[Chapter 3] Activity Resource Usage Model TB

Question 1

The steps in the tactical decision making process are:
I. Comparing relevant costs and relating to strategic goals
II. Identifying feasible alternatives
III. Identifying costs and benefits and eliminating irrelevant costs
IV. Selecting best alternative
V. Defining the problem

What is the proper sequence of steps

Answer 1

V. Defining the problem
II. Identifying feasible alternatives
III. Identifying costs and benefits and eliminating irrelevant costs
I. Comparing relevant costs and relating to strategic goals
IV. Selecting best alternative

Question 2

Which of the following is NOT a step in the tactical decision-making process?
A. Compare full costs and benefits for alternatives.
B. Identify feasible alternatives.
C. Select the best alternative.
D. Recognize and define the problem

Answer 2

Compare full costs and benefits for alternatives.

Question 3

Which of the following statement is true concerning the nature of tactical decisions?
A. Tactical decisions are often small-scale actions.
B. Tactical decisions often have an immediate or limited end in view.
C. Tactical decisions should support alternatives that result in long-term competitive advantage.
D. All of these statements are true.

Answer 3

All of these statements are true:
A. Tactical decisions are often small-scale actions.
B. Tactical decisions often have an immediate or limited end in view.
C. Tactical decisions should support alternatives that result in long-term competitive advantage.

Question 4

Sound tactical decision making
A. only concerns the short run.
B. consists of large scale actions that serve a broad purpose.
C. consists of supporting the strategic objectives of the firm.
D. only concerns the long run.

Answer 4

consists of supporting the strategic objectives of the firm.

Question 5

Tactical decision making relies
A. only on relevant cost information.
B. only on qualitative factors.
C. on relevant costs as well as other qualitative factors.
D. on neither relevant costs nor qualitative decisions.

Answer 5

on relevant costs as well as other qualitative factors.

Question 6

_______________ consists of choosing among alternatives with an immediate or limited end in view.
A. Long-run decision making
B. Tactical decision making
C. Universal decision making
D. All of these

Answer 6

Tactical decision making

Question 7

The use of relevant cost data to identify the alternative that provides the greatest benefit to the organization
describes
A. target cost analysis.
B. functional cost analysis.
C. activity cost analysis.
D. tactical cost analysis.

Answer 7

tactical cost analysis.

Question 8

An important qualitative factor to consider regarding a special order is the
A. variable costs associated with the special order.
B. avoidable fixed costs associated with the special order.
C. effect the sale of special-order units will have on the sale of regularly priced units.
D. incremental revenue from the special order.

Answer 8

effect the sale of special-order units will have on the sale of regularly priced units.

Question 9

Qualitative factors that should be considered when evaluating a make-or-buy decision are
A. the quality of the outside supplier’s product.
B. whether the outside supplier can provide the needed quantities.
C. whether the outside supplier can provide the product when it is needed.
D. all of these.

Answer 9

All of these:
A. the quality of the outside supplier’s product.
B. whether the outside supplier can provide the needed quantities.
C. whether the outside supplier can provide the product when it is needed.

Question 10

Future costs that differ across alternatives describe
A. relevant costs.
B. target cost.
C. full costs.
D. activity-based costs.

Answer 10

relevant costs.

Question 11

Relevant costs are
A. past costs.
B. future costs.
C. full costs.
D. cost drivers.

Answer 11

future costs.

Question 12

______________ are future costs that differ across alternatives.
A. Relevant costs
B. Irrelevant costs
C. Sunk costs
D. Past costs

Answer 12

Relevant costs

Question 13

In order for costs or benefits to be relevant, what must be true?
A. All decisions must relate to future.
B. Identifying relevant costs and benefits is an easy process.
C. Relevancy will relate both to the future and the past.
D. All of these are true statements.

Answer 13

All decisions must relate to future.

