Multiple Choice Questions:

1) WAX-D Inc. has a division that manufactures a component that sells for $150 and has a variable cost of $45. Another division of the company wants to purchase the component. Fixed cost per unit of component is $25. What is the minimum transfer price if the division is operating below its capacity?

A) $50

B) $45

C) $30

D) $40

2) WAX-D Inc. has a division that manufactures a component that sells for $150 and has a variable cost of $45. Another division of the company wants to purchase the component. Fixed cost per unit of component is $25. What is the maximum transfer price if the division is operating below its capacity?

A) $70

B) $170

C) $150

D) $30

3) Fixed costs that do not differ between two alternatives are:

A) Relevant to the decision.

B) Considered opportunity costs.

C) considered irrelevant to the decision.

D) Important only if they represent a material dollar amount.

4) When replacing an old asset with a new one, the original purchase price of the old asset represents:

A) Relevant cost.

B) Differential costs.

C) Opportunity cost.

D) Sunk cost.

5) A company is planning to replace an old machine with a new one. Which of the following is a sunk cost in this decision?

A) Cost of the new machine

B) Selling price of the old machine

C) Future maintenance costs of the old machine

D) Original cost of the old machine