1The basic decision rule on acceptance of special contracts is that the special contract should be accepted if:

Select one:

A. the additional revenue from the contract exceeds the fixed costs of the contract.

B. additional fixed costs can be covered by contribution from other contracts.

C. it produces a positive contribution to general fixed costs.

D. it produces a positive contribution to specific fixed costs.

2Which of the following costs is relevant in decision-making?

Select one:

A. Historic costs

B. Incremental costs

C. Committed costs

D. Sunk costs

3An opportunity cost is:

Select one:

A. The benefit foregone from the next best alternative course of action.

B. The revenue from unplanned new business.

C. The cost of lost business.

D. The cost of obtaining new business opportunities.

4Which of the following costs is not relevant when considering the closure of a department within a store?

Select one:

A. variable overheads of the department

B. general fixed overheads

C. salaries of staff that would be made redundant

D. redundancy costs

5A company makes three components, L, M and N. The costs of the components are as follows:

Component L Component M Component N

Variable cost 5.00 16.00 10.00

Fixed cost 4.00 16.60 7.50

Total unit cost 9.00 32.60 17.50

The fixed costs per unit are an allocation of general fixed overheads.

A supplier has offered to supply the components at the following prices:

Component L8

Component M14

Component N11

Which components should the company buy in?

Select one:

A. Components L and N

B. Component M

C. None of the components

D. All of the components

6For decision-making purposes, which of the following are relevant costs?

(i) Avoidable cost

(ii) Future cost

(iii) Opportunity cost

(iv) Differential cost

Select one:

A. (i), (ii), (iii) and (iv)

B. (i) and (ii) only

C. (ii) and (iii) only

D. (i) and (iv) only

The following information is relevant to questions 7.7 and 7.8

KR has been asked to quote a price for a special job that must be completed within one week.

The job requires a total of 100 skilled labour hours and 50 unskilled labour hours. The current employees are paid a guaranteed minimum wage of 525 for skilled workers and 280 for unskilled workers for a 35-hour week.

Currently, skilled labour has spare capacity amounting to 75 labour hours each week and unskilled labour has spare capacity amounting to 100 labour hours each week. Additional skilled workers and unskilled workers can be employed and paid by the hour at rates based on the wages paid to the current workers.

The materials required for the job are currently held in inventory at a book value of 5,000. The materials are regularly used by KR and the current replacement cost for the materials is 4,500. The total scrap value of the materials is 1,000.

7What is the total relevant cost to KR of using skilled and unskilled labour on this job?

Select one:

A. Nil

B. 375

C. 805

D. 1,900

8What is the relevant cost to KR using the materials in inventory on this job?

Select one:

A. 1,000

B. 3,500

C. 4,500

D. 5,000

9A company is considering a short-term pricing decision for a contract that would require 1,200 kg of Material B. There are 900 kg of Material B in inventory that were bought some time ago at a cost of 3 per kg. The company does not foresee any other use for the material. The material held in inventory could currently be sold for 3.50 per kg. The current purchase price of Material B is 4.50 per kg.

The relevant cost of Material B is:

Select one:

A. 4,050

B. 4,500

C. 4,200

D. 5,400

10A risk neutral decision maker when making a decision will:

Select one:

A. Accept risk

B. Ignore risk

C. Avoid risk

D. Seek risk