MULTIPLE CHOICE QUESTIONS
1. Kayaks-For-Fun produces two kayak models, "River" and "Sea".The River model sells for $500 and has variable costs of $100 perunit. The Sea model sells for $600 and has variable costs of $450per unit. Allocated fixed costs per unit are $300 for the Rivermodel and $50 for the Sea model per unit. Which statement abouttheir production and sales mix is true?
A. They would prefer to produce and sell the River model becauseits unit contribution margin is highest.
B. They would prefer to produce and sell the River model becauseit has the highest selling price.
C. They are indifferent about which model to produce and sellbecause the full cost is the same for both models.
D. They would prefer to produce and sell the Sea model becauseits unit contribution is highest.
E. None of the other answers are correct.
2. Kayaks-For-Fun produces two kayak models, "River" and "Sea".The River model sells for $500 and has variable costs of $100 perunit. The Sea model sells for $600 and has variable costs of $450per unit. Allocated fixed costs per unit are $300 for the Rivermodel and $50 for the Sea model per unit. Kayaks-For-Fun has atotal of 320 labor hours available each month. The specializedskills required to build the kayaks makes it difficult formanagement to find additional workers. Assume the River modelrequires 4 labor hours per unit and the Sea model requires 1 laborhour per unit (most of the variable cost for the Sea model isrelated to expensive materials required for production).Kayaks-For-Fun sells everything it produces. Which statement istrue?
A. None of the other answers are correct
B. They would be indifferent between selling the River and theSea model.
C. 20% of their sales should be the Sea model and 80% should bethe River model.
D. They would prefer to sell the River model.
E. They would prefer to sell the Sea model
3. Kayaks-For-Fun produces two kayak models, "River" and "Sea".The River model sells for $500 and has variable costs of $100 perunit. The Sea model sells for $600 and has variable costs of $450per unit. Allocated fixed costs per unit are $300 for the Rivermodel and $50 for the Sea model per unit.Assume Kayaks-For-Funfound additional labor, thereby eliminating that resourceconstraint. However, the company now faces limited availablemachine hours. It has a total of 3,000 machine hours available eachmonth. The River model requires 16 machine hours per unit, and theSea model requires 10 machine hours per unit. Kayaks-For-Fun sellseverything it produces.Which statement is true aboutKayaks-For-Fun?
A. It would prefer to sell the River model.
B. It would be indifferent about which model it sells.
C. None of the other answers are correct
D. It would prefer to sell the Sea model.
E. Machine hours should be used for allocating fixedmanufacturing overhead.
4. Which of the following statements regarding relevant costsand sunk costs is incorrect?
A. Isolating relevant costs is desirable because only rarelywill enough information be available to prepare a detailed incomestatement for multiple alternatives.
B. A sunk cost is a cost which cannot be avoided because it hasalready been incurred.
C. The type of cost presented to management for an equipmentreplacement decision should be limited to relevant costs.
D. Relevant costs can be studied using a differential approachbut should not be considered with a total approach.
