1.
Identify the best description for relevant costs in decision-making
process.
a. Past costs that are expected to be different under each alternative
b. Past costs that are expected to be the same under each alternative
c. Future costs that are expected to be different under each
alternative
d. Future costs that are expected to be the same under each
alternative
2. A cost incurred in the past and hence irrelevant for current decision-
making is a:
a. Sunk cost
b. Fixed cost
c. Direct cost
d. Discretionary cost
3. Which of the following costs is generally considered irrelevant in
decision-making process?
a. Direct labor
b. Direct materials
c. Fixed factory overhead
d. Variable factory overhead
4. Which of the following cost classification schemes is most relevant to
decision making?
a. Fixed vs. variable
b. Direct vs. common
c. Joint vs. common
d. Avoidable vs. unavoidable
5. The salary that you would otherwise earn by working rather than
attending the CPA review is a good example of a:
a. Sunk cost
b. Joint cost
c. Opportunity cost
d. Unavoidable cost
6. An opportunity cost is usually:
a. Relevant and part of traditional accounting records
b. Irrelevant, but part of traditional accounting records
c. Relevant, but not part of traditional accounting records
d. Irrelevant and not part of traditional accounting records
7. In a make-or-buy decision:
a. Only variable costs are relevant
b. Only conversion costs are relevant
c. Fixed costs that can be avoided in the future are relevant
d. Fixed costs that will continue regardless of the decision are relevant
8. In a make-or-buy decision, the cost to buy is compared with the:
a. Total cost to make
b. Relevant cost to make
c. Variable manufacturing costs
d. Variable selling & administrative expenses
9. What is the opportunity cost of making a component part in a factory
given that there is no alternative use of the capacity?
a. Zero
b. Fixed costs of the component
c. Variable costs of the component
d. Total manufacturing costs of the component
10. In an accept-or-reject decision, which cost is usually considered
to be irrelevant?
a. Fixed cost of the product
b. Variable cost of the product
c. Direct fixed costs associated with the order
d. Opportunity costs of the temporary idle capacity
11. If there is an excess capacity, then the minimum acceptable
price for a special order must cover:
a. Usual fixed manufacturing costs
b. Variable and usual fixed manufacturing costs
c. Variable and any incremental fixed costs associated with the special
order
d. Variable manufacturing costs plus contribution margin foregone on
lost regular units
12. If a company is operating at maximum or full capacity, the
minimum special-order price must cover:
a. Variable costs associated with the special order
b. Variable and any incremental fixed costs associated with the special
order
c. Variable and fixed manufacturing costs associated with the special
order
d. Variable costs and any incremental fixed costs associated with the
special order plus contribution margin foregone on regular units not
produced
13. If the margin lost by dropping a product line is lower than
avoidable fixed costs, then the product line:
a. Operates at a loss
b. Shall be shutdown
c. Shall be continued
d. Has no impact on company profit
14. A business segment with no shutdown costs must have a
shutdown point:
a. Equal to the break-even point
b. Below the break-even point
c. Above the break-even point
d. Of nil or zero
15. Which is usually considered irrelevant in ‘sell or process further’
decision-making?
a. Joint costs
b. Further processing costs
c. Sales value at the split-off point
d. Sales value after further processing
16. A company that has a limited number of machine hours and
abundant labor hours should produce first the product that has the
highest:
a. Demand in units
b. Contribution margin per unit
c. Contribution margin per labor hour
d. Contribution margin per machine hour
17. In linear programming, the expression “Maximize Z = 10X +
25Y” is most likely a:
a. Objective function
b. Constraint function
c. Cost function
d. Restriction function
18. The term ‘constraints’ in a linear programming model generally refers to:
a. Committed costs
b. Inefficiencies
c. Scarce resources
d. Decision variables