The loss of a key customer has temporarily caused Bedford Machining to have some excess manu-facturing capacity. Bedford is considering the acceptance of a special order, one that involves Bedfords most popular product. Consider the following types of costs.

I. Variable costs of the product

II. Fixed costs of the product

III. Direct ?xed costs associated with the order

IV. Opportunity cost of the temporarily idle capacity

Which one of the following combinations of cost types should be considered in the special order acceptance decision?

I and II

I and IV

II and III

I, III, and IV

When using differential analysis to analyze two alternatives to the current operation, what factors should not be considered?

a. Direct material costs that are different

b. Direct labor costs that exist for only one alternative

c. Overhead costs that are the same for both alternatives

d. Sales commissions that apply to only one alternative

When considering a special order, management should accept the order if which of the following conditions is met?

a. Incremental costs are greater than incremental revenues.

b. There is excess production capacity.

c. Incremental costs are less than incremental revenues.

d. Employees are willing to work overtime.

When considering whether to continue to manufacture a part or buy it from an outside supplier, management should buy the part if the

a. incremental cost to buy is less than the incremental cost to manufacture the part.

b. equipment used for making the part is fully depreciated.

c. equipment used for making the part could be sold.

d. incremental cost to buy is less than the total cost to manufacture the part.

A business segment reports segment revenues of $1.2 million, segment costs of $1.0 million, and allocated corporate overhead costs of $300,000. If management were to drop the segment, overall corporate profits would

a. increase by $100,000.

b. decrease by $100,000.

c. increase by $200,000.

d. decrease by $200,000.

Which of the following costs would be considered relevant when deciding between two products to produce?

Select one:

A. Level of direct materials required

B. Additional investment in factory equipment for one product

C. Amount of additional direct and indirect labor

D. The opportunity cost associated with one or the other product

E. All of the above

Which of the following is not a factor to consider when deciding whether to accept a special order?

Select one:

A. Whether this order will hurt the brand name of the company

B. Whether other potential orders would be more profitable

C. Whether additional fixed costs would need to be incurred

D. Whether the offered price is sufficient to cover prime costs and fixed overhead allocated

E. All of the above

If a company is currently operating at full production capacity, which of the following costs are relevant to the decision to make or buy a new product?

Select one:

A. Direct materials

B. Variable overhead

C. Fixed overhead avoided

D. Costs of buying from the outside vendor

E. All of the above

Which of the following factors would lead a company to buy a component rather than make it?

Select one:

A. Greater control over production quality

B. Employee concerns about outsourcing

C. Excess productive capacity

D. An unpredictable supplier of the component

E. None of the above

Which of the following are not relevant to the decision of whether to drop a business segment or not?

Select one:

A. Revenues of the segment

B. Variable costs of goods sold of the segment

C. Variable operating expenses of the segment

D. Fixed overhead applied to the segment

E. B and C only

Which of the following are reasons to discontinue an unprofitable business segment?

Select one:

A. Effect of downsizing on employee morale

B. Potential loss of related business

C. Lack of alternative source of part needed in production

D. Fixed cost application to the segment that exceeds the level of the accounting loss

E. None of the above

Which of the following products could be sold as-is or processed further?

Select one:

A. Wheat

B. Flour

C. Bread

D. Cloth

E. All of the above

Which of the following combinations of products would be considered joint products?

Select one:

A. Chairs and tables

B. Machine oil and gasoline

C. Corn and alfalfa

D. Hamburgers and hot dogs

E. None of the above

How are byproducts costed in a company?

Select one:

A. They are allocated the selling price.

B. They are allocated the disposal costs.

C. They are allocated the selling price less any disposal costs.

D. They are allocated a portion of the joint costs and any disposal costs.

E. They are allocated a portion of the joint costs.

Which of the following would possibly be a constraining resource for a company?

Select one:

A. Machine hours

B. Floor space

C. Direct labor

D. Specialized materials

E. All of the above could be constraining resources

An accountant for Stability Inc. must calculate the weighted average cost of capital of the corpora-tion using the following information.

		Interest Rate
Accounts payable	$35,000,000	0
Long-term debt	10,000,000	8%
Common stock	10,000,000	15%
Retained earnings	5,000,000	18%

What is the weighted average cost of capital of Stability?

6.88%

8.00%

10.25%

12.80%

Which one of the following items is least likely to directly impact an equipment replacement capi-tal expenditure decision?

The net present value of the equipment that is being replaced.

The depreciation rate that will be used for tax purposes on the new asset.

The amount of additional accounts receivable that will be generated from increased produc-tion and sales.

The sales value of the asset that is being replaced.