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Acct 2220 Zeigler: Attendance Quiz #2 (Chp 6, 7) - 15 Pts


Name:__________________________ Group #:_____



Class: 4:30 6:00 7:30



____ 1. Select the correct statement regarding relevant costs and/or revenues.


a. To be relevant, a cost or revenue must be future-oriented and must differ between the alternatives.


b. Sunk costs are usually relevant for decision-making purposes.


c. Differential revenues are expected future revenues that do not vary between the alternatives under




d. Avoidable costs are also known as sunk costs.


____ 2. Fred Falcon has a business decision to make. He is evaluating a number of costs to determine relevancy.


Which of the following are not costs that can be eliminated by taking a specified course of action?


a. avoidable costs.


b. differential costs.


c. opportunity costs.


d. sunk costs.


e. none of the above (i.e. all of the above represent relevant costs).


____ 3. Mr. Collins is deciding whether to remain in the mansion he has lived in for the past few years, which is


located very near his work, or moving to a new mansion in the suburbs and doubling his commute time.


The old mansion was purchased for $1,000,000 and has a market value of $1,300,000. The new mansion


can be purchased for about $1,600,000. Which of the following is not relevant to his decision?


a. driving distance to work.


b. estimated cost of the new mansion.


c. current market value of the old mansion.


d. initial cost of the old mansion.


e. none of the above (i.e. all of the above would be relevant to the decision).


____ 4. All of the following statements describe qualities of decision-making relevance except:


a. relevant information includes quantitative data.


b. relevant information requires a high degree of precision.


c. relevant information differs between the alternatives.


d. relevant information includes qualitative data.


____ 5. Ms. Weber purchased a $1 million raffle ticket for $10. Prior to the grand prize drawing, her fellow group


members were all feeling lucky and wanted to buy a ticket too. Unfortunately, all tickets had been sold.


One member offered $50 for her ticket, and then another member later offered her $100 just prior to the


drawing. She refused! What is the opportunity cost to the owner of keeping this ticket (i.e. not selling)?


a. $ 10 b. $ 50 c. $ 100 d. $150 e. $160 f. There is no opportunity cost here.


____ 6. The budgeting technique that provides for employee input into the planning process is known as:


a. participative budgeting.


b. perpetual budgeting.


c. continuous budgeting.


d. zero-based budgeting.


____ 7. Budgeted depreciation expense would never appear on:


a. the Cash Budget.


b. the Budgeted Income Statement.


c. the Selling and Administrative (S&A) Expense Budget.


d. any of the above budgets.



8. Segment Elimination Decision (3 pts total)


Sweeney & Sewards, Inc. produces a mechanical valve used in water systems. Three years ago the company


introduced an electronic version of the valve. Sales of the mechanical model have steadily declined, and the


company will report a loss on the product this year as follows:



If production of the mechanical valve is discontinued, product-level costs could be eliminated, but facility level


and corporate costs would not be affected.




a) Prepare a quantitative analysis indicating whether the mechanical valve production should be discontinued.


Clearly indicate your recommendation to keep, or not to keep, the product line on a quantitative basis (2 pts).



b) Exclusive of your quantitative analysis above, list two qualitative factors that should be considered in this


decision (1 pt).



-----------------------------------------------------------------------------------------------------------------------------____ 9. Nell & Souza, Inc. provides protective face masks to professional hockey players. Mgmt desires a


minimum ending inventory, at cost, of $20,000 (to insure adequate inventory at month-end). Mgmt


expects sales revenue of $120,000 next month and has a beginning inventory, at cost, of $30,000.


Budgeted Cost of Goods Sold is 60% of sales. Budgeted purchases for next month would be:


a. $52,000


b. $62,000


c. $70,000


d. $72,000


e. $92,000



10. Gucker & Renney Academic Supply presented the following budgeted information to prepare their


November Cash Budget: (4 pts total)
















Merchandise purchases


$ 85,000


$ 92,000




Selling & Admin Expenses


$ 50,000


$ 50,000


$ 50,000


Cash Budget assumptions: All sales are on credit and are collected 40% in the month of the sale,


59% in the month following the sale, with 1% uncollectible (but still owed). Merchandise purchases


are paid in full the month following the month of purchase. The monthly selling and administrative


expenses include $8,000 of depreciation expense relating to display fixtures and warehouse equipment.


All other selling and administrative costs are paid in cash in the month incurred. Management requires


a minimum cash balance of $14,000. Any amount below this will be borrowed, using a bank credit


line, but all bank borrowings must be in whole increments of $1,000. All borrowings are made at


month-end. Ignore any bank interest expense charges.


a) Referring to pg 267 as a guide, prepare a Cash Budget for the month of November only, showing all


details. The company expects to have $15,000 of cash on hand November 1st. (3 pts)



November 1st Beginning Cash Bal






Note: Show your calculations in this column


(the # of rows shown is generic).



Ending Cash Balance at Nov 30th


b) What would be the Accounts Payable balance (relating to purchases) at the end of November? (1 pt)



c) 1PT EC Bonus Question (OPTIONAL) ? You MUST show/label your work for any credit!


When preparing a budgeted ending December 31 st Balance Sheet, what would be the Accounts Receivable ending


balance? Assume there are no uncollectible accounts at the September 30 th Balance Sheet date.




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