ACC 115| Management Science

Module #13 Student Activity Sheet

Name: _________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________ Date: ________________

Quiz Materials:
Pen and non-scientific
calculator

GENERAL DIRECTIONS
READ THIS PAGE BEFORE STARTING THE ASSESSMENT

This is a 7 paged test and is composed of 1 section and has a total score of 30 points. You have sixty
(60) Minutes to finish this examination. The breakdown of the exam is as follows:

(1) Multiple-choice questions - The questions in this LEARNING OBJECTIVE:

section is with four answer choices. The test is
composed of 30 questions and is rated as 1 point each. This assessment measures the
competence of the student in terms of
All things unnecessary for the test must be put in front of the his/her application of knowledge and skills
testing area. Use BLACK or BLUE ink ballpen only. Write all your in the following topic:
answers on the designated answer sheet. Further, erasures are 1. Relevant Costing
strictly NOT allowed and will invalidate your answers.

You may NOT use smart phones or reference materials during the testing session. Only the allowed
calculators should be used.

Try to answer all questions. In general, if you have some knowledge about a question, it is better to try
to answer it. You will not be penalized for guessing.

Be sure to allocate your time carefully so you can complete the entire test within the exam session. You
may go back and review your answers at any time during the exam session.

Those who are caught cheating or doing acts not allowed during the exam shall be instructed to
surrender their test papers and shall leave the testing room immediately. Subsequently, their papers
shall be rated as ZERO.

This concludes the instruction page.

You may now begin answering.

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 ACC 115| Management Science
Module #13 Student Activity Sheet

Name: _________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________ Date: ________________

Write your final answer on the box provided before the number. Use CAPITAL letters only. Answers
written outside the box will not be considered. Erasures, changing of final answer, and the like will be
considered wrong.

1. At which step or steps in the decision-making process do qualitative considerations generally

have the greatest impact?
a. Specifying the criterion and identifying the alternatives.
b. Developing a decision model.
c. Collecting the data.
d. Making a decision.
e. Identifying the alternatives.

2. An accounting information system should be designed to provide information that is useful. To

be useful the information must be:
a. qualitative rather than quantitative. c. marginal between two alternatives.
b. quantitative rather than qualitative d. relevant, accurate, and timely.

3. A trade-off in a decision situation sometimes occurs between information:

a. accuracy and relevance. c. accuracy and timeliness.
b. relevance and timeliness. d. sensitivity and uniqueness.

4. Which of the following best defines the concept of a relevant cost?

a. A past cost that is the same among alternatives.
b. A past cost that differs among alternatives.
c. A future cost that is the same among alternatives.
d. A future cost that differs among alternatives.

5. Elegant, Inc., has ₱125,000 of inventory that suffered minor smoke damage from a fire in the
warehouse. The company can sell the goods "as is" for ₱45,000; alternatively, the goods can
be cleaned and shipped to the firm's outlet center at a cost of ₱23,000. There the goods could
be sold for ₱80,000. What alternative is more desirable and what is the relevant cost for that
alternative?
a. Sell "as is," ₱125,000. c. Clean and ship to outlet center,
₱103,000.
b. Clean and ship to outlet center, ₱23,000. d. Clean and ship to outlet center,
₱148,000.

6. In early July, Mike Gottfried purchased a ₱70 ticket to the December 15 game of the Chicago
Titans. (The Titans belong to the Midwest Football League and play their games outdoors on
the shore of Lake Michigan.) Parking for the game was expected to cost approximately ₱22,
and Gottfried would probably spend another ₱15 for a souvenir program and food. It is now
December 14. The Titans were having a miserable season and the temperature was expected
to peak at 5 degrees on game day. Mike therefore decided to skip the game and took his wife

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 ACC 115| Management Science
Module #13 Student Activity Sheet

Name: _________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________ Date: ________________

to the movies, with tickets and dinner costing ₱50. The sunk cost associated with this decision
situation is:
a. ₱20. b. ₱50. c. ₱70. d. ₱107.

7. Which of the following statements regarding costs and decision making is correct?
a. Fixed costs must be considered only on a per-unit basis.
b. Per-unit fixed cost amounts are valid only for make-or-buy decisions.
c. Per-unit fixed costs can be misleading because such amounts appear to behave as variable
costs when, in actuality, the amounts are related to fixed expenditures.
d. Sunk costs can be misleading in make-or-buy decisions because these amounts appear to be
relevant differential costs.

