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Quiz about Management Accounting Relevant Information

Management Accounting : Relevant Information Quiz

In every decision making, managers should be aware on costs to be incurred in selecting alternatives. Management accountants must present only the relevant information in each alternative so that managers can provide better decision outcomes.

A multiple-choice quiz by tan2x. Estimated time: 13 mins.

Author
tan2x

Time
13 mins

Type
Multiple Choice

Quiz #
327,573

Updated
Dec 03 21

# Qns
10

Difficulty
Very Difficult

Avg Score
4 / 10

Plays
522

Question 1 of 10

1. What qualitative assumptions should management have in mind in pooling alternatives in making decisions and treat them as the same?

Assume that the management of a certain entity is in decision on selecting alternatives regarding to whom they should designate a planned construction of their administrative building. Hint

Costs differences, construction employee benefits

Answer not given

None because management should only focus on the lowest cost to be incurred

Quality of work, ability to finish on time, standards of construction

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Question 2 of 10

2. The management of Parthenon Construction is planning to construct a new building for their administrative use. The company budgeted $25M for the construction which is equivalent to the cost of constructing regular buildings. However, construction may take longer than regular type. Thus, additional costs aside from the $25M budget might be incurred due to probable factors like increase in wages, increase in materials prices, etc. Three alternatives regarding additional costs are presented below:

* Parthenon may use its facilities to construct the building. Comparison between costs of constructing regular building and constructing special type (for the company's administrative use) are as follow:

Regular Building:
Direct Materials - $ 12M
Direct Labor - $ 5M
Engineering Costs - $ 1M
Attributable Overhead - $ 7M
Allocated General Overhead - $ 2M

Special Type:
Direct Materials - $13.5M
Direct Labor - $ 5.6M
Engineering Costs - $ 1M
Attributable Overhead - $ 8.2M
Allocated General Overhead - $ 2.2M

* An outside contractor offers additional cost $ 3.1M aside from the $ 25M budgeted cash outlay.
* Athena Construction, its subsidiary, made a special offer to the management of Parthenon. It usually offers $ 4.6M additional cost to outside clients. However, Athena gave discount equivalent to Parthenon's 60% share in Athena's quarterly net income of $ 2M.

Question: How much additional cost Parthenon might incur if it chooses to construct on its own? Hint

$ 3.3 M

$ 1.8 M

$ 2.1 M

$ 3.5 M

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Question 3 of 10

3. The management of Parthenon Construction is planning to construct a new building for their administrative use. The company budgeted $25M for the construction which is equivalent to the cost of constructing regular buildings. However, construction may take longer than regular type. Thus, additional costs aside from the $25M budget might be incurred due to probable factors like increase in wages, increase in materials prices, etc. Three alternatives regarding additional costs are presented below:

* Parthenon may use its facilities to construct the building. Comparison between costs of constructing regular building and constructing special type (for the company's administrative use) are as follow:

Regular Building:
Direct Materials - $ 12M
Direct Labor - $ 5M
Engineering Costs - $ 1M
Attributable Overhead - $ 7M
Allocated General Overhead - $ 2M

Special Type:
Direct Materials - $13.5M
Direct Labor - $ 5.6M
Engineering Costs - $ 1M
Attributable Overhead - $ 8.2M
Allocated General Overhead - $ 2.2M

* An outside contractor offers additional cost $ 3.1M aside from the $ 25M budgeted cash outlay.
* Athena Construction, its subsidiary, made a special offer to the management of Parthenon. It usually offers $ 4.6M additional cost to outside clients. However, Athena gave discount equivalent to Parthenon's 60% share in Athena's quarterly net income of $ 2M.

Question: What is the net additional cost might Parthenon incur if it accepted the offer of its subsidiary? Hint

$ 3.0 M

$ 3.8 M

$ 3.4 M

$ 3.5 M

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Question 4 of 10

4. The management of Parthenon Construction is planning to construct a new building for their administrative use. The company budgeted $25M for the construction which is equivalent to the cost of constructing regular buildings. However, construction may take longer than regular type. Thus, additional costs aside from the $25M budget might be incurred due to probable factors like increase in wages, increase in materials prices, etc. Three alternatives regarding additional costs are presented below:

* Parthenon may use its facilities to construct the building. Comparison between costs of constructing regular building and constructing special type (for the company's administrative use) are as follow:

