ACG 3024-A company normally will not add a product

Accounting Homework 7
Question 1
1. A company normally will not add a product with a negative contribution margin.
True

False

2 points

Question 2
1. Which of the following is true of the contribution margin income statement?
A. Selling costs are never included in the calculation of contribution margin.
B. The contribution margin is the amount that is available to cover fixed costs.
C. Both fixed and variable manufacturing costs are deducted to calculate
contribution margin.
D. All of the other answers are incorrect.
2 points

Question 3
1. When deciding to make or buy a product, the only relevant costs are differential costs.
True

False

2 points

Question 4

1. Differential analysis:
A. is an analysis of the different costs and benefits from alternative solutions to a
problem.
B. would be used to review past performance.
C. compares two courses of action by determining net income for each.
D. is a procedure employing the gross margin to determine the best selling price.
2 points

Question 5
1. A differential cost:
A. is the same as a sunk cost.
B. includes past costs.
C. is equal to the difference in relevant costs between two alternatives.
D. All of the other answers are incorrect.
2 points

Question 6
1. In the contribution margin statement:
A. fixed costs are deducted to determine contribution margin.
B. fixed costs are deducted to determine gross margin.
C. variable selling costs are deducted to determine contribution margin.
D. All of the other answers are correct.
2 points

Question 7
1. Relevant costs are:
A. all future costs that differ between alternatives.
B. all past cost.
C. all costs.
D. all future costs.

2 points

Question 8
1. Joint costs are:
A. costs incurred after the point where joint products split off from each other.
B. sunk costs in deciding whether to process a joint product further.
C. Two of the other answers are correct.
D. All of the other answers are incorrect.
2 points

Question 9
1. A foreign corporation has asked for bids on an order for 200,000 units of product X.
Bravo Company is considering making a bid in order to use productively its idle capacity.
Bravo is currently operating at 80% of its 1,000,000 unit total capacity. Bravo's variable
costs are $50 per unit, while its fixed costs amount to $4,000,000. What is the minimum
price Bravo should bid to the foreign corporation?
A. $100
B. $80
C. $120
D. just above $50
2 points

Question 10
1. When differential analysis is applied to pricing decisions, the price selected should be the
price that will result in the greatest TOTAL contribution margin.
True

False

2 points

Question 11
1. The Sidney Company faces a make-or-buy decision concerning a part it manufactures inhouse. The product can be manufactured internally with materials costs of $24 per unit,
labor of $9, fixed overhead of $6.50, and variable overhead of $6. At what dollar amount
would Sidney be indifferent to making or buying this part if the fixed overhead costs
would be unaffected?
A. $39.00
B. $43.50
C. $24.00
D. $33.00
2 points

Question 12
1. If a company operating at less than full capacity receives a special order request with a
price less than total cost, the company should reject the request.
True

False

2 points

Question 13
1. Past costs incurred to create capacity are differential costs in future make or buy
decisions.
True

False

2 points

Question 14
1. In the contribution margin income statement, contribution margin is equal to net revenues
less variable costs of the units sold.
True

False

2 points

Question 15
1. When using differential analysis to decide whether to eliminate certain products,
segments, or customers, costs must be reclassified into those that would be eliminated or
changed by the elimination and those that would not.
True

False

2 points

Question 16
1. A budget shows how management expects to acquire and use resources to achieve its
objectives.
True

False

2 points

Question 17
1. Participatory budgeting allows employees to feel that they helped prepare the budget,
thus providing more incentive for them to use it effectively.
True

False

2 points

Question 18
1. The Schraeger Company has estimated that sales for next quarter would be 30,000 units.
The company has a beginning finished goods inventory of 2,000 units and wishes to have
finished goods inventory of 5,000 units at the end of the quarter. How many units must
the company produce in order to have its desired ending inventory?
A. 30,000 units
B. 33,000 units
C. 27,000 units
D. 37,000 units
2 points

Question 19
1. Although budgets are plans for the future, they are based primarily on past experience
adjusted for future expectations.
True

False

2 points

Question 20
1. The use of the master budget allows management to appraise new policies before they are
put into effect.
True

False

2 points

Question 21
1. Which of the following would be a factor to be considered in formulating a sales budget?
A. Economic indicators
B. The demand for the product
C. Level of advertising
D. All of the other answers are correct.
2 points

Question 22
1. Zero-based budgeting requires that managers start budgeting at point zero and:
A. budget only for changes from the past period's budget.
B. justify every dollar that will appear in the budget.
C. budget only for major items of expense.
D. All of the other answers are incorrect.
2 points

Question 23
1. A series of budgets for differing levels of activity for the same item is called a(n):
A. operating budget.

B. financial budget.
C. master budget.
D. flexible budget.
2 points

Question 24
1. Zero-based budgeting requires that managers start budgeting at point zero.
True

False

2 points

Question 25
1. Financial budgets do not aid management in planning.
True

False

2 points

Question 26
1. The cornerstone of the budgeting process is the sales budget because:

A. information about future sales is the most readily available.
B. the sales force must gather their budget's data from their customers.
C. it is the most complex.
D. all other budgets flow from the determination of future sales units and dollars.
2 points

Question 27
1. The goal sought in the preparation of a flexible budget is to indicate the costs expected to
be incurred at varying levels of output.
True

False

2 points

Question 28
1. The more uncertain the future, the less the desirability of budgeting.
True

False

2 points

Question 29
1. The projected income statement is typically:
A. not prepared.
B. prepared after the projected balance sheet.

C. prepared prior to the projected balance sheet.
D. All of the other answers are incorrect.
2 points

Question 30
1. Participatory budgeting:
A. involves employees at various levels in the organization.
B. uses information provided by employees.
C. can help motivate employees to achieve the organization's goals.
D. All of the other answers are correct.