8. Which of the following is true?

I. The concept of a relevant cost can be defined as a past cost that differs among alternatives.
II. Opportunity cost does not require cash outlay.

a. I only b. II only c. Both I and II d. Neither I nor II

9. Susan is contemplating a job offer with an advertising agency where she will make ₱54,000 in
her first year of employment. Alternatively, Susan can begin to work in her father's business
where she will earn an annual salary of ₱38,000. If Susan decides to work with her father, the
opportunity cost would be:
a. ₱0. b. ₱38,000. c. ₱54,000. d. ₱92,000.

10. Management accountants are concerned with incremental unit costs. These costs are similar to
the following except
a. The economic marginal cost. c. The cost to produce an additional unit.
b. The variable cost d. The manufacturing unit cost.

11. In the development of accounting data for decision-making, relevant costs are
a. Historical costs which are the best available basis for estimating future costs.
b. Future costs which will differ under each alternative course of action.
c. Budgetary costs authorized for the administrative year.
d. Standard costs developed by time and motion experts.

12. Irrelevant costs generally include

Sunk costs Historical Costs Unavoidable fixed costs
a. yes yes no
b. yes no no
c. no no yes
d. yes yes yes

13. Which of the following is not a characteristic of relevant costing information? It is

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 ACC 115| Management Science
Module #13 Student Activity Sheet

Name: _________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________ Date: ________________

a. associated with the decision under consideration.

b. significant to the decision maker.
c. readily quantifiable.
d. related to a future endeavor.

14. Which of the following costs can be ignored when making a decision?
a. Opportunity costs. c. Variable costs incurred last year.
b. Avoidable fixed costs. d. Relevant costs.

15. Two months ago, Victory purchased 4,500 pounds of Hydrol, paying ₱15,300. The market for
this product has been very strong since the acquisition, with the market price jumping to ₱4.05
per pound. (Victory can buy or sell Hydrol at this price.) The company recently received a
special-order inquiry, one that would require the use of 4,200 pounds of Hydrol. Which of the
following is (are) relevant in deciding whether to accept the special order?
a. The 300-pound remaining inventory of Hydrol. c. The ₱3.40 purchase price.
b. The ₱4.05 market price. d. 4,500 pounds of Hydrol.

16. Which of the following qualitative factors favors the buy choice in a make or buy decision for a
part?
a. maintaining a long-term relationship with suppliers c. utilization of idle capacity
b. quality control is critical d. part is critical to product

17. Which of the following is the least likely to be a relevant item in deciding whether to replace an
old machine?
a. acquisition cost of the old machine c. annual savings to be enjoyed on the new
machine
b. outlay to be made for the new machine d. life of the new machine

18. In a make or buy decision, the reliability of a potential supplier is

a. an irrelevant decision factor. c. an opportunity cost of continued
production.
b. relevant information if it can be quantified. d. a qualitative decision factor.

19. The term "outsourcing" is most closely associated with:

a. special-order decisions. c. decisions to process joint products beyond the split-off
point.
b. make-or-buy decisions. d. decisions that involve limited resources.

20. Which of the following costs are relevant to a make-or-buy decision?

a. original cost of the production equipment
b. annual depreciation of the equipment
c. the amount that would be received if the production equipment were sold
d. the cost of direct materials purchased last month and used to manufacture the component

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 ACC 115| Management Science
Module #13 Student Activity Sheet

Name: _________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________ Date: ________________

21. Knox Company uses 10,000 units of a part in its production process. The costs to make a part
are: direct material, ₱12; direct labor, ₱25; variable overhead, ₱13; and applied fixed overhead,
₱30. Knox has received a quote of ₱55 from a potential supplier for this part. If Knox buys the
part, 70 percent of the applied fixed overhead would continue. Knox Company would be better
off by
a. ₱50,000 to manufacture the part. c. ₱40,000 to buy the part.
b. ₱150,000 to buy the part. d. ₱160,000 to manufacture the part.