Regular Building:
Direct Materials - $ 12M
Direct Labor - $ 5M
Engineering Costs - $ 1M
Attributable Overhead - $ 7M
Allocated General Overhead - $ 2M

Special Type:
Direct Materials - $13.5M
Direct Labor - $ 5.6M
Engineering Costs - $ 1M
Attributable Overhead - $ 8.2M
Allocated General Overhead - $ 2.2M

* An outside contractor offers additional cost $ 3.1M aside from the $ 25M budgeted cash outlay.
* Athena Construction, it's subsidiary, made a special offer to the management of Parthenon. It usually offers $ 4.6M additional cost to outside clients. However, Athena gave discount equivalent to Parthenon's 60% share in Athena's quarterly net income of $ 2M.

Question: Which alternative should Parthenon accept to maximize cost savings assuming the three alternatives have the same overall quality? Hint

Accept the offer of it's subsidiary

Any of the three alternatives because the additional costs of each are deemed immaterial

Construct the building itself

Accept the offer of an outside contractor

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Question 5 of 10

5. The management of Parthenon Construction is planning to construct a new building for their administrative use. The company budgeted $25M for the construction which is equivalent to the cost of constructing regular buildings. However, construction may take longer than regular type. Thus, additional costs aside from the $25M budget might be incurred due to probable factors like increase in wages, increase in materials prices, etc. Three alternatives regarding additional costs are presented below:

* Parthenon may use its facilities to construct the building. Comparison between costs of constructing regular building and constructing special type (for the company's administrative use) are as follow:

Regular Building:
Direct Materials - $ 12M
Direct Labor - $ 5M
Engineering Costs - $ 1M
Attributable Overhead - $ 7M
Allocated General Overhead - $ 2M

Special Type:
Direct Materials - $13.5M
Direct Labor - $ 5.6M
Engineering Costs - $ 1M
Attributable Overhead - $ 8.2M
Allocated General Overhead - $ 2.2M

* An outside contractor offers additional cost $ 3.1M aside from the $ 25M budgeted cash outlay.
* Athena Construction, its subsidiary, made a special offer to the management of Parthenon. It usually offers $ 4.6M additional cost to outside clients. However, Athena gave discount equivalent to Parthenon's 60% share in Athena's quarterly net income of $ 2M.

Question: If the additional direct materials costs was reestimated to be 10% of the regular building direct materials costs due to a fact that prices of additional construction materials have declined, how much could be the new additional costs Parthenon might incur if it will construct on it's own and what decision should management undertake? Hint

$ 3.0 M; Parthenon should construct the building itself

$ 3.2 M; Parthenon should accept the offer of an outside contractor

$ 3.1 M; Parthenon should accept the offer of it's subsidiary

$ 2.9 M; Parthenon should construct the building itself

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Question 6 of 10

6. Basilio Company, a glassware manufacturer, recently received a special order from Sisa Hotels and Restaurants Incorporated. Sisa requested Basilio to manufacture 500 custom made wine glasses at a contract price of $ 2.5 per glass. Absorbed cost of regular glasses was $ 1.6 of which $ 0.3 represents allocated fix overhead. Basilio still has excess capacity for the special order and expects to incur the same costs. However, the customized wine glasses would require total additional cost of $ 450. How should Basilio treat the allocated fixed cost in order to get the amount of benefit in accepting the special order? Hint

Include from the product cost

Answer not given

Reallocate to the product cost

Exclude from the product cost

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Question 7 of 10

7. Basilio Company, a glassware manufacturer, recently received a special order from Sisa Hotels and Restaurants Incorporated. Sisa requested Basilio to manufacture 500 custom made wine glasses at a contract price of $ 2.5 per glass. Absorbed cost of regular glasses was $ 1.6 of which $ 0.3 represents allocated fix overhead. Basilio still has excess capacity for the special order and expects to incur the same costs. However, the customized wine glasses would require total additional cost of $ 450. Should Basilio accept the order and by how much can this order contribute to cover the fixed costs of Basilio? Hint

No; It can contribute $ 0

No; It can only add cost to Basilio of $ 100

Yes; It can contribute $ 450

Yes; It can contribute $ 150

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Question 8 of 10

8. Jejemon manufactures electronic gadgets. The management is currently concerned on the battery department of its plant. Recently, the price of lithium surged making the company to incur high material cost in manufacturing batteries for its products. However, the Trade Authority assures that the price surge is temporary. Current cost data per battery are shown below (for 5000 batteries):

