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Acct 2220 Zeigler: Group Quiz #2 (Chp 6 & 7) - Due Mon, 10/2 in class Full names:_________________________________________ Group #:_____ (30 Pts: Show your work where applicable) Class Period: 4:30 6:00 7:30 ____ 1. Select the correct statement regarding \"relevant\" costs and/or revenues. a. Relevant costs are also known as \"unavoidable costs\". b. Relevant costs are only those that are based on prior decisions made and implemented. c. Relevant revenues must not differ among the alternatives. d. None of the above represent correct statements. ____ 2. For purposes of decision making, \"relevant\" costs are costs that: a. are avoidable by choosing one alternative over the other. b. were incurred in the past. c. will not be incurred in the future, regardless of the alternative chosen. d. none of the above support the definition of \"relevant\" costs. ____ 3. Which of the following items represents \"qualitative\" information? a. The original acquisition cost of a new machine for operations. b. Annual depreciation expense of an existing machine. c. The precision tolerance ratings of two machines used in production. d. The impact on production employees when outsourcing the production process. ____ 4. Hull brought his lunch today, but now a co-worker/friend, England, has asked him to go to the deli across the street. Unfortunately, England did not offer to pay for Hull's lunch. Select the correct statement from the following. a. The cost of the lunch brought is relevant to Hull's decision to have lunch with his friend. b. The cost of the lunch brought has nothing to do with Hull's current decision. c. The cost to buy lunch at the deli is not relevant to Hull because it has not yet been incurred. d. The cost of the lunch Hull brought represents an opportunity cost of dining with his friend. ____ 5. Falcon, Inc. produce multiple sporting goods products in a single factory. Mgmt is considering the elimination of one of these products due to reported losses. Which of the following costs is least likely to be relevant for this decision? a. raw material costs to produce the product in question. b. packaging costs required to distribute the product in question. c. set-up costs that can be avoided be eliminating the product showing the loss. d. depreciation of the factory equipment used to produce the product in question. e. advertising costs related to the product in question. ____ 6. Kilgore McCorvey & Mason, Inc. has three departments. One is a tutoring department, providing quality studying support to discriminating students. If the tutoring department is closed, the general manager will not be affected because his/her services would still be needed by the remaining two departments. If all operations cease, however, this manager will be laid-off. Which of the following is the primary lesson to be learned from this scenario? a. Some sunk costs can be avoided (and would therefore be relevant). b. Opportunity costs are never relevant. c. The relevance of costs is context sensitive. d. Quantitative information must be precise and accurate in order to be relevant. e. Qualitative information need not be precise because it is never relevant. ____ 7. The cost avoided when a company eliminates a single item of a product or service is a: a. batch-level cost. b. facility-level cost. c. unit-level cost. d. product-level cost. ____ 8. Select the incorrect statement concerning \"opportunity\" costs. a. Opportunity costs are not cumulative. b. Opportunity costs are relevant if they differ among the alternatives at hand. c. Opportunity costs must be future oriented. d. Opportunity costs are recorded in the accounting records. 9. Falcon, Inc. makes and sells a large single, fancy trophy often used to recognize academic excellence. Falcon has been approached by an outside supplier who has expressed interest in producing, packaging and shipping these trophies for Falcon. IF Falcon accepts, the company would continue to sell the trophies using its own unique logo, advertising program and sales force/staff, but all production-related activities would be discontinued and all production-related buildings and equipment would be sold. 3 Points total. 9a. (2 pts) Up to two grid \"misses\" acceptable for full credit: Identify each cost/item below as to its relevancy to this outsourcing (i.e. Make vs. Buy) decision and indicate whether the cost is fixed or variable relative to the number of trophies currently manufactured and sold. Finally, which of the four cost hierarchy classifications would apply to each cost? Outsourcing (i.e. Make vs. Buy) Decision for The Falcon Company: Is the Cost/Item Relevant to this Decision? (Yes or No) Cost Behavior? Cost Hierarchy? (Fixed or Variable) (Which of Four) Cost of Emmy Award Commercials to advertise the product Direct Labor Costs of production ($9 per unit) Setup Costs: Specific engraving of labels for each production run * PRODUCT or FACILITY-LEVEL YES Shipping & Handling costs ($0.89 per unit). The company would continue to ship their products to their customers Utility costs for the mfg plant (currently $0.40 per unit) The manufacturing plant manager's salary FIXED Direct Material Costs for use in production ($22 per unit) Sales Commissions for Falcon sales force (10% of sales price) Depreciation on Manufacturing equipment (S/L Depr method) Current fair market value of the Manufacturing equipment XXX XXX Hourly Wages of plant (production) security guards 9b. (1 pt) Assuming Falcon is interested on a quantitative basis, list and discuss two specific qualitative considerations that management should address prior to finalizing their decision to outsource production. 2 10) 4 pts: Reese & Smith (RS) Home Centers has two separate departments, A (Apparel) and B (Building supplies). The most recent annual income statement follows: Company Total Sales .....................................$5,000,000 Less variable expenses ...... (1,900,000) Departments A B $1,000,000 $4,000,000 (300,000) (1,600,000) Less fixed expenses ........... (2,700,000) Net operating income (loss) $ 400,000 (900,000) $ (200,000) (1,800,000) $ 600,000 RS Management is concerned with Department A's performance. A management accounting analysis indicates that $125,000 of the fixed expenses being charged to Department A are either sunk costs or allocated costs that will continue even if Department A is dropped. In addition, the Marketing department believes that the elimination of Department A would result in a 15% decrease in the sales revenue of Department B. If \"A\" is dropped, what will be the effect on company income as a whole? Should Department A be discontinued based upon your quantitative analysis? Clearly show a \"before\" and \"after\" Income Statement to document your work (see class website templates and/or our text for examples). Be sure to confirm others can understand your analysis. Quantitative analysis discussion & conclusion: 3 11) 5pts: Alt & Naegle (AN), Inc., currently sells the \"Falcon\" brand of quality leather athletic gloves at a normal selling price of $42 per unit (pair). Per unit cost information, based upon an existing capacity level of 300,000 units is provided below: Direct Materials Direct Labor Total Overhead (3/4 of which is fixed) $8 $7 $8 a) A special order inquiry to buy 50,000 units was recently received from Endicott & Hoerig (EH), Inc., an overseas distributor. Additional selling costs of $1 per unit (pair) would be incurred by AN to ship the product overseas to Endicott & Hoerig. AN, Inc. has sufficient existing capacity to manufacture the additional units. In preparing for difficult negotiations with EH, what amount should AN, Inc. set as the minimum (floor) selling price per unit (in order to recover all relevant costs)? Explain your answer. b) Referring to part \"a\