1. Variable costs are typically considered to be __________ in decision making.

   		irrelevant
   		relevant
   		important only if they are material in amount
   		sunk cost

2.

1. Augustus Corp produces dining chairs. Based on the following, what is the contribution margin per machine hour?

   Selling price per unit				$290
   Variable cost per unit				$180
   Units produced per machine hour				8
   Production capacity per month				1,000
   Fixed cost per month				$5,000

   		$13.75
   		$1000.00
   		$110.00
   		$880.00

3.

1. A company is considered a price setter when

   		it operates in a highly competitive market
   		its product is unique.
   		it has little flexibility in setting prices of its products.
   		all of the above are correct.

4.

1. =Augustus Company is planning to purchase a new machine to replace an old machine. The old machine originally cost $45,000 and can be sold for $5,000. Potential maintenance cost if the old machine is kept is estimated to be $15,000. The new machine will cost $60,000. What is the sunk cost.

   		$60,000
   		$50,000
   		$45,000
   		$40,000

5.

1. -Augustus Company has two divisions, Consumer and Industrial. The Consumer Division lost $40,000 and the Industrial Division had operating income of $30,000.

   Management has analyzed the situation and wants you to do a differential analysis to determine the increase or decrease in overall operating income based on the following:

   Expected decrease in revenues				$550,000
   Expected decrease in total variable costs				$370,000
   Expected decrease in fixed costs				$102,000

   		$78,000 decrease in operating income
   		$180,000 increase in operating income
   		$128,000 increase in operating income
   		$128,000 decrease in operating income

6.

1. The keys to short term business decision making include

   		focusing on relevant costs
   		using the contribution margin approach
   		Both answers above are correct.
   		None of the above are correct.

7.

1. /Your rich aunt has promised to give you $5,000 per year at the end of each of the next four years to help you pay for college. Using a discount rate of 7%, what is the present value of the gift.

   If the JPEG file doesn't open, Appendix A in your book has full Present Value tables.

   PV-Tables-Lump-Ann.JPG

   		$4,278
   		$12,411
   		$20,000
   		$16,935

8.

QUESTION 8

1. Which of the following uses the time value of money in the calculations?

   		Payback method
   		Accounting Rate of Return
   		Internal Rate of Return
   		None of the above use the time value of money in the calculations.