Question : 3) Which of the following true of depreciation cost? A) Depreciation : 1211770

 

3) Which of the following is true of depreciation cost?

A) Depreciation cost on equipment is irrelevant in decision making because depreciation on equipment that has already been purchased is a past cost.

B) Depreciation cost on equipment is relevant in decision making because depreciation on equipment that has already been purchased is an opportunity cost.

C) Depreciation cost on equipment is irrelevant in decision making because there is no cash transaction.

D) Depreciation cost on equipment is irrelevant in decision making because depreciation on equipment that has already been purchased is an opportunity cost.

4) When deciding whether to discontinue a segment of a business, relevant costs include ________.

A) auditing expenses for the whole company

B) fees paid to a management consultant to study the feasibility of the business segment

C) annual insurance costs of the company

D) future administrative costs that can be eliminated

 

5) Zephyr Energies, Inc. is considering eliminating one of its product lines.  The fixed costs currently allocated to the product line will be allocated to other product lines upon discontinuance. What financial effects occur if the product line is discontinued?

A) net income will decrease by the amount of the contribution margin of the product line being discontinued

B) the company’s total fixed costs will increase by the amount of the contribution margin of the product line being discontinued

C) the company’s total fixed costs will decrease by the amount of the product line’s fixed costs

D) net income will decrease by the amount of the product line’s fixed costs

 

6) Discontinuing unprofitable products will ________.

A) increase profitability if the resources no longer required by the discontinued product can be eliminated

B) increase profitability if capacity constraints are adjusted

C) decrease profitability if the fixed costs does not change after discontinuing the particular business segment

D) increase profitability when a large portion of the fixed costs are unavoidable

7) A segment has the following data:

 

Sales$630,000

Variable costs336,000

Fixed costs325,500

 

What will be the incremental effect on net income if this segment is eliminated, assuming the fixed costs will be allocated to profitable segments?

A) $304,500 increase

B) $304,000 decrease

C) $294,000 decrease

D) $325,500 decrease

 

8) Camera Corner is considering eliminating Model AE2 from its camera line because of losses over the past quarter. The past three months of information for Model AE2 are summarized below:

 

Sales (1,000 units)$300,000

Manufacturing costs:

Direct materials150,000

Direct labor ($15 per hour)60,000

Overhead100,000

Operating loss($10,000)

 

Overhead costs are 70% variable and the remaining 30% is depreciation of special equipment for model AE2 that has no resale value.

 

If Model AE2 is dropped from the product line, operating income will ________.

A) increase by $10,000

B) decrease by $20,000

C) increase by $30,000

D) decrease by $10,000

Answer the following questions using the information below:

 

The management accountant for Giada’s Book Store has prepared the following income statement for the most current year:

CookbookTravel BookClassicsTotal

Sales$60,000$100,000$40,000$200,000

Cost of goods sold36,00065,00020,000121,000

Contribution margin24,00035,00020,00079,000

Order and delivery processing18,00021,0008,00047,000

Rent (per sq. foot used)2,0001,0003,0006,000

Allocated corporate costs7,0007,0007,00021,000

Corporate profit$ (3,000)$ 6,000$ 2,000$ 5,000

 

9) If the cookbook product line had been discontinued prior to this year, the company would have reported ________.

A) greater corporate profits

B) the same amount of corporate profits

C) less corporate profits

D) resulting profits cannot be determined

 

10) If the travel book line had been discontinued, corporate profits for the current year would have decreased by ________.

A) $35,000

B) $14,000

C) $13,000

D) $6,000

11) Rambo Company has three products, A, B, and C. The following information is available:

 

Product AProduct BProduct C

Sales$60,000$90,000$24,000

Variable costs36,00048,00015,000

Contribution margin24,00042,0009,000

Fixed costs:

Avoidable6,00015,0004,000

Unavoidable7,0009,0005,400

Operating income$ 11,000$18,000$ (400)

 

Rambo Company is thinking of dropping Product C because it is reporting a loss. Assuming Rambo drops Product C and does NOT replace it, operating income will ________.

A) increase by $400

B) increase by $4,000

C) decrease by $5,000

D) decrease by $9,400

 

12) Overhead costs allocated to the sales office and individual customers are always relevant.