1		Which of the following best describes relevant information?
			A)	Relevant information focuses on the past and differs between the alternatives under consideration.
			B)	Relevant information focuses on the past and is not related to the decision under consideration.
			C)	Relevant information focuses on the future and differs between the alternatives under consideration.
			D)	Relevant information focuses on the future and is not related to the decision under consideration.
2		Which of the following best describes a sunk cost?
			A)	A sunk cost focuses on the past and differs between the alternatives under consideration.
			B)	A sunk cost focuses on the past and is not relevant to the decision under consideration.
			C)	A sunk cost focuses on the future and differs between the alternatives under consideration.
			D)	A sunk cost focuses on the future and is not related to the decision under consideration.
3		Another term for differential revenues is
			A)	sunk revenues.
			B)	opportunity revenues.
			C)	future revenues.
			D)	relevant revenues.
4		Another term for relevant costs is
			A)	avoidable costs.
			B)	future costs.
			C)	opportunity costs.
			D)	sunk costs.
5		Which of the following is not considered to be a unit-level cost?
			A)	The cost of a condenser put in an air conditioner
			B)	The cost of assembling an air conditioner
			C)	The cost of moving a box of condensers which will be put into air conditioners being assembled
			D)	The cost of inspecting an air conditioner
6		Which of the following is not considered to be a product-level cost?
			A)	The cost of an engineer to maintain a product's design specifications
			B)	The cost of an attorney to obtain a product's patent
			C)	The cost of holding inventory for a product
			D)	The cost of shipping 100 units of a product to the customer
7		Which of the following is not considered to be a facility-level cost?
			A)	The cost of property insurance
			B)	The cost of personnel administration
			C)	The cost of liability insurance for one of the product lines
			D)	The cost of building security
8		Which of the following statements about product-level costs is true?
			A)	A product-level cost can be avoided when a product line is discontinued.
			B)	A product-level cost can be avoided when there is a change in the production schedule so that the product is not produced during a particular week.
			C)	A product-level cost can be avoided when a business segment is discontinued.
			D)	A product-level cost can be avoided when the corporation is dissolved.
9		Which of the following statements regarding opportunity costs is false?
			A)	Opportunity costs are relevant for decision-making purposes.
			B)	Opportunity costs are not recorded in financial accounting records.
			C)	Opportunity costs have been incurred in the past and are not relevant for decision-making purposes.
			D)	Opportunity costs are the sacrifices represented by a lost chance.
10		When deciding which of two printers to purchase, which of the following is an example of a qualitative factor to be considered?
			A)	The number of copies produced per minute is different.
			B)	The dimensions of one of the printers will require purchasing a new table.
			C)	The printers will collate output at different rates.
			D)	The color of one of the printers matches the color of the computer to which it will be attached.

Use the following information to answer questions 11 through 16.

Apex's budgeted cost for production of 5,000 air conditioners is as follows:

Unit-level costs:

Material ($80/unit)		400,000
Labor ($22/hr x 2 hours/unit)	220,000
Overhead ($8/unit)		40,000
			660,000

Unit-level costs:
Material ($80/unit)		400,000
Labor ($22/hr x 2 hours/unit)	220,000
Overhead ($8/unit)		40,000	660,000
		--------
Batch-level costs (25 batches)			60,000
Product-level costs			89,000
Facility-level costs			180,000
			---------
Total expected costs			989,000
			======
Cost per unit = $197.80