Question 14

Sunk costs are
A. future costs that have no benefit.
B. relevant costs that have only short-run benefits.
C. target costs.
D. always irrelevant

Answer 14

always irrelevant

Question 15

Which item is NOT an example of a sunk cost?
A. materials needed for production
B. purchase cost of machinery
C. depreciation
D. all are sunk costs

Answer 15

materials needed for production

Question 16

The Titanic hit an iceberg and sank. In deciding whether or not to salvage the ship, its book value is a(n)
A. relevant cost.
B. sunk cost.
C. opportunity cost.
D. discretionary cost.

Answer 16

sunk cost.

Question 17

A purchasing agent has two potential firms from which to buy materials for production. If both firms charge the same price, the material cost is a(n)
A. irrelevant cost.
B. relevant cost.
C. sunk cost.
D. opportunity cost.

Answer 17

irrelevant cost.

Question 18

Which of the following statements is TRUE when making a decision between two alternatives?
A. Variable costs may not be relevant when the decision alternatives have the same activity levels.
B. Variable costs are not relevant when the decision alternatives have different activity levels.
C. Sunk costs are always relevant.
D. Fixed costs are never relevant

Answer 18

Variable costs may not be relevant when the decision alternatives have the same activity levels.

Question 19

Which of the following costs is NOT relevant to a special-order decision?
A. the direct labor costs to manufacture the special-order units
B. the variable manufacturing overhead incurred to manufacture the special-order units
C. the portion of the cost of leasing the factory that is allocated to the special order
D. all of these costs are relevant

Answer 19

the portion of the cost of leasing the factory that is allocated to the special order

Question 20

Which of the following costs is NOT relevant to a make-or-buy decision?
A. $10,000 of direct labor used to manufacture the parts
B. $30,000 of depreciation on the plant used to manufacture the parts
C. the supervisor’s salary of $25,000 that will be avoided if the part is purchased from an outside supplier
D. $15,000 in rent from leasing the production space to another company if the part is purchased from an outside supplier

Answer 20

$30,000 of depreciation on the plant used to manufacture the parts

Question 21

Which of the following costs is NOT relevant to a decision to sell a product at split-off or process the
product further and then sell the product?
A. joint costs allocated to the product
B. the selling price of the product at split-off
C. the additional processing costs after split-off
D. the selling price of the product after further processing

Answer 21

joint costs allocated to the product

Question 22

Which of the following costs is NOT relevant for special decisions?
A. incremental costs
B. sunk costs
C. avoidable costs
D. all of the above costs are relevant for special decisions

Answer 22

sunk costs

Question 23

Which of the following costs is relevant to a make-or-buy decision?
A. original cost of the production equipment
B. annual depreciation of the equipment
C. the amount that would be received if the production equipment were sold
D. the cost of direct materials purchased last month and used to manufacture the component

Answer 23

the amount that would be received if the production equipment were sold

Question 24

Which of the following is NOT a way that companies might reduce tariffs?
A. Alter materials to increase the domestic content.
B. Restrict the amount of imported materials.
C. Increase the amount of imported materials.
D. Utilize foreign trade zones.

Answer 24

Increase the amount of imported materials.

Question 25

The U.S. government has set up foreign trade zones (FTZ) that
A. are located on U.S. soil but are considered to be outside of U.S. commerce for tariff purposes.
B. are located in foreign countries and designed to export to the United States.
C. are located in foreign countries and are designed to import from the United States.
D. are located in the United States and are considered part of the United States for tariff purposes.

Answer 25

are located on U.S. soil but are considered to be outside of U.S. commerce for tariff purposes.

Question 26

Abbott Company is considering purchasing a new machine to replace a machine purchased one year ago that is not achieving the expected results. The following information is available:

Expected maintenance costs of new machine $ 12,000 per year
Purchase price of existing machine $150,000
Expected cost savings of new machine $ 20,000 per year
Expected maintenance costs of existing machine $ 8,000 per year
Resale value of existing machine $ 35,000

Which of these items is IRRELEVANT?
A. Expected maintenance costs of new machine
B. Purchase cost of existing machine
C. Expected maintenance costs of existing machine
D. Expected resale value of existing machine

Answer 26

Purchase cost of existing machine

Question 27

_______________ is(are) the cost of acquiring activity capacity.
A. Joint costs
B. Resource spending
C. Absorption costing
D. Variable costing

Answer 27

Resource spending

Question 28

For flexible resources, which of the following statements is true?
A. A change in resource spending will only occur if the demand for a resource drops permanently and exceeds demand enough so the activity capacity will be reduced.
B. Often, resources are acquired in advance for multiple periods and are therefore irrelevant.
C. Decisions often affect multi-period capabilities.
D. If the demand for an activity changes across alternatives, then resource spending will change and the cost of the activity will be relevant to the decision.

