1. Which of the following would be considered in a make-or-buy decision? A) fixe
ID: 2488922 • Letter: 1
Question
1. Which of the following would be considered in a make-or-buy decision?
A) fixed costs that will still be incurred
B) prepaid rent expense for warehousing finished goods and inventories
C) unchanged supervisory costs
D) potential rental income from space occupied by the production area
2. Which of the following costs is inventoried when using variable costing?
A) electricity consumed in manufacturing process
B) sales commission paid on each sale
C) rent on factory building
D) advertising costs incurred for the product
3. Which of the following costs is inventoried when using variable costing?
A) fixed administrative costs
B) fixed selling costs
C) variable selling costs
D) variable manfufacturing costs
Explanation / Answer
Ans 1 D) potential rental income from space occupied by the production area
Potential rental income it is the incremental revenue which is relevant to make or buy decision. All other are sunk cost or irrelevant cost.
Ans 2 A Electricity consumed in manufacturing process.
Under variable costing variable manufacturing expenses are used in inventory. So electricity consumed is variable manufacturing overhead and rent on factory building is fixed manufacturing overhead others are selling and administrative expenses so not considered.
Ans 3 D Variable manufacturing Overhead
Under variable costing only variable manufacturing cost is considered while valuation of inventory. So variable manufacturing overhead is considered and variable selling cost is not considered as it is selling and administrative expenses it is not considered manufacturing cost.
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