Direct Materials - P 5.00
Direct Labor - P 1.50
Variable Overhead - P 1.25
Allocated Traceable Fixed Cost - P 1.00
Allocated Plant Fixed Cost - P 1.75

The company is deciding whether to temporarily shutdown or continue producing batteries by itself. The company is currently looking for a temporary supplier of low cost batteries. Jejebuster, a battery manufacturer, offered a price of P 8.25 per battery. If Jejemon decided to temporarily shutdown battery operations, 30% of traceable fixed costs can be avoided while the remaining costs are still to be incurred. The company usually requires 5000 batteries every month.

Department's traceable overhead is allocated based on battery units produced while the company uses the total production hours in allocating the plant's general overhead.

Question: The 70% remaining traceable fixed cost are still to be incurred by Jejemon regardless of temporarily outsourcing the batteries. Which cost below do you think it could be? Hint

The department's supervisor monthly salary

Allocated general expenses

The overall plant electricty cost

The department's machineries depreciation

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Question 9 of 10

9. Jejemon manufactures electronic gadgets. The management is currently concerned on the battery department of its plant. Recently, the price of lithium surged making the company to incur high material cost in manufacturing batteries for it's products. However, the Trade Authority assures that the price surge is temporary. Current cost data per battery are shown below (for 5000 batteries):

Direct Materials - P 5.00
Direct Labor - P 1.50
Variable Overhead - P 1.25
Allocated Traceable Fixed Cost - P 1.00
Allocated Plant Fixed Cost - P 1.75

The company is deciding whether to temporarily shutdown or continue producing batteries by itself. The company is currently looking for a temporary supplier of low cost batteries. Jejebuster, a battery manufacturer, offered a price of P 8.25 per battery. If Jejemon decided to temporarily shutdown battery operations, 30% of traceable fixed costs can be avoided while the remaining costs are still to be incurred. The company usually requires 5000 batteries every month.

Department's traceable overhead is allocated based on battery units produced while the company uses the total production hours in allocating the plant's general overhead.

Question: What is the net advantage/disadvantage of temporarily outsourcing the batteries? Hint

Net advantage of P1,000

Net advantage of P 1,250

Net disadvantage of P 1,250

Net disadvantage of P 1,000

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Question 10 of 10

10. What income statement format generally best suit a comparative illustration on how a controllable margin can cover uncontrollable cost? Hint

Any of these

Absorption Approach

Variable Approach

Throughput Approach

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Quiz Answer Key and Fun Facts

1. What qualitative assumptions should management have in mind in pooling alternatives in making decisions and treat them as the same? Assume that the management of a certain entity is in decision on selecting alternatives regarding to whom they should designate a planned construction of their administrative building.

Answer: Quality of work, ability to finish on time, standards of construction

Qualitative characteristics must always be observed by management in every decision making they undertake regarding alternatives. For example, if management could save big in a chosen alternative but the alternative lacks sufficient quality, then cost savings will become useless.

2. The management of Parthenon Construction is planning to construct a new building for their administrative use. The company budgeted $25M for the construction which is equivalent to the cost of constructing regular buildings. However, construction may take longer than regular type. Thus, additional costs aside from the $25M budget might be incurred due to probable factors like increase in wages, increase in materials prices, etc. Three alternatives regarding additional costs are presented below: * Parthenon may use its facilities to construct the building. Comparison between costs of constructing regular building and constructing special type (for the company's administrative use) are as follow: Regular Building: Direct Materials - $ 12M Direct Labor - $ 5M Engineering Costs - $ 1M Attributable Overhead - $ 7M Allocated General Overhead - $ 2M Special Type: Direct Materials - $13.5M Direct Labor - $ 5.6M Engineering Costs - $ 1M Attributable Overhead - $ 8.2M Allocated General Overhead - $ 2.2M * An outside contractor offers additional cost $ 3.1M aside from the $ 25M budgeted cash outlay. * Athena Construction, its subsidiary, made a special offer to the management of Parthenon. It usually offers $ 4.6M additional cost to outside clients. However, Athena gave discount equivalent to Parthenon's 60% share in Athena's quarterly net income of $ 2M. Question: How much additional cost Parthenon might incur if it chooses to construct on its own?

