Deck 10: Decision Making and Relevant Information

Question 1

Which of the following costs always differs among future alternatives?

A)Historical costs
B)Relevant costs
C)Fixed costs
D)Variable costs

Answer 1

B

Question 2

Good managers use a five-step guide to making decisions.

Answer 2

True

Question 3

When using the five-step decision process,which one of the following steps should be done first?

A)Implementing the decision
B)Obtain information
C)Evaluation and feedback
D)Choose an alternative

Answer 3

B

Question 4

Answer the following questions using the information below:
Bright Lights Company manufactures small flashlights and is considering raising the price by 50 cents a unit for the coming year.With a 50-cent price increase,demand is expected to fall by 3000 units.
$$\begin{array} { l r r } & \text { Currently } & \text { Projected } \\\text { Demand } & 20000 \text { units } & 18000 \text { units } \\\text { Selling price } & \$ 4.50 & \$ 5.00 \\\text { Incremental cost per unit } & \$ 3.00 & \$ 3.00\end{array}$$

-If the price increase is implemented,operating profit is projected to:

A)decrease by $4500.
B)decrease by $4000.
C)increase by $6000.
D)increase by $4000.

Question 5

Answer the following questions using the information below:
Bright Lights Company manufactures small flashlights and is considering raising the price by 50 cents a unit for the coming year.With a 50-cent price increase,demand is expected to fall by 3000 units.
$$\begin{array} { l r r } & \text { Currently } & \text { Projected } \\\text { Demand } & 20000 \text { units } & 18000 \text { units } \\\text { Selling price } & \$ 4.50 & \$ 5.00 \\\text { Incremental cost per unit } & \$ 3.00 & \$ 3.00\end{array}$$

-Would you recommend the 50-cent price increase?

A)Yes,because contribution margin per unit increases.
B)No,because the selling price increases.
C)No,because demand decreased.
D)Yes,because operating profits increase.

Question 6

________ costs are expected future costs and relevant revenues are expected future revenues that differ between the optional courses of action being considered.

A)Relevant
B)Quantitative
C)Qualitative
D)Financial

Question 7

A decision model is a formal method for making a choice,frequently involving both quantitative and qualitative analyses.

Question 8

Relevant-cost analysis generally emphasises ________ factors that can be expressed in financial terms.

A)qualitative
B)strategic
C)operational
D)quantitative

Question 9

The textbook discusses a five-step decision process.Briefly explain each of the five steps.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Question 10

What could feedback regarding previous actions affect?

A)The decision model
B)Implementation of the decision
C)Future predictions
D)All of these answers are correct

Question 11

Management accountants work with managers by analysing and presenting relevant data to guide decisions.

Question 12

Which of the following does a decision model involve?

A)Both quantitative and qualitative analyses
B)Only quantitative analyses
C)A manager's instinct
D)Only qualitative analyses

Question 13

Sunk costs:

A)have future implications.
B)are differential.
C)are relevant.
D)are ignored when evaluating alternatives.

Question 14

________ factors are outcomes that are difficult to measure accurately in numerical terms.

A)Quantitative
B)Relevant
C)Qualitative
D)Environmental

Question 15

For decision making,a listing of the relevant costs:

A)will only include costs that differ among alternatives.
B)will only include future costs.
C)will help the decision maker concentrate on the pertinent data.
D)All of these answers are correct.

Question 16

When using the five-step decision process,which one of the following steps should be done last?

A)Implementing the decision
B)Evaluation and feedback
C)Choose an alternative
D)Obtain information

Question 17

Just because qualitative factors and quantitative non-financial factors cannot be measured easily in financial terms does not make them:

A)relevant.
B)unimportant.
C)important.
D)noteworthy.

