Test Bank For Accounting for Decision Making and Control 9th Edition Zimmerman

1.

Opportunity Costs:  
 

A.  must never be negative 

B.  may be found in financial statements (annual report) 

C.  reflect the benefit of the next best alternative 

D.  are pecuniary in nature 

E.  none of the above 

2.

John invested $12,000 in the stock of Hyper Cyber Eight years later, Hyper Cyber’s shares reached $125,000, but John held onto the shares in the belief that their price would double in the next five years. Unfortunately, Hyper Cyber did not double. Rather the market value of John’s shares today is $4,000. If the shares were sold and the proceeds invested in another investment, they would likely earn 5% per annum. Which of the following terms and values is correct? 
 

A.  $125,000 is the opportunity cost of selling the shares today

B.  $12,000 is a sunk cost

C.  $250,000 is the opportunity cost

D.  $2000 is the opportunity cost

E.  None of the above

3.

Which of the following can be an opportunity cost? 
 

A.  Interest on cost of inventory

B.  Cost of idle capacity

C.  Cost of underutilized labor

D.  The decline in an asset’s value

E.  All of the above

4.

Davos Inc. makes fiberglass ski-boards in Switzerland. Identify the correct matching of terms. 
 

A.  Fiberglass is factory overhead

B.  Plant real estate taxes are a period cost

C.  Depreciation on delivery trucks is a product cost

D.  Payroll taxes for workers in the Packaging Department are direct labor

E.  None of the above

5.

Pamela in Bamplona makes bull-repellent scent according to a traditional Spanish recipe, which normally sells at €9 (Euros) per unit. Normal production volume is 10,000 ounces per month. Average cost is €5 per ounce, of which €2 is direct material and €1 is variable conversion cost. This product is seasonal. After July, demand for this product drops to 6,000 ounces monthly. In November, Umberto offers to buy 1,500 ounces for €6,000.
 
 If Pamela accepts the order, she must design a special label for Umberto at a cost of €500. Each label will cost 25 cents to make and apply. Pamela should:  
 

A.  accept the order, at a gain of €625 

B.  reject the order, at a loss of €1,875 

C.  reject the order, at a loss of €2,375 

D.  accept the order, at a gain of €1,125 

E.  none of the above 

6.

Pamela in Bamplona makes bull-repellent scent according to a traditional Spanish recipe, which normally sells at €9 (Euros) per unit. Normal production volume is 10,000 ounces per month. Average cost is €5 per ounce, of which €2 is direct material and €1 is variable conversion cost. This product is seasonal. After July, demand for this product drops to 6,000 ounces monthly. In November, Umberto offers to buy 1,500 ounces for €6,000.
 
 Now assume that the order is received in July, peak season. If Pamela accepts the order, she will turn away regular customers who order 500 ounces. Pamela should:  
 

A.  reject the order, which loses €1,875 

B.  reject the order as it is less than her cost 

C.  accept the order if Umberto raises the price higher than €6.58/ounce 

D.  accept the order if Umberto raises the price higher than €5.58/ounce 

E.  none of the above 

7.

Francois French manufactures cheese, which he normally sells at €20/kg, on which sales commission of 5% is paid. Plant capacity is 7,500 kg/month. Income tax is levied at 30%.
  

Fixed costs Costs per kg.

Plant depreciation €8,000 Direct materials €4

Other plant costs 15,000 Direct labor 2

Corporate salaries 10,000 Var. factory O/H 3

Advertising 3,000

 The number of kilograms to sell to break-even is:  
 

A.  3,273 

B.  3,600 

C.  3,000 

D.  2,300 

E.  none of the above 

8.

Francois French manufactures cheese, which he normally sells at €20/kg, on which sales commission of 5% is paid. Plant capacity is 7,500 kg/month. Income tax is levied at 30%.
  

Fixed costs Costs per kg.

Plant depreciation €8,000 Direct materials €4

Other plant costs 15,000 Direct labor 2

Corporate salaries 10,000 Var. factory O/H 3

Advertising 3,000

 If sales are 5,000 kgs, which of the following is true?  
 

A.  Total contribution margin is €50,000 

B.  Ratio of total contribution margin to net income before taxes is 3.57 

C.  Taxes payable are €4,200 

D.  Operating leverage is 42% 

E.  All of the above 

9.

Francois French manufactures cheese, which he normally sells at €20/kg, on which sales commission of 5% is paid. Plant capacity is 7,500 kg/month. Income tax is levied at 30%.
  

Fixed costs Costs per kg.

Plant depreciation €8,000 Direct materials €4

Other plant costs 15,000 Direct labor 2

Corporate salaries 10,000 Var. factory O/H 3

Advertising 3,000

 Francois French wants to increase after-tax profits to €35,000. Assuming sufficient demand, which strategy achieves this goal?  
 

