acct 2302 practice problems final #2

Question 1

A cost that does not affect a decision is called an
a) opportunity cost
b) incremental cost
c) avoidable cost
d) irrelevant cost

Answer 1

d) irrelevant cost

Question 2

Which statement is true about relevant costs in incremental analysis?
a) All costs are relevant if they change between alternatives
b) Only fixed costs are relevant
c) Only variable costs are relevant
d) Relevant costs should be ignored

Answer 2

a) All costs are relevant if they change between alternatives

Question 3

A company decided to replace an old machine with a new machine. Which of
the following is considered a relevant cost?
a) The book value of the old equipment
b) Depreciation expense of the old equipment
c) The loss on disposal of the old equipment
d) The current disposal price of the old equipment

Question 4

A factory is operating at less than 100% capacity. Potential additional business
will not use up the remainder of the plant capacity. Which of the following
costs should be ignored in a decision to produce additional units of product?
a) Variable selling expenses
b) Fixed factory overhead
c) Direct labor
d) Contribution margin of additional units

Question 5

Which one of the following does not affect a make-or-buy decision?
a) Variable manufacturing costs
b) Opportunity costs
c) Incremental revenue
d) Direct labor

Answer 5

c) Incremental revenue

Question 6

13. Which decision will involve no incremental revenues?
    a) Make-or-buy
    b) Drop a product line
    c) Accept a special order
    d) Additional processing

Answer 6

a) Make-or-buy

Question 7

Canada Inc. expands its capacity to accept a special order. It is likely that:
a) Unit variable costs will increase
b) Fixed costs will not be relevant
c) Both variable and fixed costs will be relevant
d) The company should accept the order

Answer 7

c) Both variable and fixed costs will be relevant

Question 8

It costs Lannon Fields $14 of variable costs and $6 of allocated fixed costs to
produce an industrial trash can that sells for $30. A buyer in Mexico offers to
purchase 3,000 units at $18 each. Lannon Fields has excess capacity and can
handle the additional production. What effect will acceptance of the offer have
on net income?
a) Decrease $6,000
b) Increase $6,000
c) Increase $54,000
d) Increase $12,000

Answer 8

d) Increase $12,000