Which of the following costs are irrelevant to short-term business decisions?

Variable costs

Costs that differ between alternatives

Future costs

Sunk costs

Which of the following is the key to making short-term special decisions?

Relevant revenues, costs, and profits

Use of traditional (absorption costing) income statements

Use of a contribution margin approach

Both A and C are key

3. Fishing Run Corporation received a special order request for 20,000 new fishing poles at a sales price of $30 each. This is a $10 reduction in the normal sales price. The variable costs per fishing pole are $20. The total fixed costs of $110,000 will not change. Which of the following is TRUE?

A. Management should accept the order if the variable costs per unit and fixed costs in total will not change with the order.

B. Management should accept the order if they have excess capacity.

C. Management should consider not accepting the order if the customers will expect the price decrease as the standard price in the future.

D. All of the above are true.

4. Fishing Run Corporation received a special order request for 20,000 new fishing poles at a sales price of $30 each. This is a $10 reduction in the normal sales price. The variable costs per fishing pole are $20. The total fixed costs of $110,000 will not change as a result of the special order. The Corporation has enough excess capacity to fill the order without affecting current sales. What will be the impact on operating income if the special order is accepted?

A. Decrease in operating income of $90,000

B. Decrease in operating income of $200,000

C. Increase in operating income of $90,000

D. Increase in operating income of $200,000

5. A company sells a product that is relatively unique. Consequently, there is not a lot of competition for the product. The company most likely:

is a price-taker.

uses a pricing approach emphasizing target costing.

is a price-setter.

sells commodities.

6. If there are factors that restrict production capacity, a company should focus on the product line that has the highest:

profit per unit of product.

contribution margin per unit of the constraint.

contribution margin ratio.

selling price per unit of product.

7. Signature Corporation has three product lines: silver, gold, and platinum. All three products have a positive contribution margin, but the gold line has an operating loss. Management is considering discontinuing the product. Management decides to discontinue the gold line. Which of the following must be true if the management followed the decision rule?

Total cost savings exceeded the lost revenues from discontinuing the line

Lost revenues exceeded the cost savings from discontinuing the line

Operating income will not change

Not enough information is present to make that determination

8. Thematics Publishing produces 10,000 binders each year. Each binder has a variable cost of $17 and total fixed costs of $110,000 per year. The binders can be purchased from an outside supplier for $20 each. The production space will remain idle, but fixed costs can be reduced by 30%. The annual impact of purchasing the binders will be to:

increase operating income by $3,000.

increase operating income by $47,000.

decrease operating income by $3,000.

decrease operating income by $47,000.

Quinn Bakery bakes gingerbread cookies and sells them by the dozen. During the holiday season, they bake 1,000 dozen cookies. They can sell the plain,undecorated cookies (as is) for $2.50 per dozen. If they decorate the cookies at an additional cost of $1 per dozen, each decorated dozen could be sold for$4.00. Should Quinn Bakery sell the cookies undecorated (as is) or should the cookies be decorated (processed further)?

Quinn Bakery should sell undecorated cookies (as is) because operating income will be higher by $500 than if they sell them decorated(processed further).

Quinn Bakery should sell undecorated cookies (as is) because operating income will be higher by $3,500 than if they sell them decorated(processed further).

Quinn Bakery should decorate the cookies because operating income will be higher by $500 than if they sell them undecorated (as is).

Quinn Bakery should decorate the cookies because operating income will be higher by $3,500 than if they sell them undecorated (as is).

Which of the following should be ignored when deciding whether to sell as is or process a product further?

A. The revenue if the product is sold as is

B. The costs incurred in producing the product as is

C. The cost of processing the product further

D. The revenue if the product is processed further