22. Quest Company produces a part that has the following costs per unit:
Direct material ₱8 Variable overhead 1
Direct labor 3 Fixed overhead 5
Zest Corporation can provide the part to Quest for ₱19 per unit. Quest Company has
determined that 60 percent of its fixed overhead would continue if it purchased the part.
However, if Quest no longer produces the part, it can rent that portion of the plant facilities for
₱60,000 per year. Quest Company currently produces 10,000 parts per year. Which alternative
is preferable and by what margin?
a. Make - ₱20,000 b. Make - ₱50,000 c. Buy - ₱10,000 d. Buy - ₱40,000

23. Ecru Company manufactures 10,000 components per year. The manufacturing cost of the
components was determined as follows:
Direct materials ₱ 70,000 Variable manufacturing overhead 40,000
Direct labor 115,000 Fixed manufacturing overhead 60,000
An outside supplier has offered to sell the component for ₱20.
What is the effect on income if Ecru Company purchases the component from the outside
supplier?
a. A ₱25,000 increase c. A ₱85,000 decrease
b. A ₱25,000 decrease d. A ₱85,000 increase

24. Hobart Company produces speakers for PA systems. The speakers are sold to retail music
stores for ₱30. Manufacturing and other costs are as follows:
Variable costs per unit: Fixed costs per month:
Direct materials ₱ 9.00 Factory overhead ₱120,000
Direct labor 4.50 Selling and admin. 60,000
Factory overhead 3.00 Total ₱180,000
Distribution 1.50
Total ₱18.00
The variable distribution costs are for transportation to the retail music stores. The current
production and sales volume is 20,000 per year. Capacity is 25,000 units per year.

A Memphis manufacturing firm has offered a one-year contract to supply speaker parts at a cost
of ₱6.00 per unit. If Hobart Company accepts the offer, it will be able to reduce variable costs by

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 ACC 115| Management Science
Module #13 Student Activity Sheet

Name: _________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________ Date: ________________

30 percent and rent unused space to an outside firm for ₱18,000 per year. All other information
remains the same as the original data. What is the effect on profits if Hobart Company buys
from the Memphis firm?
a. decrease of ₱19,000 c. increase of ₱6,000
b. increase of ₱19,000 d. increase of ₱13,000

25. If a firm is at full capacity, the minimum special order price must cover
a. variable costs associated with the special order
b. variable and fixed manufacturing costs associated with the special order
c. variable and incremental fixed costs associated with the special order
d. variable costs and incremental fixed costs associated with the special order plus foregone
contribution margin on regular units not produced

26. Which of the following is true?

I. In a special order decision, unavoidable fixed costs are taken into consideration in setting a
sales price.
II. In a special order decision, the sales price should be sufficient to cover a job’s variable costs,
incremental fixed costs, and generate a profit.

b. I only b. II only c. Both I and II d. Neither I nor II

27. The minimum selling price that should be acceptable in a special order situation is equal to total
a. production cost. c. variable costs.
b. variable production cost. d. production cost plus a normal profit margin.

28. Snider, Inc., which has excess capacity, received a special order for 4,000 units at a price of
₱15 per unit. Currently, production and sales are budgeted for 10,000 units without considering
the special order. Budget information for the current year follows.
Sales ₱190,000
Less: Cost of goods sold 145,000
Gross margin ₱ 45,000

Cost of goods sold includes ₱30,000 of fixed manufacturing cost. If the special order is
accepted, the company's income will:
a. increase by ₱2,000. c. increase by ₱14,000.
b. decrease by ₱2,000. d. decrease by ₱14,000.

29. Wannabee Company manufactures a product with the following costs per unit at the expected
production level of 84,000 units:
Direct materials ₱12 Variable manufacturing overhead 18
Direct labor 36 Fixed manufacturing overhead 24
The company has the capacity to produce 90,000 units. The product regularly sells for ₱120. A
wholesaler has offered to pay ₱110 a unit for 7,500 units.

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 ACC 115| Management Science
Module #13 Student Activity Sheet

Name: _________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________ Date: ________________

If the special order is accepted, the effect on operating income would be a

a. ₱249,000 increase. c. ₱495,000 increase
b. ₱429,000 increase. d. ₱75,000 decrease.

30. The following information relates to a product produced by Malkovich Company:

Direct materials ₱24 Variable overhead 30
Direct labor 15 Fixed overhead 18
Fixed selling costs are ₱500,000 per year, and variable selling costs are ₱12 per unit sold.
Although production capacity is 600,000 units per year, the company expects to produce only
400,000 units next year. The product normally sells for ₱120 each. A customer has offered to
buy 60,000 units for ₱90 each.

If the firm produces the special order, the effect on income would be a
a. ₱360,000 increase. c. ₱540,000 decrease.
b. ₱360,000 decrease. d. ₱540,000 increase.

- End -

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