacture of its boxes, which Phoenix currently makes in-house. The costs for Phoenix to make the boxes include: Direct materials $2.50 Labor $1.00 Variable overhead $1.50 Fixed overhead $2.00 The supplier’s offer was $4.50 per box. The effect on operating income if the offer is accepted will be ________. a $25,000 loss a $5,000 gain

a $5,000 loss a $25,000 gain Try again! Please look at page 2 of the Module 8 lecture in order to understand the critical points in assessing a make-or-buy decision. Incorrect Question 3 0 / 1 pts The Best Chocolate Berries Company manufactures chocolate dipped strawberries. Its volume is 3,000 boxes of strawberries per month. It is deciding whether to automate its chocolate dipping operations, which are currently completed by hand. Recently, the company received a special offer from an outside supplier regarding the automating equipment. The costs to make each box of chocolate dipped strawberries include: Direct materials $2.50 Labor $2.00 Variable overhead $1.50 Fixed overhead $2.00 All labor is attributable to dipping operations. The cost of the machine is $250,000; it has a two- year life and there is no salvage value. Should the company replace the machine? No, because the impact on total operating income per year is a $53,000 loss No, because the impact on total operating income per year is a $5,000 loss Yes, because the impact on total operating income per year is a $47,000 gain No, because the impact on the unemployment rate will result in bad publicity for the company Try again! Please review page 4 of the Module 8 lecture to learn more regarding the decision for an equipment replacement. Question 4

1 / 1 pts The benefits lost for choosing one alternative over another is called ________. sunk cost original cost historical cost opportunity cost Correct! Opportunity cost is the benefit forgone for choosing one alternative over the other. Question 5 1 / 1 pts ________ decisions usually require extending automation in place of labor cost to reduce the cost of operation. Make-or-buy Equipment-replacement Special Order Outsourcing Correct! Equipment-replacement decisions are those that typically extend automation to replace labor costs and aim to reduce other operating costs as well. Question 6 1 / 1 pts Which of these decisions is an outsourcing decision?

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Make-or-buy Continue or discontinue Opportunity manufacturing Special order Correct! A make-or-buy decision relates to the choice of external purchase or internal manufacture of a specific product. Incorrect Question 7 0 / 1 pts Which of the following statements is incorrect regarding the make or buy decision? The relevant cost of the “buy” option is ONLY the actual purchase price the company would have to pay the vendor. The relevant cost of the “make” option would only be the cost of materials related to the product. Variable costs are always relevant to the make or buy decision, and any avoidable fixed costs may be relevant as well. None of these statements are correct Try again! Please review Chapter 11 in the Blocher et al. (2022) textbook, in the "Make vs. Buy Decision" section. Incorrect Question 8 0 / 1 pts Twisty Taffy Company produces bags of saltwater taffy that are sold in cases and retailed at seaside resorts. Its normal selling price is $30 per case; each case contains 15 bags of taffy. The variable costs are $15 per case. Fixed costs are $25,000 for a normal production run of 5,000 cases per month. Twisty Taffy received a special order from an existing customer which it could

accommodate without displacing current capacity. The order was for 1,500 units at a special price of $17 per unit; a variable shipping cost of $2 per unit is not included in the variable costs and would be applicable for this order. Should the order be accepted, and what is its impact on operating income? It should be rejected; there is zero profit on the transaction. It should be accepted; there is zero profit so the company is indifferent in the decision. It should be considered for acceptance although there is minimal profit on the transaction and it is for an existing customer. The answer cannot be determined from the information given. Try again! Review page 2 of the Module 8 lecture in order to recall how to calculate the operating income effect of a special order. Question 9 1 / 1 pts A cost incurred in the past that is not relevant in the future for decision-making is called ________. historical cost original cost sunk cost opportunity cost Correct! Sunk costs are costs that have already been incurred and do not have relevance in future considerations for decision making purposes. Incorrect Question 10

0 / 1 pts A ________ is a defined method to evaluate alternatives that often involve both qualitative and quantitative factors. relevant-cost analysis decision model short-run pricing make-or-buy decision Try again! Please review Chapter 12 in the Blocher et al. (2022) textbook, in the section entitled "Discounted Cash Flow Capital Budgeting Decision Models." Quiz Score: 4 out of 10 Previous Next Question 1 0 / 1 pts Phoenix Manufacturing Company makes boxes for packaging their products. Its volume is 10,000 boxes per month. Recently, the company received a special offer from an outside supplier regarding the manufacture of its boxes, which Phoenix currently makes in-house. The costs for Phoenix to make the boxes include: Direct materials $2.50 Labor $1.00 Variable overhead $1.50 Fixed overhead $2.00 The supplier’s offer was $4.50 per box. The effect on operating income if the offer is accepted will be ________. a $25,000 loss

