Section A
Multiple Choice Questions
1. A common business decision is the make/buy decision where a manager must choose
between buying an item or
... [Show More] manufacturing it. The company must evaluate both the
qualitative matters, as well as the quantitative matters that deal with costs.
The following statements were made by a manager regarding qualitative matters which
will influence his decision:
1. The risk of destroying long-run relationships with suppliers, which may prove to be
harmful and disruptive.
2. The reduction in dependence on the reliability of the outside supplier.
3. The internal quality control, as opposed to relying on outside suppliers’ control
standards.
4. The cost of manufacturing as compared to the cost of buying.
Indicate which of the above statements are not qualitative matters:
(a) statement 1
(b) statements 1 and 3
(c) statements 2 and 4
(d) statement 4
(e) none of the above
2. You are the cost accountant of a company manufacturing and selling lawn-mowers. You
have to decide whether to buy or manufacture a spare part. You were given the following
costs to consider:
a. The rental of the factory where the lawn-mowers are being manufactured, of R120
000 per year in terms of an existing rental agreement.
b. The cost of the equipment that has to be bought exclusively for the manufacture of
the spare part.
c. The depreciation on existing equipment not used exclusively in the manufacturing
process of lawn-mowers.
d. The cost of material and labour for the manufacturing of the spare part.
Indicate which of the given costs are relevant to the decision to manufacture or to buy the
spare part:
(a) costs 2 and 3
(b) costs 1, 2 and 4
(c) costs 2 and 4
(d) all of the given costs
(e) none of the above
3. The following statements regarding cost-volume-profit analysis were made by students:
a. Fixed costs are costs that in total remain constant during a given period within a given
capacity level, regardless of the degree of capacity utilisation during that period.
b. Variable costs are costs that, per unit, change in direct proportion to changes in
activity (volume).
c. Marginal income is obtained by deducting variable costs, excluding variable
administrative costs, from the selling price.
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d. Semi-variable costs are costs that do not vary in any relation to a change in volume.
Indicate which of the above statements are false:
(a) statements 2, 3 and 4
(b) statements 2 and 4
(c) statements 3 and 4
(d) none of the above stat [Show Less]