Answer 28

If the demand for an activity changes across alternatives, then resource spending will change and the cost of the activity will be relevant to the decision.

Question 29

Salda Industries employs 500 workers in the factory. These workers produced 85,000 units in 2009. Due to a special order, the units produced in 2010 increased to 95,000 units. However, Salda produced these units without adding workers. How is that possible?
A. The plant had some unused activity capacity.
B. The employees were a flexible resource in this situation.
C. The labor cost associated with the additional units sold will be a relevant cost.
D. None of these

Answer 29

The plant had some unused activity capacity.

Question 30

Upfront resource spending
A. is always relevant because it relates to the future.
B. is always relevant because it could reduce future costs.
C. is a sunk cost and therefore never relevant.
D. is always relevant because upfront resource spending will generate future revenues or benefits.

Answer 30

is a sunk cost and therefore never relevant.

Question 31

Which of the following items would be classified as flexible resources?
A. salaried employees
B. depreciation on building
C. fuel to generate electricity internally
D. lease on machinery

Answer 31

fuel to generate electricity internally

Question 32

Which of the following items would be classified as committed resources (short-term)?
A. salaried employees
B. depreciation on building
C. fuel to generate electricity internally
D. lease on machinery

Answer 32

salaried employees

Question 33

Which of the following items would be classified as committed resources (long-term)?
A. salaried employees
B. depreciation on building
C. lease on machinery
D. both b and c

Answer 33

B. depreciation on building
C. lease on machinery

Question 34

In the activity resource model, flexible resources are
A. resources acquired in advance of usage.
B. resources acquired as used and needed.
C. usually acquired in lumpy amounts.
D. are normally fixed or mixed costs.

Answer 34

resources acquired as used and needed.

Question 35

A decision to make a component internally versus through a supplier is a
A. special-order decision.
B. keep-or-drop a product-line decision.
C. make-or-buy decision.
D. both a and c.

Answer 35

make-or-buy decision.

Question 36

A decision to make or eliminate an unprofitable product is a
A. special-order decision.
B. keep-or-drop a product-line decision.
C. make-or-buy decision.
D. both b and c.

Answer 36

keep-or-drop a product-line decision.

Question 37

Firms may be asked to accept a special order of their product for a reduced price if
A. it can be concealed from the government.
B. excess capacity exists.
C. the order is small.
D. the plant is producing at maximum capacity

Answer 37

excess capacity exists.

Question 38

A decision that focuses on whether a specially priced order should be accepted or rejected is a
A. special-order decision.
B. keep-or-drop a product-line decision.
C. make-or-buy decision.
D. both a and c.

Answer 38

special-order decision.

Question 39

If there is excess capacity, the minimum acceptable price for a special order must cover
A. variable costs associated with the special order.
B. variable and fixed manufacturing costs associated with the special order.
C. variable and incremental fixed costs associated with the special order.
D. variable costs and incremental fixed costs associated with the special order plus the contribution margin usually earned on regular unit

Answer 39

variable and incremental fixed costs associated with the special order.

Question 40

If a firm is at full capacity, the minimum special order price must cover
A. variable costs associated with the special order.
B. variable and fixed manufacturing costs associated with the special order.
C. variable and incremental fixed costs associated with the special order.
D. variable costs and incremental fixed costs associated with the special order plus foregone contribution margin on regular units not produced

Answer 40

variable costs and incremental fixed costs associated with the special order plus foregone contribution margin on regular units not produced