Question 18

Ruggles Circuit Company manufactures circuit boards for other firms.Management is attempting to search for ways to reduce manufacturing labour costs and has received a proposal from a consulting company to rearrange the production floor next year.Using the information below regarding current operations and the new proposal,which of the following decisions should management accept?
$$\begin{array} { l r r } & \text { Currently } & \text { Proposed } \\\text { Required machine operators } & 5 & 4.5 \\\text { Materials-handling workers } & 1.25 & 1.25 \\\text { Employee average pay } & \$ 8 \text { per hour } & \$ 9 \text { per hour } \\\text { Hours worked per employee } & 2000 & 2000\end{array}$$

A)Do not change the production floor.
B)Rearrange the production floor.
C)Either,because it makes no difference to the employees.
D)It doesn't matter because the costs incurred will remain the same.

Question 19

Place the following steps from the five-step decision process in order:
A = Make predictions about future costs
B = Evaluate performance to provide feedback
C = Implement the decision
D = Choose an alternative

A)ADCB
B)DCAB
C)CDAB
D)DCBA

Question 20

What is the formal process of choosing between alternatives known as?

A)Alternative model
B)Decision model
C)Prediction model
D)Relevant model

Question 21

The assumption of no ________ or strategic implications is crucial to management's analysis of the one-time-only special order decision.

A)short-run
B)financial
C)long-run
D)qualitative

Question 22

An example of a quantitative factor for the decision-making process is:

A)product quality.
B)manufacturing overhead.
C)customer satisfaction.
D)employee morale.

Question 23

________ that do not differ will not matter and hence will have no bearing on the decision being made.

A)Sunk costs
B)Costs and revenues
C)Strategic plans
D)Opportunity costs

Question 24

Which of the following concepts applies to all decision situations?

A)sunk costs
B)opportunity cost
C)relevance
D)outsourcing

Question 25

Qualitative factors:

A)include customer satisfaction.
B)may include either financial or non-financial information.
C)generally are easily measured in quantitative terms.
D)are generally irrelevant for decision making.

Question 26

Past costs are also called 'sunk costs' because they are ________ and cannot be changed no matter what action is taken.

A)relevant
B)avoidable
C)unavoidable
D)financial

Question 27

Answer the following questions using the information below:
George's 5-year-old Geo Prizm requires repairs estimated at $3000 to make it roadworthy again.His friend,Julie,suggested that he should instead buy a 5-year-old used Honda Civic for $3000 cash.Julie estimated the following costs for the two cars:
$$\begin{array} { l r r } & \text { Geo Prizm } & \text { Honda Civic } \\\text { Acquisition cost } & \$ 15000 & \$ 3000 \\\text { Repairs } & \$ 3000 & - \\\text { Antual operating costs } & & \\\text { (Fuel, maintenance, insurance) } & \$ 2280 & \$ 2100\end{array}$$

-The cost NOT relevant for this decision is the:

A)annual operating costs of the Honda Civic.
B)acquisition cost of the Honda Civic.
C)repairs to the Geo Prizm.
D)acquisition cost of the Geo Prizm.

Question 28

The sum of all costs (variable and fixed)in a particular business function of the value chain,such as manufacturing costs or marketing costs,are called ________ costs.

A)relevant
B)opportunity
C)business function
D)sunk

Question 29

Focusing on the relevant data is especially helpful when all the information needed to prepare a detailed ________ is unavailable.

A)income statement
B)cost sheet
C)balance sheet
D)analysis

Question 30

Answer the following questions using the information below:
George's 5-year-old Geo Prizm requires repairs estimated at $3000 to make it roadworthy again.His friend,Julie,suggested that he should instead buy a 5-year-old used Honda Civic for $3000 cash.Julie estimated the following costs for the two cars:
$$\begin{array} { l r r } & \text { Geo Prizm } & \text { Honda Civic } \\\text { Acquisition cost } & \$ 15000 & \$ 3000 \\\text { Repairs } & \$ 3000 & - \\\text { Antual operating costs } & & \\\text { (Fuel, maintenance, insurance) } & \$ 2280 & \$ 2100\end{array}$$

-What should George do? What are his savings in the first year?

A)Fix the Geo Prizm;$5518
B)Fix the Geo Prizm;$5280
C)Buy the Honda Civic;$180
D)Buy the Honda Civic;$9780

Question 31

One type of decision that affects ________ levels is accepting or rejecting special orders when there is idle production capacity and the special orders have no long-run implications.

