Unit 11: Decision involving Alternative Choices - Practice Quiz

1 Decision making in management accounting essentially involves choosing between:

2 Which of the following costs is generally relevant for decision making?

3 A cost that has already been incurred and cannot be changed by any future decision is called a:

4 The benefit foregone by choosing one alternative over the next best alternative is known as:

5 Which of the following is usually the first step in the decision making process?

6 Profit planning is primarily concerned with:

7 In marginal costing, contribution is calculated as:

8 The Profit-Volume (P/V) ratio is expressed as:

9 The point at which total revenue equals total cost, resulting in no profit and no loss, is the:

10 A key factor (limiting factor) is best described as:

11 When a key factor exists, products should be ranked on the basis of:

12 Which of the following can act as a key factor in a business?

13 Sales mix refers to:

14 The best sales mix is generally the one that:

15 While deciding the most profitable sales mix, priority is given to products with:

16 In a make or buy decision, a component should generally be bought from outside when:

17 For a make or buy decision, the cost of making that is normally compared with the purchase price is the:

18 Which non-cost factor is relevant in a make or buy decision?

19 An order from a new market (such as an export order) is generally acceptable if:

20 When exploring a new market at a lower price, care must be taken that the lower price does not:

21 In the decision-making process, which of the following costs is generally considered irrelevant for choosing between alternatives?

22 Which of the following is the correct logical sequence of steps in the decision-making process?

23 A cost that can be saved if a particular alternative is not adopted is best described as a:

24 A firm sells a product at with a variable cost of per unit and total fixed costs of . How many units must be sold to earn a target profit of ?

25 A company has a P/V ratio of and fixed costs of . What sales value is required to earn a profit of ?

26 If a firm's margin of safety is and its P/V ratio is , the profit earned is:

27 When a key (limiting) factor exists, the ranking of products for profitability should be based on:

28 Product X gives a contribution of per unit and uses machine hours; Product Y gives and uses machine hours. If machine hours are the key factor, which product should be preferred?

29 Which of the following would not normally act as a key factor in profit planning?

30 The best sales mix in a situation with a limiting factor is the one that:

31 Two products A and B give contributions of and per unit. If a firm can sell both in unlimited quantities but labour is limited, and A needs hours while B needs hours, which mix maximises profit per labour hour?

32 While determining the optimum sales mix, fixed costs are ignored in ranking because they:

33 A component can be bought at per unit. Internal manufacture involves variable cost of and specific fixed cost of per unit that is avoidable. Should the firm make or buy?

34 In a make-or-buy decision, which cost is irrelevant when comparing the two options?

35 A firm currently makes a part at variable cost . If it buys the part at , the released capacity can earn contribution from another product. The effective cost of buying is:

36 When deciding whether to accept an order for a new export market at a lower price, the order should be accepted if the special price:

37 A firm with spare capacity receives a new-market order at per unit. Variable cost is and total cost is . What is the impact of accepting on profit per unit?

38 A key non-cost danger of accepting a low-priced order for a new market is:

39 A product line shows a net loss after charging apportioned fixed overheads but earns a positive contribution. It should generally be:

40 Product Z earns contribution of and is charged of apportioned fixed cost, of which is avoidable if Z is dropped. What is the effect of discontinuing Z?

41 A company can make a component at a variable cost of per unit and fixed cost of (of which is unavoidable). A supplier offers it at per unit. If the freed capacity can earn a contribution of , at what annual volume is the company indifferent between making and buying?

42 Products X and Y give contributions of and per unit and use and machine hours respectively. Machine hours are the limiting factor. Which product should be prioritised and what is its contribution per key factor?

43 A product line shows sales , variable cost , and allocated fixed cost (of which would continue even if dropped). Should the line be dropped and by how much would profit change?

44 Two products A and B have contribution margins of and and require and labour hours. Only labour hours are available with maximum demand of units each. What is the optimal contribution?

45 A firm targets a profit of . Fixed costs are and the P/V ratio is . What sales revenue is required?

46 A company has spare capacity. Domestic price is , variable cost , fixed cost per unit . An export order offers per unit with additional shipping cost of per unit. Should the order be accepted (assuming no impact on domestic sales)?

47 A firm currently buys a part at . Making it needs variable cost, plus renting a machine at /year and hiring supervision at /year. Above what annual volume is making cheaper?

48 In relevant costing for decision making, which of the following is always irrelevant?

49 When there are multiple limiting factors that cannot be resolved by ranking contribution per single key factor, the appropriate technique to maximise profit is:

50 Current sales are with a margin of safety of and P/V ratio of . Management plans to raise fixed costs by for advertising expected to lift sales by . What is the change in profit?

51 A firm sells P and Q in a ratio. Unit contributions are (P) and (Q); fixed costs are . How many units of Q must be sold at break-even?

52 A department earns contribution of and bears of allocated fixed costs, of which are avoidable on closure. Which statement is correct?

53 Making a part uses a machine that would otherwise produce another product yielding contribution. Variable cost to make is for the required quantity; buying costs . What is the correct decision?

54 A firm operating at full capacity receives a special export order. Accepting it means diverting units from the domestic market (contribution /unit). The export price yields a contribution of /unit before considering displacement. Should it accept?

55 A company with fixed costs of and P/V ratio of wants an after-tax profit of at a tax rate of . What sales are required?

56 Products R and S have contributions of and per unit and consume kg and kg of a scarce material. Material is limited to kg; demand is units each. What maximum contribution is achievable?

57 Which sequence correctly represents the logical steps in a structured decision-making process?

58 Dropping product line Z (contribution ) would let the firm expand line W, raising W's contribution by , while of Z's fixed costs are avoidable. What is the net effect of dropping Z?

59 A firm can produce mixes: Mix 1 gives total contribution using scarce hours; Mix 2 gives using hours. Only hours are available. Which is preferable per the key resource?

60 A new market requires a price of /unit. Variable cost is /unit, but entering incurs market-specific fixed costs and there is risk that units of existing sales (contribution /unit) will be lost. What minimum new-market volume justifies entry?