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3.make and Buy. MCQs.

The document provides sample questions and answers related to make versus buy decisions and cost analysis. Specifically, it addresses: - Identifying relevant versus non-relevant costs for decision making. - Defining opportunity costs as the cost of the next best alternative course of action. - Calculating the maximum price a company should pay for an external component based on contribution per unit and machine time. - Stating that in a product mix decision, the most important factor to consider is the contribution per unit of a scarce resource.

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Muhammad Waseem
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575 views

3.make and Buy. MCQs.

The document provides sample questions and answers related to make versus buy decisions and cost analysis. Specifically, it addresses: - Identifying relevant versus non-relevant costs for decision making. - Defining opportunity costs as the cost of the next best alternative course of action. - Calculating the maximum price a company should pay for an external component based on contribution per unit and machine time. - Stating that in a product mix decision, the most important factor to consider is the contribution per unit of a scarce resource.

Uploaded by

Muhammad Waseem
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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THE AL –Hashier Educators (TAE)Notes

SMA Make & Buy MCQ’S

The decision-making process requires


analysis of the most recent income statement of the business

a disregard of forecasts

a disregard of non-relevant costs

the use of large amounts of historical data

Which of the following costs is relevant in decision-making?


committed costs

historical costs

cash costs

accounting costs

An opportunity cost is the cost of


the next best alternative course of action

lost business

unplanned new business

obtaining new business opportunities

Which of the following costs is not relevant when considering the


closure of a department within a factory?
direct labour
THE AL –Hashier Educators (TAE)Notes
SMA Make & Buy MCQ’S
direct materials

fixed overheads

variable overheads

Which of the following may form the basis for the price a company
(working at full capacity) should charge for a one-off order?
variable costs

opportunity costs plus marginal costs

direct and indirect costs

direct labour plus materials costs

In a make versus buy decision which of the following factors is not


relevant?
fixed production costs

reliability of bought-in products

opportunity cost of alternative activities

reliability of supplier

A department makes a product whose contribution per unit is £1,000,


and which takes 20 hours machine time. A component used in this
product with a marginal cost of £300 (taking 5 hours of machine time)
could be purchased from an external supplier. The department is
working at full capacity. What is the maximum price that the company
may pay to buy the component from an external supplier?
THE AL –Hashier Educators (TAE)Notes
SMA Make & Buy MCQ’S
£550

£500

£600

£575

In a product mix decision, which is the most important factor to


consider in order to try to maximise profit?
contribution per unit of the product

product unit selling price

contribution per unit of a scarce resource used to make the product

variable cost per unit of the product

Sales pricing decisions do not usually consider


costs of competitors products

elasticity of demand for the product

total product absorption costs

prices of competitors products

Which of the following is not a feature of full cost plus sales pricing
related to a range of a company’s products?
it ignores the relationship between demand and prices

it requires the apportionment of shared costs


THE AL –Hashier Educators (TAE)Notes
SMA Make & Buy MCQ’S
it distinguishes between variable, fixed and opportunity costs

it may not maximise profit

11. Which of the following statement is false?


• Information is relevant if it is pertinent to a decision problem
• Relevant information has a bearing on the future
• Sunk costs are irrelevant to decision problems
• Opportunity costs are irrelevant to decision problems
• Relevant and accurate data are of value only if they are timely
12. Which of the following is described as data that are pertinent to a
decision?
• Qualitative characteristics
• Accurate information
• Timely information
• Relevant information
• Sunk cost data
13. One of Anil Company’s product has a contribution margin of $50,000
and fixed costs totaling $60,000. If the product is dropped. $40,000 of the
fixed costs will continue unchanged. As a result of dropping the product,
the company’s operating income should:
• Decrease by $50,000
• Increase by $30,000
• Decrease by $30,000
• Increase by $10,000
14. Company B produces 2,000 parts each year that are used in one of its
products. The unit cost of producing this part is:
Variable cost: $7.50 Fixed costs: $6.00
The part can be purchased from an outside supplier at $10 per unit. If the
part is purchased from the outside supplier, two-thirds of the fixed costs
incurred in producing the part can be eliminated. The effect on operating
income from purchasing the part would be a:
• $3,000 increase
• $1,000 decrease
• $7,000 increase
• $5,000 decrease
THE AL –Hashier Educators (TAE)Notes
SMA Make & Buy MCQ’S

Answers
1. a disregard of non-relevant costs
2. cash costs
3. the next best alternative course of action
4. fixed overheads
5. opportunity costs plus marginal costs
6. Fixed production cost
7. £550
8. contribution per unit of a scarce resource used to make the product
9. costs of competitors products
10. it distinguishes between variable, fixed and opportunity costs

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