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Chapter 19 Quiz 3
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1
Wexford Company makes 100 000 of a certain part that is used in production. The cost to manufacture the part is $25 per unit, which includes $20 in variable costs and $5 in fixed manufacturing overhead. If Wexford buys the part from Dublin Ltd, the cost would be $22 per unit, the released facilities could not be used for any other activity, and 80% of the fixed manufacturing overhead would continue to be incurred. The relevant costs for manufacturing the part are:
A)$250 000
B)$240 000
C)$220 000
D)$210 000
2
Wexford Company makes 100 000 of a certain part that is used in production. The cost to manufacture the part is $25 per unit, which includes $20 in variable costs and $5 in fixed manufacturing overhead. If Wexford buys the part from Dublin Ltd, the cost would be $22 per unit and the released facilities could not be used for any other activity. In this analysis, 80% of the fixed manufacturing overhead is considered to be unavoidable in the future. What is an unavoidable cost?
A)Unavoidable costs are costs that continue to be incurred in the future, no matter which alternative course of action is chosen.
B)Unavoidable costs are past costs.
C)Unavoidable costs are relevant costs.
D)Unavoidable costs are costs that will not be incurred in the future if a particular decision is made.
3
Qualitative issues are particularly important in make-or-buy decisions. Which of the following is not a qualitative issue that is important in a make-or-buy decision?
A)The quality of the outsourced product.
B)The monetary benefit accruing from freeing up capacity and leasing it out to another business.
C)The delivery responsiveness of the supplier.
D)The labour relations at the supplier.
4

Wexford Company makes 100 000 of a certain part that is used in production. The cost to manufacture the part is $25 per unit, which includes $20 in variable costs and $5 in fixed manufacturing overhead. If Wexford buys the part from Dublin Ltd, the cost would be $22 per unit, the released facilities could not be used for any other activity, and 80% of the fixed manufacturing overhead would continue to be incurred. Wexford is also considering the following factors:

  • The quality of the part manufactured by Dublin Ltd.
  • The time it takes to receive the parts from Dublin Ltd.
  • The technical capability of Dublin Ltd.
  • The number of labour disputes occurring at Dublin Ltd in the last two years.
  • The financial stability of Dublin Ltd.
  • The ability of Dublin Ltd to respect confidential information gained in the course of the relationship.
  • When deciding to make or buy a part, this information is:
A)qualitative
B)risky
C)quantitative
D)uncertain
5
Sometimes, in certain decision situations, there needs to be a trade-off between different characteristics of information. These different characteristics of information are:
A)timeliness and accuracy
B)timeliness and relevance
C)accuracy and relevance
D)strategy and history
6
Which of the following best defines the concept of a relevant cost?
A)A past cost that is the same among alternatives.
B)A past cost that differs among alternatives.
C)A future cost that is the same among alternatives.
D)A future cost that differs among alternatives.
7
A business manufactures a part in a factory that has significant idle capacity and no other use for the idle capacity. This business has an opportunity cost of manufacturing the part that is equal to:
A)the variable manufacturing cost per unit
B)the total manufacturing cost per unit
C)zero
D)the total cost per unit
8
An accounting firm currently offers taxation services that appeal to both individuals and companies. If the firm decides to discontinue these tax services to individuals because of ongoing losses, which of the following costs could be avoided?
A)Allocated head-office costs.
B)Variable operating costs.
C)Building insurance.
D)Building depreciation.
9
An opportunity cost may be described as:
A)a past cost
B)a variable cost
C)a fixed cost
D)a foregone benefit
10
Which of the following would not be a useful tip to give to a decision maker?
A)Beware of unitised fixed costs in decision making.
B)Beware of allocated fixed costs.
C)Do not identify the avoidable costs.
D)Ignore sunk costs.







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