Liquidation may be accomplished either through lump-sum liquidation where in all the non-cash
assets of the partnership or sold simultaneously or within a very short period of time and the
proceeds are used to settle first all the liabilities and any remaining amount is paid to partners
under a lump sum payment for a one-time or single payment it is possible when there is a
contracted buyer of all the non-cash assets or the assets are sold on a package deal basis in
most cases it would take some time before all the assets of a business are converted into cash
in such a case the first claims or settle on installment basis as cash becomes available but only
after all the partnership liabilities are fully settled.
b 8. The Accessories Department shows sales of $35,000. Variable costs are $30,000 and
allocated unavoidable fixed costs are $9,000, leaving a $4,000 loss. Based on this information
and all other things equal,
a. the department contributes $35,000 to total profits.
b. dropping the department will reduce total company profits by $5,000.
c. the department should be closed.
d. the department should be kept only if unit volume can be increased enough to increase
sales by $4,000.
d 9. A major factor in evaluating a special order is
a. the expected contribution margin on the order.
b. the possible effects on sales at regular prices.
c. the availability of capacity to produce the additional units.
d. all of the above.
a 10. Which of the following is true for a make-or-buy decision?
a. The reliability of the outside supplier of the component is important to the decision.
b. Depreciation on equipment used in making the component and having no other use is the
critical factor in the decision.
c. Opportunity costs are irrelevant.
d. The company should make the component if the purchase price is less than the per-unit
variable cost to make the component.
b 11. Which of the following costs is relevant in deciding whether to sell joint products at split-off
or process them further?
a. The unavoidable costs of further processing.
b. The avoidable costs of further processing.
c. The variable cost of operating the joint process.
d. The cost of materials used to make the joint products.
b 12. A manufacturing process that invariably produces two or more products
a. is a complementary process.
b. is a joint process.
c. normally has only fixed costs.
d. usually has primarily variable costs.
d 13. Which of the following is a short-term decision in which opportunity costs are not relevant?
a. Make-or-buy decision.
b. Special-order decision.
c. Drop-a-segment decision.
d. None of the above.
c 14. Which of the following is a true statement?
a. Theory of Constraints is useful for identifying physical constraints but cannot incorporate
nonphysical constraints.
b. Theory of Constraints is useful in analyzing internal constraints but cannot identify
external constraints.
c. Constraints may be either internal or external.
d. Internal constraints are physical while external constraints are imaginary.
b 15. A company has space that it uses to make a component. It could rent the space to another
company. The rent is
a. a sunk cost.
b. an opportunity cost.
c. a joint cost.
d. an avoidable cost.
a 16. Escanaba Company has 200 units of an obsolete component. The variable cost to
produce them was $10 per unit. They could now be sold for $1.75 each and it would cost $7.60
to make them now. If the units could be used to make a product for a special order, their
relevant cost is
a. $ 1.75.
b. $ 7.60.
c. $10.00.
d. some other number.
c 17. In a make-or-buy decision, which of the following is true?
a. Variable costs are the only relevant costs.
b. Allocated fixed costs are relevant.
c. Alternative uses of space and machinery are relevant.
d. Making is the correct decision when there is idle capacity.
a 18. The best characterization of an opportunity cost is that it is
a. relevant to decision making but is not usually reflected in accounting records.
b. not relevant to decision making and is not usually reflected in accounting records.
c. relevant to decision making and is usually reflected in accounting records.
d. not relevant to decision making and is usually reflected in accounting records.
a 19. A sunk cost is
a. not avoidable.
b. avoidable under one alternative but not under another.
c. joint or common.
d. direct to a segment.
b 20. Differential costs are costs that are
a. not avoidable.
b. avoidable under one alternative but not under another.
c. joint or common.
d. not direct to a segment.
a 21. A common cost
a. relates to a process that produces more than one product.
b. should be allocated to the segments of a company.
c. can usually be avoided in its entirety by dropping a segment.
d. none of the above.
a 22. An opportunity cost commonly associated with a special order is
a. the contribution margin on lost sales.
b. the variable costs of the order.
c. additional fixed costs related to the increased output.
d. any of the above.
b 23. Which of the following statements pertaining to the Theory of Constraints is true?
a. Inventory is evil and should never be kept.
b. Inventory is important to keep immediately before a bottleneck process.
c. Inventory should be kept before every machining process to prevent any downtime.
d. None of the above are true.
c 24. Which of the following cost-classification schemes is most relevant to decision making?
a. Fixed--variable.
b. Joint--common
c. Avoidable--unavoidable.
d. Direct--common.
