1.Relevant costs are often referred to as

1.Relevant costs are often referred to as: (Points : 2)

unavoidable costs.
avoidable costs.
sunk costs.
reversible costs.

Question 2. 2.Centennial Tours is trying to decide which one of two tours it will introduce. The costs and revenues associated with each alternative are listed below:

Tour A Tour B
Projected revenue $7,000 $11,000
Variable costs 1,000 6,000
Fixed costs 3,000 3,000
Profit $3,000 $1,000

What are the incremental (differential) costs of Tour B? (Points : 2)


Question 3. 3.Emily paid $2 for a bottle of ThirstAid. Later while on a hiking trip, she was offered $10 for the ThirstAid. Select the correct statement from the following. (Points : 2)

The $2 original purchase price is a sunk cost.
If Emily drinks the ThirstAid, no opportunity cost is associated with her decision.
The $10 offer is not relevant if Emily refuses to sell the ThirstAid.
All of the above are correct.

Question 4. 4.For purposes of decision making, avoidable costs are costs that: (Points : 2)

were incurred in the past.
will be incurred in the future and differ between the alternatives.
do not differ between alternatives.
are not relevant in decision making.

Question 5. 5.Dalton Company is trying to decide between the following two alternatives:

Alternative A Alternative B
Projected revenue $50,000 $60,000
Direct material 6,000 12,000
Assembly labor 9,000 9,000
Production supervisor’s salary 10,000 10,000
Facility-related costs 10,000 15,000
Profit $15,000 $14,000

Which of the following conclusions can be drawn from this example? (Points : 2)

Variable costs are always relevant for decision making.
Fixed costs are sunk and thus are never relevant for decision making.
Relevant costs may include variable costs and fixed costs.
The amount of revenue is not relevant to this decision.

Question 6. 6.Alicia brought her lunch today but now a coworker has asked her to go to the deli across the street. Select the correct statement from the following. (Points : 2)

The cost of the lunch Alicia already has is relevant to Alicia’s decision to have lunch with her friend.
The cost of the lunch Alicia already has represents the opportunity cost of dining with her friend.
The cost to buy lunch at the deli is not relevant because it has not yet been incurred.
The cost of the lunch that Alicia brought has nothing to do with her current decision because it is a sunk cost.

Question 7. 7.Select the correct statement regarding relevant costs and revenues. (Points : 2)

Relevant costs are also known as avoidable costs.
Relevant costs are future-oriented.
Relevant revenues must differ between the alternatives.
All of the above are correct.

Question 8. 8.Frank is trying to decide which one of two job offers he will accept. Several items are presented below:

Job Criterion Job Offer A Job Offer B
(1) Base salary $40,000 $40,000
(2) Overtime compensation Comp. time Hourly rate
(3) Moving allowance $ 2,000 $ 2,000
(4) Signing bonus $ 1,000 $ 0
(5) Job search costs $ 500 $ 500

Which of the above job criterion would be considered sunk costs? (Points : 2)

(1), (3), (5)
(2), (4)
None of the above

Question 9. 9.Which of the following costs generally is an example of a product-level cost? (Points : 2)

Inventory holding costs
Machine setup costs
Materials and labor costs
Shipping and handling costs

Question 10. 10.The cost that is avoided when a company eliminates a single item of a product or service is a: (Points : 2)

batch-level cost.
facility-level cost.
product-level cost.
unit-level cost.

Question 11. 11.Select the incorrectstatement about the planning process. (Points : 2)

The longer the time period, the less specific the plans.
Planning decisions can often be sub-divided into three distinct planning phases, short-term, intermediate-term, and long-term.
The nature of planning changes with the length of the time period being considered.
The shorter the time period, the more general the plans.

Question 12. 12.Expressing plans for a business in financial terms is commonly called: (Points : 2)

master planning.
strategic planning.
operational planning.

Question 13. 13.Which of the following budgets or schedules uses data contained in the selling and administrative expense budget? (Points : 2)

Cash payments schedule
Cash receipts schedule
Inventory purchases budget
Sales budget

Question 14. 14.Maddon Company estimated that its inventory purchases for January and February 2010 would be $300,000 and $370,000, respectively. The company generally pays for 60% of its inventory purchases in the month of purchase because it receives a 2% discount for timely payment. The remaining 40% of purchases are paid for in the following month, and there is no discount for these payments. What will be the amount of cash payments for inventory in February 2010? (Points : 2)


Question 15. 15.McDavid Company has completed its sales budget for the first quarter of 2010. Projected credit sales for the first four months of the year are shown below:

January $30,000
February $36,000
March $45,000
April $48,000

The company’s past records show collection of credit sales as follows: 30% in the month of sale and the balance in the following month. The total cash collection from receivables in February is expected to be: (Points : 2)


Question 16. 16.Select the correct equation format for the purchases budget. (Points : 2)

Beginning inventory + expected sales = required purchases.
Expected sales + desired ending inventory – beginning inventory = required purchases.
Beginning inventory + expected sales – desired ending inventory = required purchases.
Expected sales + Desired ending inventory = required purchases.

Question 17. 17.With regards to financial statements, “pro forma” means: (Points : 2)

prepared in advance.
financial condition or position that can be expected if planning assumptions prove correct.
all of the above.

Question 18. 18.Which of the following is nota benefit of budgeting? (Points : 2)

Sets realistic standards that serve as benchmarks for evaluating performance
Coordinates the activities of the company by integrating the plans of all departments
Requires managers to plan ahead and to formalize their objectives
Provides assurance that accounting records are in accordance with generally accepted accounting principles

Question 19. 19.When Northern Company district managers submitted their preliminary budget proposals, top management discovered that the southern district manager had requested a new project management information system. Unfortunately, the system is incompatible with the system used at headquarters. Which of the following advantages of budgeting reduces the likelihood that the company will end up with two incompatible systems? (Points : 2)

Corrective action
Performance measurement

Question 20. 20.Select the incorrect statement about budgeting and human behavior. (Points : 2)

People are often uncomfortable with budgets.
Budgets are constraining.
Budgets limit individual freedom in favor of an established plan.
Few people find evaluation based on budget expectations stressful

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