extra_Ch_7_assignment_not_in_cp_soln

extra_Ch_7_assignment_not_in_cp_soln - Acc 200 Extra...

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Acc 200 Extra Homework – Chapter 7 SOLUTION Remember: Total fixed costs do not change unless you are told otherwise in a problem. MULTIPLE CHOICE: 1. Which of the following would not be a factor in the consideration of whether or not a special order should be accepted? A. Excess capacity B. Qualitative factors C. Quantitative factors D. Variable costs E. Sunk Costs 2. When are fixed costs relevant in a make or buy decision? A. Fixed costs are never relevant to such a decision. B. Fixed costs are always relevant to such a decision. C. Fixed costs are relevant only when they exceed variable costs. D. Fixed costs are relevant when they differ among alternatives. 3. A particular product line is most likely to be dropped when: A. its total fixed costs are more than its contribution margin. B. its avoidable fixed costs are more than its contribution margin. C. its unavoidable fixed costs are more than its contribution margin. D. its variable costs are more than its fixed costs. E. its variable costs are less than its fixed costs. As avoidable FC go down, net income goes up. As CM goes down, net income goes down. If the avoidable FC > decrease in CM, there will be a net increase in net income. Example: With the unprofitable product line Get rid of product line and its FC* CM $400 ---- FC (500) ---- Net Inc (100) ---- *I’m assuming all the FC are avoidable. In this example, net income would go from a negative $100 to zero, which would be an increase in net income.
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4. In resource utilization decisions, managers should: A. minimize the contribution margin per unit. B. minimize the use of the scarce resource. C. maximize the contribution margin per unit of scarce resource. (see Problem III) D. maximize the contribution margin per unit. USE THE FOLLOWING INFORMATION TO ANSWER THE NEXT TWO QUESTIONS: Piedmont Products manufactures digital camcorders. Currently, the company manufactures its own carrying case for the camcorders at the following per unit costs when 30,000 cases are manufactured each year: Relevant cost to make Relevant cost to buy Direct materials $3.00 $3.00 $ 4.00 Direct labor $1.00 1.00 Variable overhead $ .50 .50 Fixed overhead $ .25 ** ** Total Cost to make $4.75 _____ _____ Relevant Costs $4.50 $4.00 **no mention was made in the problem about FC changing if the cases were outsourced, therefore, FC are not relevant to the decision. 5.
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