1. Which of the following statements is true regarding special order decisions?
a. Special order decisions are long-run decisions.
b. Whether or not the company has excess capacity is seldom a consideration.
c. Both quantitative and qualitative impacts should be considered.
d. The sales price of a special order should never be below the price offered to regular customers.
2. Which of the following would not be a factor in the consideration of whether or not a special order should be accepted?
a. Excess capacity c. Sunk costs
b. Variable costs d. Qualitative factors
3. Which of the following would not be a factor in the consideration of whether or not a special order is accepted or not?
a. Variable costs c. Sales price of the special order
b. Avoidable fixed costs d. Unavoidable fixed costs
4. Which of the following types of costs should always be considered in special order decisions?
a. Unavoidable costs c. Sunk costs
b. Relevant costs d. Fixed costs
5. Which of the following will never be considered in special order decisions?
a. Variable costs c. Sunk costs
b. Fixed costs d. Opportunity costs
6. Which of the following costs is least likely to be relevant in deciding whether to accept a special order?
a. variable direct labor costs c. fixed manufacturing overhead
b. variable selling costs d. variable packaging and shipping costs
7. Vertical integration:
a. is achieved when a company acquires many of its competitors
b. is accomplished when a company is involved in multiple steps in the value chain
c. is rarely attempted due to the risks involved
d. ensures that the highest quality products are produced at the lowest possible price
8. When are fixed costs relevant in a make or buy decision?
a. Fixed costs are never relevant to the decision
b. Fixed costs are relevant when they differ among alternatives
c. Fixed costs are always relevant to the decision
d. Fixed costs are relevant when they exceed variable costs
9. Which of the following is not a consideration associated with outsourcing?
a. The effect on employees c. The effect on unavoidable fixed costs
b. The effect on vertical integration d. The effect on variable costs
10. Which of the following statements is true when a company is considering whether or not to make or buy (outsource) a
component of a product that it currently manufactures?
a. If none of the current fixed overhead is avoidable when outsourcing, the product should be made internally.
b. If the current fixed overhead is avoidable when outsourcing, the product should be outsourced.
c. If the relevant costs to make internally are greater than the relevant costs of outsourcing, the product should be
outsourced.
d. If the cost of outsourcing is greater than the direct materials cost of making internally, the product should continue to be
made internally.
11. In the decision on whether or not to drop an unprofitable product line, the product line will most likely be dropped if:
a. all of the product line's fixed costs are unavoidable
b. the product line's total fixed costs are less than the contribution margin lost from dropping the product line
c. the contribution margin lost from dropping the product line is less than the fixed costs avoided from dropping the
product line
d. the contribution margin lost from dropping the product line is more than the fixed costs avoided from dropping the
product line
12. A particular product line is most likely to be dropped when:
a. its total fixed costs are more than its contribution margin
b. its avoidable fixed costs are more than its contribution margin
c. its unavoidable fixed costs are more than its contribution margin
d. its variable costs are more than its fixed costs
13. Which of the following statements regarding resource utilization is not true?
a. Resource utilization decisions are usually short-term in nature
b. Resource utilization decisions require the identification of a constraint
c. Resource utilization decisions require an analysis of which fixed costs are unavoidable
d. Resource utilization decisions require managers to compute a product's contribution margin
14. Which of the following is the least likely to be a consideration in a resource utilization decision?
a. Shelf space c. Machine time
b. Direct labor hours d. Fixed costs
15. In resource utilization decisions, managers should:
a. minimize the contribution margin per unit
b. minimize the use of the scarce resource
c. maximize the contribution margin per unit of scarce resource
d. maximize the contribution margin per unit
16. If a company is faced with a limited resource, which of the following is not a feasible option for alleviating the
constraint?
a. Focusing on products that require less use of the resource
b. Increasing the capacity of the limited resource
c. Reducing the use of the resource in production
d. Ignoring the constraint
17. The theory of constraints:
a. is a management tool used to determine whether or not a company should accept a special order
b. identifies bottlenecks in the production process
c. identifies fixed overhead costs in the production process
d. is a management tool used for deciding whether a product should be sold "as is" or processed further
18. Which of the following is most likely to represent a bottleneck?
a. A production machine that is underutilized
b. A workstation that requires significant supervision
c. A production machine that has limited capacity
d. An employee who has one hour of idle time each day
19. In the production process, bottlenecks:
a. maximize profits c. limit throughput
b. maximize the use of scarce resources d. minimize the total cost of a product
20. In deciding whether to sell a product "as is" or process it further, which of the following pieces of information would
not be relevant to the decision?
a. Costs of further processing c. Sales price if processed further
b. Costs incurred up to the decision point d. Customer demand with further processing
21. In deciding whether to sell a product "as is" or process it further, which of the following costs are relevant to the
decision?
a. Costs incurred up to the decision point c. Only overhead costs
b. Costs incurred to process further d. Direct materials and direct labor costs only
22. In a sell "as is" or process further decision, if the incremental revenue of additional processing is greater than the
incremental cost of additional processing, then:
a. it is less profitable to process further c. total fixed costs have increased
b. it is more profitable to process further d. total product costs have decreased
