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Chapter 19 Quiz 2
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1
Donnybrook Company manufactures two products from a joint process. The products can be sold at split-off point or processed further. In deciding whether to sell at split-off point or process further, management should:
A)prior to making the decision, allocate the joint costs to the products based on the relative sales value method
B)prior to making the decision, allocate the joint costs to the products based on the physical units method
C)prior to making the decision, allocate the joint costs to the products based on the constant gross margin method
D)ignore the joint costs when making the decision
2
Jim Cain, a management accountant employed by the United Brewing Company, was investigating the outsourcing of the company’s delivery fleet. As a management accountant, Jim’s primary responsibility is to:
A)clarify the problem
B)identify the alternative courses of action
C)collect the relevant costs and benefits and compare the costs and benefits of each possible course of action
D)clarify the problem and select a course of action
3
A manager is trying to decide whether to eliminate the transport department. The focus of attention for this decision should be on:
A)the net income shown on the transport department’s monthly statement of financial performance
B)the sales revenue minus the total expenses of the transport department
C)the sales revenue minus the total direct expenses of the transport department
D)the sales revenue minus the total variable expenses and avoidable fixed expenses of the transport department
4
Whittlesea Home Services Company is trying to decide whether to delete its Painting Department. The Painting Department’s statement of financial performance for the year ended 31 December included the following: sales revenue of $1 000 000, cost of goods sold of $750 000, gross margin of $250 000, selling expenses of $80 000, administrative expenses of $200 000 and net loss of $30 000. Cost of goods sold is 75% variable and 25% fixed. If the department closes, 80% of the fixed cost of goods sold is avoidable. All of the selling expenses relate to the Painting Department and would be eliminated if the Painting Department is eliminated. Of the administrative expenses, 30% are allocated from head office. If the Painting Department is closed, Whittlesea Home Services Company’s income would:
A)increase by $30 000
B)increase by $290 000
C)decrease by $437 500
D)decrease by $147 500
5
Glamorous Gemma Company manufactures lip gloss. Glamorous Gemma can manufacture 250 000 units of lip gloss a year at a variable cost of $750 000 and a fixed cost of $180 000. Based on Glamorous Gemma’s predictions, 200 000 units will be sold at a regular price of $5 each. When Glamorous Gemma’s management is deciding to accept a special order, it is extremely important that the special order:
A)is of a long-term nature
B)is of a once-only nature
C)is a type of outsourcing
D)does not involve any qualitative information
6
All of the manufacturing costs incurred in the production of joint products are sunk costs and are therefore irrelevant to any decision about whether the joint products should be sold at split-off point or processed further. Manufacturing costs are allocated to joint products to:
A)provide relevant information to management on the manufacturing cost of each product
B)provide information to management on whether a joint product manufactured in the joint process should be made
C)calculate a cost per unit for product costing and financial reporting purposes
D)provide information regarding separable costs
7
If a business is operating at full capacity, the minimum special order price must cover:
A)variable costs associated with the special order
B)variable costs and fixed manufacturing costs associated with the special order
C)variable costs and incremental fixed costs associated with the special order
D)variable costs and incremental fixed costs associated with the special order plus the foregone contribution margin on the units that are no longer available for sale at the regular selling price
8
Warrenwood Company has 10 000 units in inventory that cost $4 per unit to produce. These units cannot be sold because they have become obsolete due to technological advancements. These units could be reworked at a total cost of $25 000 and sold for $30 000. Another alternative is to sell the units to a second-hand junk dealer for $2500. A relevant cost for Warrenwood to consider in making its decision is:
A)$25 000 for reworking the units
B)$25 000 for reworking the units
C)$30 000 for selling the units to the second-hand junk dealer
D)$30 000 for reworking the units
9
Koala Chemicals produces two products (A and B) from a joint process. The joint cost of production is $10 000. Koala can sell 10 000 litres of Product A at split-off for $10 per litre, or process it further at an additional cost of $30 000 and then sell it for $15 per litre. Koala can sell 5000 litres of Product B at split-off for $6 per litre, or process it further at an additional cost of $10 000 and then sell it for $7.50. The difference in profit if Koala Chemicals decides to further process Product A is a:
A)$50 000 increase
B)$30 000 increase
C)$20 000 increase
D)$37 500 increase
10
Koala Chemicals produces two products (A and B) from a joint process. The joint cost of production is $10 000. Koala can sell 10 000 litres of Product A at split-off for $10 per litre, or process it further at an additional cost of $30 000 and then sell it for $15 per litre. Koala can sell 5000 litres of Product B at split-off for $6 per litre, or process it further at an additional cost of $10 000 and then sell it for $7.50. The difference in profit if Koala Chemicals decides to further process Product B is a:
A)$7500 increase
B)$17 500 increase
C)$20 000 increase
D)$2500 decrease







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