Question :
7) If the $17,000 spent to purchase inventory could be : 1185981
7) If the $17,000 spent to purchase inventory could be invested and earn interest of $1,000, then the opportunity cost of holding inventory is $17,000.
8) When opportunity costs exist, they are always relevant.
9) A decision as to whether to insource or outsource is a(n)
A) idle capacity decision.
B) production scheduling analysis.
C) product mix decision.
D) short-run focus decision.
E) make/buy decision.
10) Which of the following would not be considered in a make or buy decision?
A) potential usage of manufacturing capacity
B) variable costs of production
C) potential rental income from space occupied by production area
D) unchanged fixed costs
E) qualitative factors
11) Which of the following is true concerning opportunity costs?
A) They are incorporated into formal financial accounting reports.
B) They entail cash receipts.
C) They entail cash disbursements.
D) They require accounting journal entries.
E) They are relevant for the make/buy decision.
12) If Harry Inc. doesn’t use one of its limited resources in the best possible way, the lost contribution to income could be called
A) an alternative cost.
B) a total alternative cost.
C) an opportunity cost.
D) a resource cost.
E) a constraining factor.
13) A company has two manufacturing facilities: one in Alberta that produces a bulk chemical that it sells to many different retailers, and one facility in Ontario that is dedicated to producing a specialty chemical for one client only. The annual profit from the single client is $150,000; and, the profit from the other facility’s sales is $1,500,000, after allocating combined fixed costs based on units produced. Another company has offered to lease the Ontario facilities for $250,000.
Which of the following is true?
A) The $250,000 is an opportunity cost of continuing to use the Ontario plant.
B) The company incurred a $250,000 opportunity cost for the past years, but this was not recorded on its books.
C) The company needs to determine the contribution margin for each product before making any decision.
D) Incremental revenues exceed total costs if the plant is rented.
E) Incremental costs exceed incremental revenues if the plant is rented.
Answer the following question(s) using the information below.
Central Medical Supply Inc., a manufacturer of medical testing equipment, has $240,000 worth of an obsolete line of testing equipment. The obsolete equipment can be adapted to fit another line of testing equipment at a cost of $64,000; the market value would then be $136,000. However, Tripac offered to purchase the obsolete equipment as is for $88,000.
14) Central Medical Supply Inc., a manufacturer of medical testing equipment, has $240,000 worth of an obsolete line of testing equipment. The obsolete equipment can be adapted to fit another line of testing equipment at a cost of $64,000; the market value would then be $136,000. However, Tripac offered to purchase the obsolete equipment as is for $88,000.
What are the relevant figures above for management in their decision?
A) ($240,000 + $64,000); ($88,000 – 0)
B) ($240,000 + $64,000); ($88,000 – 240,000)
C) ($240,000 + $64,000); ($88,000 + 240,000)
D) ($136,000 – $64,000); ($88,000 – 0)
E) ($136,000 – $64,000); ($88,000 – 240,000)
15) What is the opportunity cost associated with the adaptation of the equipment to another line of testing equipment assuming Central accepts Tripac’s offer?
A) $72,000
B) $88,000
C) $63,000
D) $240,000
E) none of the above
16) Econ Services has requested your services in determining the book values of the following assets, respectively.
Historical
Costs
Accumulated
Amortization
Auto
$20,000
$15,000
Machinery
150,000
95,000
General repairs and maintenance for the automobile amounted to $4,000. Machinery maintenance included $2,000 for general upkeep.
What are the book values for Auto and Machinery, respectively?
A) $5,000; $55,000
B) $9,000; $57,000
C) $20,000; $150,000
D) $35,000; $245,000
E) $1,000; $53,000
