Exam 8: Using Accounting Information to Make Managerial Decisions

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Question 101

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Which of the following is a reason a company would be willing to accept new business at a loss?

A) The new business will allow the company to reduce its fixed costs.
B) The new business will always cover variable costs.
C) The new business may result in certain customers influencing other potential customers.
D) The new business will increase fixed costs.

E) None of the above
F) A) and B)

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Question 102

Multiple Choice

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Ellis Dover is a scout for a Major League Baseball team based in Phoenix,Arizona.Ellis needs to travel to Los Angeles,California on June 1 to perform a variety of professional functions prior to the team travelling to Los Angeles to play.If Ellis flies,he could catch a 6 a.m.flight on June 1.In order to perform all of his professional responsibilities,Ellis will need to spend the night and catch a flight on June 2^nd to return to Phoenix.If Ellis flies,he will need to rent a car for $38 per day.To cover meals and other incidental expenses,Ellis will receive $45 per day per diem for each day he works out of town.Flights between Phoenix and Los Angeles can be purchased for $89 one way. Phoenix is approximately 300 miles from Los Angeles,a 5-hour drive at speed limits permitted on the freeways connecting the two cities.If he drives from Phoenix to Los Angeles,Ellis would need to leave the afternoon of May 31 and would be reimbursed $.50 per mile.He would need to spend 2 nights in a hotel,the night of May 31 and the night of June 1.He would return to Phoenix by car on June 2^nd.The hotel used by the team charges $160 per night.What is the incremental cost of driving over flying?