11		Apex sells its air conditioners for $240 per unit. Apex received an order for 400 air conditioners from a new customer in a country in which Apex has never done business. The customer would like to spend $160 per air conditioner. Apex has the capacity to produce 6,000 air conditioners. Should Apex accept the special order?
			A)	Yes, Apex will earn $11,200 on the special order.
			B)	Yes, Apex will earn $6,400 on the special order.
			C)	No, Apex will lose $15,120 on the special order.
			D)	No, Apex will lose $720 per unit on the special order.
12		Apex has an opportunity to lease its excess productive capacity for $5,000. Considering the opportunity to lease the space, should Apex accept the special order for 400 units at a selling price of $160 each?
			A)	Yes, Apex should accept the special order because the relevant revenue exceeds the relevant cost by $6,400.
			B)	Yes, Apex should accept the special order because the relevant revenue exceeds the relevant cost by $1,400.
			C)	No, Apex should not accept the special order because the relevant cost exceeds the relevant revenue by $20,120.
			D)	No, Apex should not accept the special order because the relevant cost exceeds the relevant revenue by $15,120.
13		The customer who placed the special order for 400 units at a selling price of $160 per unit would also like to have a special logo on the air conditioner. Applying this logo will take an additional 1/2 hour of labor time. Assuming Apex has the opportunity to lease its excess productive capacity for $5,000, should Apex accept the special order?
			A)	Yes, Apex should accept the special order because the relevant revenue exceeds the relevant cost by $2,000.
			B)	Yes, Apex should accept the special order because the relevant revenue exceeds the relevant cost by $6,400.
			C)	No, Apex should not accept the special order because the relevant cost exceeds the relevant revenue by $3,000.
			D)	No, Apex should not accept the special order because the relevant cost exceeds the relevant revenue by $10,120.
14		A supplier has offered to sell comparable air conditioners to Apex for $170 each. If Apex decides to outsource the air conditioners, total costs will be
			A)	$41,000 higher than if Apex continues to make the air conditioners.
			B)	$139,000 higher than if Apex continues to make the air conditioners.
			C)	$41,000 lower than if Apex continues to make the air conditioners.
			D)	$139,000 lower than if Apex continues to make the air conditioners.
15		While evaluating the offer to outsource the air conditioners for a cost of $170 each, Apex realized that they could lease their manufacturing space for $50,000. Should Apex outsource the manufacture of the air conditioners?
			A)	Yes, Apex’s relevant cost per unit is $171.80, which is more than the $170 purchase price.
			B)	Yes, Apex’s relevant cost per unit is $207.80, which is more than the $170 purchase price.
			C)	No, Apex’s relevant cost per unit is $142.00, which is less than the $170 purchase price.
			D)	No, Apex’s relevant cost per unit is $151.80, which is less than the $170 purchase price.
16		Apex has just received a multi-year order for an additional 800 units a year at the regular sales price. This brings budgeted annual production to 5,800 units. Should Apex outsource to the supplier for $170 per air conditioner and lease its manufacturing space for $50,000?
			A)	Yes, Apex’s relevant cost per unit is $179.14, which is greater than the $170 purchase price.
			B)	Yes, Apex’s relevant cost per unit is $197.80, which is greater than the $170 purchase price.
			C)	No, Apex’s relevant cost per unit is $159.34, which is less than the $170 purchase price.
			D)	No, Apex’s relevant cost per unit is $167.97, which is less than the $170 purchase price.

Use the following information to answer questions 17 and 18.

Smithtown Sounds Manufacturing produces stereos, speakers, and microphones. It has the following projected revenue and costs for its speaker division:

Projected revenue	$1,300,000
Projected costs:
Unit-level costs	( 1,050,000)
Batch-level costs	(      58,000)
Product-level costs	(      92,000)
Facility-level corporate allocated costs	(     400,000)
Projected profit (loss)	($    300,000)

17		The president of Smithtown wants to eliminate the speaker division. Based on the above information, Smithtown should
			A)	eliminate the speaker division because it is operating at a loss.
			B)	keep the speaker division because it contributes $400,000 to Smithtown’s total profitability.
			C)	keep the speaker division because it contributes $100,000 to Smithtown’s total profitability.
			D)	keep the speaker division because it contributes $192,000 to Smithtown’s total profitability.
18		Which of the following is not a qualitative factor that Smithtown should consider in its decision to eliminate the speaker division?
			A)	Revenue will be lost as a result of eliminating the speaker division.
			B)	Eliminating the speaker division may impact customers who prefer to purchase stereos and speakers from the same supplier.
			C)	Eliminating the speaker division may impact employees who work in that division.
			D)	Suppliers, customers, and investors may interpret the elimination of the speaker division as a sign that Smithtown is experiencing financial difficulty.

Use the following information to answer questions 19 through 21.

