ACCT2101 Final Exam

Three of the steps in management’s decision-making process are (1) review results of decision, (2) determine and evaluate possible courses of action, and (3) make the decision. The steps are carried out in the following order:

• 1,2,3

• 3,2,1

• 2,1,3

• 2,3,1

Incremental analysis is the process of identifying the financial data that:

• do not change under alternative courses of action.

• change under alternative courses of action.

• are mixed under alternative courses of action.

• No correct answer is given.

In a make-or-buy decision, relevant costs are:

• manufacturing costs that will be saved.

• the purchase price of the units.

• the opportunity cost.

• All of the answer choices are correct.

The decision rule in a sell-or-process-further decision is: Process further as long as the incremental revenue from processing exceeds:

• incremental processing costs.

• variable processing costs.

• fixed processing costs.

• No correct answer is given.

In a decision to retain or replace equipment, the book value of the old equipment is a (an):

• opportunity cost.

• sunk cost.

• incremental cost.

• marginal cost.

Target cost related to price and profit means that:

• cost and desired profit must be determined before selling price.

• cost and selling price must be determined before desired profit.

• price and desired profit must be determined before costs.

• costs can be achieved only if the company is at full capacity.

In a competitive, common-product environment, a seller would most likely use:

• time-and-material pricing.

• variable costing.

• target costing.

• cost-plus pricing.

Cost-plus pricing means that:

• Selling price = Variable cost + (Markup percentage + Variable cost).

• Selling price = Cost + (Markup percentage × Cost).

• Selling price = Manufacturing cost + (Markup percentage + Manufacturing cost).

• Selling price = Fixed cost + (Markup percentage × Fixed cost).

The most common method used to establish transfer prices is the:

• negotiated transfer pricing approach.

• opportunity costing transfer pricing approach.

• cost-based transfer pricing approach.

• market-based transfer pricing approach.

Classic Toys has examined the market for toy train locomotives. It believes there is a market niche in which it can sell locomotives at $80 each. It estimates that it could sell 10,000 of these locomotives annually. Variable costs to make a locomotive are expected to be $25. Classic anticipates a profit of $15 per locomotive. The target cost for the locomotive is:

• $80.

• $65.

• $40.

• $25.