A)input
B)relevant
C)output
D)financial

Question 32

One-time-only special orders should only be accepted if:

A)differential revenues exceed variable costs.
B)incremental revenues exceed incremental costs.
C)incremental revenues exceed fixed costs.
D)total revenues exceed total costs.

Question 33

Managers must watch for incorrect general ________ in relevant-cost analysis.

A)costs
B)revenues
C)opportunities
D)assumptions

Question 34

Revenues and costs that are not relevant are said to be:

A)sunk.
B)qualitative.
C)quantitative.
D)irrelevant.

Question 35

Historical costs are helpful:

A)for making future predictions.
B)because they are quantitative.
C)for decision making.
D)None of these answers are correct.

Question 36

Problems that should be avoided when identifying relevant costs include all of the following EXCEPT:

A)assuming all fixed costs are irrelevant.
B)using total costs that separate variable and fixed components.
C)assuming all variable costs are relevant.
D)using unit costs that do not separate variable and fixed components.

Question 37

Relevant information has all of these characteristics EXCEPT:

A)all future revenues and expenses are relevant.
B)past costs are irrelevant.
C)different alternatives can be compared by examining differences in total revenue and expenses.
D)qualitative factors should be considered.

Question 38

Every decision deals with selecting a course of action based on its expected ________ results.

A)future
B)past
C)sunk
D)qualitative

Question 39

When deciding to accept a one-time-only special order from a wholesaler,management should do all of the following EXCEPT:

A)consider the special order's impact on future prices of their products.
B)determine whether excess capacity is available.
C)verify past design costs for the product.
D)analyse product costs.

Question 40

When there is excess capacity,it makes sense to accept a one-time-only special order for less than the current selling price when:

A)it never makes sense.
B)the company placing the order is in the same market segment as your current customers.
C)incremental revenues exceed incremental costs.
D)additional fixed costs must be incurred to accommodate the order.

Question 41

Wollongong Company has a current production level of 20 000 units per month.Unit costs at this level are:
$$\begin{array} { l r } \text { Direct materials } & \$ 0.25 \\\text { Direct labour } & 0.40 \\\text { Variable overhead } & 0.15 \\\text { Fixed overhead } & 0.20 \\\text { Marketing - fixed } & 0.20 \\\text { Marketing/distribution - variable } & 0.40\end{array}$$
Current monthly sales are 18 000 units.Jim Company has contacted Wollongong Company about purchasing 1500 units at $2.00 each.Current sales would not be affected by the one-time-only special order and variable marketing/distribution costs would not be incurred on the special order.What is Wollongong Company's change in operating profits if the special order is accepted?

A)$400 increase in operating profits
B)$1800 decrease in operating profits
C)$1800 increase in operating profits
D)$400 decrease in operating profits

Question 42

________ contribution equals revenues minus the direct materials costs of the goods sold.

A)Total
B)Unit
C)Throughput
D)Financial

Question 43

Answer the following questions using the information below:
Welch Manufacturing is approached by a European customer to fulfil a one-time-only special order for a product similar to one offered to domestic customers.Welch Manufacturing has excess capacity.The following per unit data apply for sales to regular customers:
$$\begin{array} { l r } \text { Variable costs: } & \\\quad \text { Direct materials } & \$ 40 \\\quad \text { Direct labour } & 20 \\\text { Manufacturing support } & 35 \\\quad \text { Marketing costs } & 15 \\\text { Fixed costs: } & \\\quad \text { Manufacturing support } & 45 \\\quad \text { Marketing costs } & 15 \\\text { Total costs } & 170 \\\text { Mark-up (50\%) } & \underline { 85 } \\\text { Targeted selling price } & \$ 255\end{array}$$

-What is the full cost of the product per unit?