ABC Company has a machine with a 7-year useful life for which they paid $160,000, on 1/2/03. The machine has an expected salvage value of $6,000 and has operating expenses of $40,000 per year. As of 1/2/06, when they have used the machine for 3 years, they are considering a technologically advanced machine that costs $80,000. The new machine has a 4-year useful life and $12,000 salvage value. The new machine will have operating expenses of $30,000 per year. The old machine can be sold immediately for $42,000.

19		When ABC Company is considering whether to purchase the new machine, which one of the following items is relevant?
			A)	The original cost of the old machine was $160,000.
			B)	The old machine has a salvage value of $6,000, and the new machine has a salvage value of $12,000.
			C)	The old machine has annual depreciation expense of $22,000, and the new machine will have annual depreciation expense of $17,000.
			D)	The old machine has a current book value of $94,000.
20		Should ABC Company keep the old machine?
			A)	No, keeping the old machine will increase costs by $8,000 over the next four years.
			B)	No, keeping the old machine will increase costs by $2,000 over the next four years.
			C)	Yes, keeping the old machine will reduce costs by $44,000 over the next four years.
			D)	No, keeping the old machine will increase costs by $40,000 over the next four years.
21		Assume the decision whether to keep the old machine or replace it with the new one is made based solely upon the financial statement impact for the year 2006. Would ABC Company replace the old machine on 1/2/06?
			A)	Yes, ABC Company would replace the old machine because the new machine has lower operating costs than the old machine; therefore profit would be higher in 2006.
			B)	Yes, ABC Company would replace the old machine because the new machine has less depreciation than the old machine; therefore profit would be higher in 2006.
			C)	Yes, ABC Company would replace the old machine because keeping the old machine would result in higher expenses for 2006.
			D)	No, ABC Company would not replace the old machine because keeping the old machine would result in lower expenses for 2006.
22		Your supervisor hands you the following analysis:   2004 2005 2006 2007 2008 Total Keep Old Equipment             Depreciation Expense 10,000 10,000 10,000 10,000 10,000 50,000 Operating Expense 7,000 7,000 7,000 7,000 7,000 35,000 Total 17,000 17,000 17,000 17,000 17,000 85,000               Replace Old Equipment             Loss on Disposal 35,000         35,000 Depreciation Expense 5,000 5,000 5,000 5,000 5,000 25,000 Operating Expense 4,000 4,000 4,000 4,000 4,000 20,000 Total 44,000 9,000 9,000 9,000 9,000 80,000 Your supervisor’s goal is to maximize 2004 income since her bonus is based on the company’s profitability. Based upon this analysis and her desires, what is your recommendation?
			A)	Replace the old equipment in 2004 because it has higher annual operating expenses than does the new equipment.
			B)	Keep the old equipment because total expenses in 2004 would be higher if the company replaces the old equipment.
			C)	Replace the old equipment because the new equipment’s depreciation expense is less than that of the old equipment.
			D)	Replace the old equipment because the expenses of the old equipment are higher than the expenses of the new equipment over the five-year period.
23		In many situations variable costs can act as proxies for
			A)	qualitative costs.
			B)	sunk costs.
			C)	avoidable costs.
			D)	opportunity costs.
24		A management practice used to increase profitability by managing bottlenecks or constrained resources is
			A)	just-in-time inventory.
			B)	the theory of constraints.
			C)	total quality management.
			D)	activity-based costing.
25		Cool Daze sells 2 products:   Air Conditioner    Fan Selling Price     $600.00 $90.00 Variable Costs       400.00   60.00 Contribution Margin     $200.00 $30.00 Assume that Cool Daze can sell all the units it produces. Because of the air conditioner condenser coils, Cool Daze cannot stack air conditioners on top of each other and can store only one air conditioner on a pallet. The fans can be stacked on one another and as a result, Cool Daze can store eight fans on a pallet. Cool Daze has limited warehouse space. Which of the following statements is true?
			A)	Fans should be produced and sold because they have lower costs than the air conditioners.
			B)	Air conditioners should be produced and sold because they provide a higher contribution margin per unit than the fans.
			C)	Fans should be produced and sold because they provide a higher contribution margin per pallet than the air conditioners.
			D)	Air conditioners should be produced and sold because they provide more revenue per unit than the fans.