Accounting 202 SAMPLE TEST QUESTIONS – EXAM 3 11/2015PLEASE NOTE: Some of the following materials have been adapted from Managerial Accounting, 2e, Braun, Tietz, & Harrison Pearson Prentice-Hall, 2012 and its accompanying supplements. THESE SAMPLE TEST QUESTIONS ARE NOT THE SAME AS THE QUESTIONS THAT WILL APPEAR ON YOUR TEST. THEY DO NOT NECESSARILY REFLECT EITHER THE COVERAGE OF TOPICS OR THE LEVEL OF DIFFICULTY OF THE EXAM ITSELF.Chapter 81. Which of the following describes a sunk cost?A. One that is relevant to a decision because it changes depending on the alternative course of action selectedB. An outlay expected to be incurred in the futureC. A historical cost that is always irrelevantD. A historical cost that may be relevant 2. Smith Industries is considering replacing a machine that is presently used in its production process. The following information is available:Old Machine Replacement MachineOriginal cost $45,000 $35,000Remaining useful life in years 5 5Current age in years 5 0Book value $25,000Current disposal value in cash $8,000Future disposal value in cash (in 5 years) $0 $0Annual cash operating costs $7,000 $4,000Which of the information provided in the table is irrelevant to the replacement decision?A. The annual operating cost of the old machineB. The original cost of the old machine C. The current disposal value of the old machineD. Both A and C3. Which would be a consideration for making special orders?A. Available capacity to fill the orderB. If price will cover incremental costs of filling the orderC. If the order will affect regular sales in the long runD. All of the above4. Clear Sky Sailmakers manufactures sails for sailboats. The company has the capacity to produce 15,000 sails per year, but is currently producing and selling 10,000 sails per year. The following information relates to current production:Sale price per unit $250Variable costs per unit: Manufacturing $165 Marketing and administrative $50Total fixed costs: Manufacturing $750,000 Marketing and administrative $200,000If a special sales order is accepted for 2,500 sails at a price of $205 per unit, fixed costs increase by $14,000, and variable marketing and administrative costs for that order are $25 per unit, how would operating income be affected? (NOTE: Assume regular sales are not affected by the special order.)A. Increase by $23,500B. Decrease by $23,500C. Increase by $37,500D. Increase by $86,0005. Which of the following pairs are characteristics of price-setters?A. Less competition and target costingB. Lack of product uniqueness and heavy competitionC. Cost-plus pricing and less competitionD. Less competition and lack of product uniqueness6. Rosemont Tennis is planning for the coming year. Investors would like to earn a 12% return on the company’s $25 million of assets. The company primarily incurs fixed costs to maintain the tennis courts. Fixed costs are projected to be $12,500,000 for the year. About 500,000 court time hours are expected to be played each year. Variable costs are about $5per hour of court time. The Rosemont Country Club and Tennis Courts has a favorable reputation in the area and therefore, has some control over the price per hour of court time. Using a cost-plus approach, what price should RosemontTennis charge for an hour of court time?A. $33.00B. $36.00C. $24.00D. $ 0.207. Spahr Company produces a part that is used in the manufacture of one of its products. The unit manufacturing costs of this part, assuming a production level of 5,000 units, are as follows:Direct materials $2.00 Direct labor $4.00 Variable manufacturing overhead $3.00 Fixed manufacturing overhead $1.00 Total cost $10.00 80% of the fixed overhead costs are unavoidable. Assuming no other use for its facilities, what is the highestprice per unit that Spahr Company should be willing to pay for the part?A. $10B. $6C. $9 D. $9.20Use the following to answer the next two questions:The Schmidt Corporation has in its inventory 4,000 damaged radios that cost $50,000. The radios can be sold in their present condition for $32,000, or repaired at a cost of $43,000 and sold for $66,000. 8. What is the opportunity cost of selling the radios in their present condition?A. $23,000B. $109,000C. $82,000 D. $75,0009. Which of the following should Schmidt Corporation do to maximize profits?A. Repair the radios because the sales value is $34,000 higher than selling as isB. Sell as is for a benefit of $9,000 over repairing the radiosC. Repair the radios as the cost to repair is considered a sunk cost and is irrelevantD. None of the above because the company will incur a net loss on the radios with all options10. Target total cost is defined as:A. revenue at market price less desired profit.B. cost of goods sold less desired profit.C. revenue at market price less variable costs.D. revenue at market price less fixed costs.11. The internal financial statements of Pierce Solutions show that their product, LX90, incurred an operating loss in the most recent year. There were 20,000 units of LX90 sold in that year. Selected financial information about product LX90 follows.Total sales revenue $ 160,000 Variable costs $ 100,000 Contribution margin $ 60,000 Fixed costs $ 70,000 Net operating loss $ (10,000)If product LX90 were to be dropped, the company would avoid $16,000 in fixed costs per year.If Pierce Solutions were to drop product LX90, the change in annual operating income would be a(n):A. increase in total operating income of $44,000.B. decrease in total operating income of $44,000.C. increase in total operating income of $10,000.D. decrease in total operating income of $10,000.12. The income statement for Champion Parts is divided by its two product lines, Part L2 and Part C6, as follows:Part L2 Part C6 TotalSales revenue $680,000 $275,000 $955,000 Variable expenses $450,000 $210,000 $660,000 Contribution margin $230,000 $65,000 $295,000 Fixed expenses $75,000 $75,000 $150,000 Operating income (loss) $155,000 $(10,000) $145,000 If fixed costs are unavoidable and Champion Parts drops the Part C6 line, how will operating income change?A. Will decrease by $65,000B. Will increase by $65,000C. Will decrease by $230,000D. Will increase by $230,00013. Kitchen Appliances Company manufactures two products: toaster ovens and bread machines. The following data