Answer: $ 3.3 M

Cost differences regarding attributable and traceable costs (direct materials and labor, engineering cost and attributable overhead) are the only relevant costs. Allocated overhead is ignored since the company is committed in incurring these costs even if they do not construct a special building.

3. The management of Parthenon Construction is planning to construct a new building for their administrative use. The company budgeted $25M for the construction which is equivalent to the cost of constructing regular buildings. However, construction may take longer than regular type. Thus, additional costs aside from the $25M budget might be incurred due to probable factors like increase in wages, increase in materials prices, etc. Three alternatives regarding additional costs are presented below: * Parthenon may use its facilities to construct the building. Comparison between costs of constructing regular building and constructing special type (for the company's administrative use) are as follow: Regular Building: Direct Materials - $ 12M Direct Labor - $ 5M Engineering Costs - $ 1M Attributable Overhead - $ 7M Allocated General Overhead - $ 2M Special Type: Direct Materials - $13.5M Direct Labor - $ 5.6M Engineering Costs - $ 1M Attributable Overhead - $ 8.2M Allocated General Overhead - $ 2.2M * An outside contractor offers additional cost $ 3.1M aside from the $ 25M budgeted cash outlay. * Athena Construction, its subsidiary, made a special offer to the management of Parthenon. It usually offers $ 4.6M additional cost to outside clients. However, Athena gave discount equivalent to Parthenon's 60% share in Athena's quarterly net income of $ 2M. Question: What is the net additional cost might Parthenon incur if it accepted the offer of its subsidiary?

Answer: $ 3.4 M

4.6M - (2M*.6) = 3.4M

4. The management of Parthenon Construction is planning to construct a new building for their administrative use. The company budgeted $25M for the construction which is equivalent to the cost of constructing regular buildings. However, construction may take longer than regular type. Thus, additional costs aside from the $25M budget might be incurred due to probable factors like increase in wages, increase in materials prices, etc. Three alternatives regarding additional costs are presented below: * Parthenon may use its facilities to construct the building. Comparison between costs of constructing regular building and constructing special type (for the company's administrative use) are as follow: Regular Building: Direct Materials - $ 12M Direct Labor - $ 5M Engineering Costs - $ 1M Attributable Overhead - $ 7M Allocated General Overhead - $ 2M Special Type: Direct Materials - $13.5M Direct Labor - $ 5.6M Engineering Costs - $ 1M Attributable Overhead - $ 8.2M Allocated General Overhead - $ 2.2M * An outside contractor offers additional cost $ 3.1M aside from the $ 25M budgeted cash outlay. * Athena Construction, it's subsidiary, made a special offer to the management of Parthenon. It usually offers $ 4.6M additional cost to outside clients. However, Athena gave discount equivalent to Parthenon's 60% share in Athena's quarterly net income of $ 2M. Question: Which alternative should Parthenon accept to maximize cost savings assuming the three alternatives have the same overall quality?

Answer: Accept the offer of an outside contractor

Construct the building itself - $ 3.3M
Accept the offer of an outside contractor - $ 3.1M
Accept the offer of it's subsidiary - $ 3.4M

Best Alternative - Accept the offer of an outside contactor

5. The management of Parthenon Construction is planning to construct a new building for their administrative use. The company budgeted $25M for the construction which is equivalent to the cost of constructing regular buildings. However, construction may take longer than regular type. Thus, additional costs aside from the $25M budget might be incurred due to probable factors like increase in wages, increase in materials prices, etc. Three alternatives regarding additional costs are presented below: * Parthenon may use its facilities to construct the building. Comparison between costs of constructing regular building and constructing special type (for the company's administrative use) are as follow: Regular Building: Direct Materials - $ 12M Direct Labor - $ 5M Engineering Costs - $ 1M Attributable Overhead - $ 7M Allocated General Overhead - $ 2M Special Type: Direct Materials - $13.5M Direct Labor - $ 5.6M Engineering Costs - $ 1M Attributable Overhead - $ 8.2M Allocated General Overhead - $ 2.2M * An outside contractor offers additional cost $ 3.1M aside from the $ 25M budgeted cash outlay. * Athena Construction, its subsidiary, made a special offer to the management of Parthenon. It usually offers $ 4.6M additional cost to outside clients. However, Athena gave discount equivalent to Parthenon's 60% share in Athena's quarterly net income of $ 2M. Question: If the additional direct materials costs was reestimated to be 10% of the regular building direct materials costs due to a fact that prices of additional construction materials have declined, how much could be the new additional costs Parthenon might incur if it will construct on it's own and what decision should management undertake?