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a $5,000 gain a $5,000 loss a $25,000 gain Try again! Please look at page 2 of the Module 8 lecture in order to understand the critical points in assessing a make-or-buy decision. Question 2 1 / 1 pts If a product-mix decision is undertaken, the product with the ________ should be prioritized, as it will contribute the most to the breakeven point. highest gross margin highest contribution margin lowest fixed costs lowest variable costs Correct! The product with the highest contribution margin rather than the highest gross margin should be prioritized. The impact of the highest gross margin item on the breakeven point is indeterminable without specific amounts to consider. Question 3 1 / 1 pts Twisty Taffy Company produces bags of saltwater taffy that are sold in cases and retailed at seaside resorts. Its normal selling price is $30 per case; each case contains 15 bags of taffy. The variable costs are $15 per case. Fixed costs are $25,000 for a normal production run of 5,000 cases per month.

Twisty Taffy received a special order from an existing customer which it could accommodate without displacing current capacity. The order was for 1,500 units at a special price of $17 per unit; a variable shipping cost of $2 per unit is not included in the variable costs and would be applicable for this order. Should the order be accepted, and what is its impact on operating income? It should be rejected; there is zero profit on the transaction. It should be accepted; there is zero profit so the company is indifferent in the decision. It should be considered for acceptance although there is minimal profit on the transaction and it is for an existing customer. The answer cannot be determined from the information given. Correct! The contribution margin per unit of the order is: $17 special selling price- ($15 variable cost- $2 shipping cost savings) = $4 per unit; $4 per unit x 1,500 units = $6,000. Since the contribution margin is positive, the additional units sold will still contribute to the profit of the company, thus the order should be accepted. Question 4 1 / 1 pts The director of a movie production set wants to figure out if it is financially feasible to create an action scene using the same location where they have been filming the rest of the movie, or if it will need to be done using computer graphic design and a special effects team. Some of the costs involved are as follows: Site permitting fee for the entire movie $10,000, extra security detail for action scenes $7,500, explosives expert for the action scene only $25,000, donation to the local historical society for allowing filming there $5,000 (regardless of # of days of filming), food for the crew for the extra days $1,800, equipment rental for the extra days $25,000, and contracted film crew for duration of film $100,000. What’s the total of the relevant costs for the site filming of the additional action scene from this list of costs? $159,300

$59,300 $174,300 $71,300 Correct! Sunk costs are not relevant nor are costs that would be incurred regardless of which outcome would have been chosen. Many of these costs already exist to film the movie at all, thus they would not be relevant to this additional decision. Here relevant costs should be the extra security detail of $7,500 + explosives expert of $25,000 + $1,800 of extra food + $25,000 of extra equipment rental for a total of $59,300. Incorrect Question 5 0 / 1 pts ________ require(s) that a company believe unused capacity exists in their manufacturing process for time or space. Make-or-buy decision analysis Special-order decision analysis Equipment-replacement decision analysis Both a & b Try again! Please see page 2 of the Module 8 lecture for more information. Question 6 1 / 1 pts Time value of money effects are ________ for short-term decision making under one year.

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irrelevant relevant misleading required Correct! If the proposed expenses will only be applicable for a year, then no time value of money effects are relevant. Incorrect Question 7 0 / 1 pts A Switzerland-based manufacturing company produces watches. The company received a special order from a retailer for 3,000 units of product at $100 per watch. The company has excess capacity available to accommodate this additional production. Details of the company’s normal revenue and costs are: Normal revenue per unit $120 Unit manufacturing costs: Variable $30 Fixed $15 The effect on operating income if the order is accepted will be a ________. $225,000 increase in income $165,000 decrease in income $210,000 increase in income $270,000 decrease in income

Try again! Please look at page 2 of the Module 8 lecture in order to understand the critical points in assessing a special order. Question 8 1 / 1 pts ________ decisions usually require extending automation in place of labor cost to reduce the cost of operation. Make-or-buy Equipment-replacement Special Order Outsourcing Correct! Equipment-replacement decisions are those that typically extend automation to replace labor costs and aim to reduce other operating costs as well. Incorrect Question 9 0 / 1 pts The opportunity cost of making a component part in an existing factory with excess capacity for which there is no alternative use is ________. the fixed manufacturing cost of the component zero the total manufacturing cost of the component the variable manufacturing cost of the component

Try again! Review Chapter 11 in the Blocher et al. (2022) textbook, in the section entitled "Other Relevant Information" in order to learn more about opportunity costs. Question 10 1 / 1 pts A ________ is a defined method to evaluate alternatives that often involve both qualitative and quantitative factors. relevant-cost analysis decision model short-run pricing make-or-buy decision Correct! This is the definition of a decision model. Question 1 1 / 1 pts A ________ is a defined method to evaluate alternatives that often involve both qualitative and quantitative factors. relevant-cost analysis decision model short-run pricing make-or-buy decision

