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Contribution Margin; Sunk, Average, Incremental and Fixed Costs; Joint Products

36. A decision to discontinue a given product on the basis of contribution margin data should include consideration of the probable impact of the discontinuance on the sales of other products.
a. True
b. False

37. Which of the following types of cost is always relevant to a decision?
a. Sunk costs.
b. Average costs.
c. Incremental costs.
d. Fixed costs.

38. Which is an example of joint products?
a. Sugar and beef.
b. Pens and erasers.
c. Granulated coal and methyl alcohol.
d. Iron and plastic.

39. Accepting a special order is profitable whenever the revenue from the special order exceeds:
a. The average unit cost of production multiplied by the number of
units in the order.
b. The incremental cost of producing the order.
c. The materials and direct labor costs of producing the order.
d. The fixed manufacturing costs for the period.

40. Computer City manufactured 100 personal computers at a cost of $65,000. It can sell them as is for $100,000 or install hard disks in them and sell them for $140,000. The $65,000 original manufacturing cost is:
a. An out-of-pocket cost because it has already been paid.
b. A sunk cost because it is not relevant to the decision.
c. An incremental cost because it is relevant to the decision.
d. A fixed cost because it will remain the same no matter which
action is taken.

41. Products for which sales of one contribute to the sales of another are called:
a. Complementary products.
b. Competing products.
c. Contributory products.
d. Codependent products.

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Solution Preview

36. a True. If a product is discontinued, then other products manufactured by the same company and competing against the discontinued product will experience an increase in sales. On the other hand complementary products of the same company will experience a fall in demand and ...

Solution Summary

The solution presents the answers together with a sentence or two of explanation for each.