Answer: $ 3.0 M; Parthenon should construct the building itself

$ 12 M * .10 = $ 1.2 + $ 0.6 + $1.2 = $ 3.0 M vs. $ 3.1 M (offer of an outside contractor) vs. $ 3.4 (offer of Athena)

Therefore, the decision would be Parthenon to construct the building by itself and to incur $ 3.0 M additional costs.

Answer: Exclude from the product cost

Fixed costs are costs which cannot be controlled - and in this case, it is still to be incurred by the company regardless of having a special order. The firm must try to earn more by utilizing its capacity efficiently in order to cover the fixed costs and earn profit.

Answer: Yes; It can contribute $ 150

$ 1.6 - $ 0.3 = $ 1.3 (variable cost)

($ 2.5 - $ 1.3) * 500 = $ 600 - $ 450 = $ 150

8. Jejemon manufactures electronic gadgets. The management is currently concerned on the battery department of its plant. Recently, the price of lithium surged making the company to incur high material cost in manufacturing batteries for its products. However, the Trade Authority assures that the price surge is temporary. Current cost data per battery are shown below (for 5000 batteries): Direct Materials - P 5.00 Direct Labor - P 1.50 Variable Overhead - P 1.25 Allocated Traceable Fixed Cost - P 1.00 Allocated Plant Fixed Cost - P 1.75 The company is deciding whether to temporarily shutdown or continue producing batteries by itself. The company is currently looking for a temporary supplier of low cost batteries. Jejebuster, a battery manufacturer, offered a price of P 8.25 per battery. If Jejemon decided to temporarily shutdown battery operations, 30% of traceable fixed costs can be avoided while the remaining costs are still to be incurred. The company usually requires 5000 batteries every month. Department's traceable overhead is allocated based on battery units produced while the company uses the total production hours in allocating the plant's general overhead. Question: The 70% remaining traceable fixed cost are still to be incurred by Jejemon regardless of temporarily outsourcing the batteries. Which cost below do you think it could be?

Answer: The department's machineries depreciation

The depreciation of battery department's machinery continues even if the company shutdown operations.

9. Jejemon manufactures electronic gadgets. The management is currently concerned on the battery department of its plant. Recently, the price of lithium surged making the company to incur high material cost in manufacturing batteries for it's products. However, the Trade Authority assures that the price surge is temporary. Current cost data per battery are shown below (for 5000 batteries): Direct Materials - P 5.00 Direct Labor - P 1.50 Variable Overhead - P 1.25 Allocated Traceable Fixed Cost - P 1.00 Allocated Plant Fixed Cost - P 1.75 The company is deciding whether to temporarily shutdown or continue producing batteries by itself. The company is currently looking for a temporary supplier of low cost batteries. Jejebuster, a battery manufacturer, offered a price of P 8.25 per battery. If Jejemon decided to temporarily shutdown battery operations, 30% of traceable fixed costs can be avoided while the remaining costs are still to be incurred. The company usually requires 5000 batteries every month. Department's traceable overhead is allocated based on battery units produced while the company uses the total production hours in allocating the plant's general overhead. Question: What is the net advantage/disadvantage of temporarily outsourcing the batteries?

Answer: Net disadvantage of P 1,000

Cost to produce = 5000x(5+1.5+1.25+1)=43,250

Cost to buy 5000x(8.25) = 41,250
Add: Unavoidable traceable fixed cost 5000x(0.70*)= 3,500
Total cost to buy 44,250

* 1.00(allocated traceable fixed cost) x70%(unavoidable) = 0.70

Cost to buy vs. Cost to produce (44,250 vs 43,250)= Net disadvantage to buy by P 1,000

Again, the allocated plant fixed costs, i.e. plant insurance, depreciation, taxes etc. are ignored.

10. What income statement format generally best suit a comparative illustration on how a controllable margin can cover uncontrollable cost?

Answer: Variable Approach

Variable costing approach presents controllable margin by showing sales (or revenue) less variable cost of sales (or revenue). The resulting amount is the contribution margin which is deducted to fixed costs in order to arrive at the company's net income.

Source: Author tan2x

This quiz was reviewed by FunTrivia editor trident before going online.
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