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Correct! This is the definition of a decision model. Question 2 1 / 1 pts Twisty Taffy Company produces bags of saltwater taffy that are sold in cases and retailed at seaside resorts. Its normal selling price is $30 per case; each case contains 15 bags of taffy. The variable costs are $15 per case. Fixed costs are $25,000 for a normal production run of 5,000 cases per month. Twisty Taffy received a special order from an existing customer which it could accommodate without displacing current capacity. The order was for 1,500 units at a special price of $17 per unit; a variable shipping cost of $2 per unit is not included in the variable costs and would be applicable for this order. Should the order be accepted, and what is its impact on operating income? It should be rejected; there is zero profit on the transaction. It should be accepted; there is zero profit so the company is indifferent in the decision. It should be considered for acceptance although there is minimal profit on the transaction and it is for an existing customer. The answer cannot be determined from the information given. Correct! The contribution margin per unit of the order is: $17 special selling price- ($15 variable cost- $2 shipping cost savings) = $4 per unit; $4 per unit x 1,500 units = $6,000. Since the contribution margin is positive, the additional units sold will still contribute to the profit of the company, thus the order should be accepted. Question 3 1 / 1 pts A cost item that is an expected future cost and will differ between alternatives is called a(n) ________. opportunity cost

sunk cost relevant cost avoidable cost Correct! Relevant cost is a cost that is likely to be incurred in the future and which will differ among the options of the decision makers. Question 4 1 / 1 pts The benefits lost for choosing one alternative over another is called ________. sunk cost original cost historical cost opportunity cost Correct! Opportunity cost is the benefit forgone for choosing one alternative over the other. Question 5 1 / 1 pts In which of the following might relevant cost analysis be used effectively? Special-order decision Make vs. buy

Outsourcing All of the above Correct! Decisions where relevant cost analysis might be used effectively include 1) special-order decision, 2) make vs. buy, 3) outsourcing, and 4) sale before or after additional processing. Question 6 1 / 1 pts Time value of money effects are ________ for short-term decision making under one year. irrelevant relevant misleading required Correct! If the proposed expenses will only be applicable for a year, then no time value of money effects are relevant. Question 7 1 / 1 pts A cost incurred in the past that is not relevant in the future for decision- making is called ________. historical cost original cost

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sunk cost opportunity cost Correct! Sunk costs are costs that have already been incurred and do not have relevance in future considerations for decision making purposes. Question 8 1 / 1 pts The Best Chocolate Berries Company manufactures chocolate dipped strawberries. Its volume is 3,000 boxes of strawberries per month. It is deciding whether to automate its chocolate dipping operations, which are currently completed by hand. Recently, the company received a special offer from an outside supplier regarding the automating equipment. The costs to make each box of chocolate dipped strawberries include: Direct materials $2.50 Labor $2.00 Variable overhead $1.50 Fixed overhead $2.00 All labor is attributable to dipping operations. The cost of the machine is $250,000; it has a two-year life and there is no salvage value. Should the company replace the machine? No, because the impact on total operating income per year is a $53,000 loss No, because the impact on total operating income per year is a $5,000 loss Yes, because the impact on total operating income per year is a $47,000 gain No, because the impact on the unemployment rate will result in bad publicity for the company Correct! The total cost of the machine per year is $250,000 / 2 = $125,000. The annual cost of current dipping operations is $2 per unit labor x 3,000

boxes x 12 months = $72,000. Therefore, the manual labor of $72,000 is less expensive than the machine labor (depreciation) of $125,000 by $53,000. As such, at this level of operation the manual labor should not be replaced with the machine. Question 9 1 / 1 pts The director of a movie production set wants to figure out if it is financially feasible to create an action scene using the same location where they have been filming the rest of the movie, or if it will need to be done using computer graphic design and a special effects team. Some of the costs involved are as follows: Site permitting fee for the entire movie $10,000, extra security detail for action scenes $7,500, explosives expert for the action scene only $25,000, donation to the local historical society for allowing filming there $5,000 (regardless of # of days of filming), food for the crew for the extra days $1,800, equipment rental for the extra days $25,000, and contracted film crew for duration of film $100,000. What’s the total of the relevant costs for the site filming of the additional action scene from this list of costs? $159,300 $59,300 $174,300 $71,300 Correct! Sunk costs are not relevant nor are costs that would be incurred regardless of which outcome would have been chosen. Many of these costs already exist to film the movie at all, thus they would not be relevant to this additional decision. Here relevant costs should be the extra security detail of $7,500 + explosives expert of $25,000 + $1,800 of extra food + $25,000 of extra equipment rental for a total of $59,300. Question 10 1 / 1 pts ________ decisions usually require extending automation in place of labor cost to reduce the cost of operation.

Make-or-buy Equipment-replacement Special Order Outsourcing Correct! Equipment-replacement decisions are those that typically extend automation to replace labor costs and aim to reduce other operating costs as well.

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