A.  Sell 7,100 kgs at the present price 

B.  Pay the dairy €1/kg less and sell 7,500 kgs 

C.  Sell 8,000 kgs at €20.79/kg 

D.  Sell 7,500 kgs at the present price and eliminate the sales commission 

E.  None of the above 

10.

The Mojave Water Agency (MWA) sets water policy and water rates for a desert area that faces a severe water shortage. It has 200,000 customers who are charged $100 per month for the first 20,000 cubic feet (cu.ft) and 1 cent per cu.ft thereafter. The average customer bill is $200 per month. It costs the agency ¼ cent per cu.ft to monitor and bill for usage. The MWA wants to cut costs by replacing metered billing with a flat fee which would be added to each property owner’s real estate tax bill. Which is true?  
 

A.  The proposed policy will be more expensive to operate and will lead to decreased water usage 

B.  The proposed policy will be cheaper to operate and will lead to increased water usage 

C.  The proposed policy will be cheaper to operate and will lead to decreased water usage 

D.  The most that the MWA should pay the County Real Estate Department for handling the proposed billing process is $6,000,000 

E.  b) and d) above 

11.

Hardley sells mamburgers. He faces fixed costs of $18,000 per month and variable production and marketing costs of $2 per mamburger. Market research has developed the following demand schedule. Which price/volume combination should Yardley choose?  
 

A.  Price: $12; Quantity: 4,000 

B.  Price: $10; Quantity: 5,500 

C.  Price: $8; Quantity: 7,000 

D.  Price: $6; Quantity: 9,000 

E.  Unable to determine 

12.

Bertie’s Burritos, a fast food enterprise, wants to understand his cost structure. He collected data, which appears below, to analyze costs using the high-low method.
  

Month Volume Total costs

January 5,000 $2,700

February 7,000 $3,700

March 6,000 $3,400

 Which is true?  
 

A.  Estimated variable costs are 70 cents per burrito 

B.  Fixed costs cannot be estimated 

C.  Estimated fixed costs are $200 

D.  Total costs at volume of 8,000 are estimated at $4,200 

E.  c) and d) only 

13.

Fixed, Variable, and Average Costs
 
 Midstate University is trying to decide whether to allow 100 more students into the university. Tuition is $5,000 per year. The controller has determined the following schedule of costs to educate students:
  

Number of Students Total Costs

4,000 $30,000,000

4,100 30,300,000

4,200 30,600,000

4,300 30,900,000

 The current enrollment is 4,200 students. The president of the university has calculated the cost per student in the following manner: $30,600,000/4,200 students = $7286 per student. The president was wondering why the university should accept more students if the tuition is only $5,000.
 
 Required:
 
 a. What is wrong with the president’s calculation?
 b. What are the fixed and variable costs of operating the university?  
 

14.

The Elements of Cost Volume Profit

The M Company’s variable costs are 75% of the sales price per unit and their fixed costs are $240,000. If the company earned $60,000 before taxes in selling 150,000 units, what was the sales price per unit?  
 

15.

Opportunity Costs
 
 The First Church has been asked to operate a homeless shelter in part of the church. To operate a homeless shelter the church must hire a full time employee for $1,200/month to manage the shelter. In addition, the church would have to purchase $400 of supplies/month for the people using the shelter. The space that would be used by the shelter is rented for wedding parties. The church averages about 5 wedding parties a month that pay rent of $200 per party. Utilities are normally $1,000 per month. With the homeless shelter, the utilities will increase to $1,300 per month.
 What is the opportunity cost to the church of operating a homeless shelter in the church?  
 

16.

Fixed and Variable Costs:
 
 The university athletic department has been asked to host a professional basketball game at the campus sports center. The athletic director must estimate the opportunity cost of holding the event at the sports center. The only other event scheduled for the sports center that evening is a fencing match that would not have generated any additional costs or revenues. The fencing match can be held at the local high school, but the rental cost of the high school gym would be $200. The athletic director estimates that the professional basketball game will require 20 hours of labor to prepare the building. Clean-up depends on the number of spectators. The athletic director estimates the time of clean-up to be 2 minutes per spectator. The labor would be hired especially for the basketball game and would cost $16 per hour. Utilities will be $500 greater if the basketball game is held at the sports center. All other costs would be covered by the professional basketball team.
 
 Required:
 
 a. What is the variable cost of having one more spectator?
 b. What is the opportunity cost of allowing the professional basketball team to use the sports center if 10,000 spectators are expected?
 c. What is the opportunity cost of allowing the professional basketball team to use the sports center if 12,000 spectators are expected?