A)$255
B)$170
C)$110
D)$85

Question 44

Answer the following questions using the information below:
Welch Manufacturing is approached by a European customer to fulfil a one-time-only special order for a product similar to one offered to domestic customers.Welch Manufacturing has excess capacity.The following per unit data apply for sales to regular customers:
$$\begin{array} { l r } \text { Variable costs: } & \\\quad \text { Direct materials } & \$ 40 \\\quad \text { Direct labour } & 20 \\\text { Manufacturing support } & 35 \\\quad \text { Marketing costs } & 15 \\\text { Fixed costs: } & \\\quad \text { Manufacturing support } & 45 \\\quad \text { Marketing costs } & 15 \\\text { Total costs } & 170 \\\text { Mark-up (50\%) } & \underline { 85 } \\\text { Targeted selling price } & \$ 255\end{array}$$

-What is the contribution margin per unit?

A)$255
B)$85
C)$145
D)$110

Question 45

Answer the following questions using the information below:
Welch Manufacturing is approached by a European customer to fulfil a one-time-only special order for a product similar to one offered to domestic customers.Welch Manufacturing has excess capacity.The following per unit data apply for sales to regular customers:
$$\begin{array} { l r } \text { Variable costs: } & \\\quad \text { Direct materials } & \$ 40 \\\quad \text { Direct labour } & 20 \\\text { Manufacturing support } & 35 \\\quad \text { Marketing costs } & 15 \\\text { Fixed costs: } & \\\quad \text { Manufacturing support } & 45 \\\quad \text { Marketing costs } & 15 \\\text { Total costs } & 170 \\\text { Mark-up (50\%) } & \underline { 85 } \\\text { Targeted selling price } & \$ 255\end{array}$$

-For Welch Manufacturing,what is the minimum acceptable price of this special order?

A)$110
B)$145
C)$255
D)$170

Question 46

Black Tool Company has a production capacity of 1500 units per month,but current production is only 1250 units.The manufacturing costs are $70 per unit and marketing costs are $10 per unit.Doug Hall offers to purchase 250 units at $80 each for the next five months.Should Black accept the one-time-only special order if only absorption-costing data are available?

A)No,since only the employees will benefit.
B)No,the company will only break even.
C)Yes,good customer relations are essential.
D)Yes,since operating profits will most likely increase.

Question 47

Unit cost data can potentially mislead decision makers when ________ costs are included.

A)sunk
B)irrelevant
C)opportunity
D)relevant

Question 48

Direct materials $50,direct labour $20,variable overhead costs $40,and fixed overhead costs $30.What is the incremental cost of one unit in the short term?

A)$30
B)$70
C)$110
D)$140

Question 49

Answer the following questions using the information below:
Northwoods manufactures rustic furniture.The cost accounting system estimates manufacturing costs to be $100 per table,consisting of 80% variable costs and 20% fixed costs.The company has surplus capacity available.It is Northwoods' policy to add a 50% mark-up to full costs.
Northwoods is invited to bid on a one-time-only special order to supply 100 rustic tables.What is the lowest price Northwoods should bid on this special order?

A)$9000
B)$8000
C)$13 500
D)$6300

Question 50

Answer the following questions using the information below:
Grant's Cakes is approached by Ms Tammy Wang,a new customer,to fulfil a large one-time-only special order for a product similar to one offered to regular customers.The following per unit data apply for sales to regular customers:
$$\begin{array} { l r } \text { Direct materials } & \$ 455 \\\text { Direct labour } & 300 \\\text { Variable manufacturing support } & 45 \\\text { Fixed manufacturing support } & 100 \\\text { Total manufacturing costs } & 900 \\\text { Mark-up (60\%) } & \underline { 540 } \\\text { Targeted selling price } & \$ 1440\end{array}$$ Grant's Kitchens has excess capacity.Ms Wang wants layered cream cheese pound cakes rather than plain pound cakes,so direct material costs will increase by $30 per unit.

-For Grant's Cakes,what is the minimum acceptable price of this one-time-only special order?

A)$830
B)$785
C)$930
D)$1440

Question 51

Answer the following questions using the information below:
Jamberry Preserves currently makes jams and spreads and a variety of decorative jars used for packaging.An outside supplier has offered to supply all of the needed decorative jars.For this make-or-buy decision,a cost analysis revealed the following avoidable unit costs for the decorative jars:
$$\begin{array} { l r } \text { Direct materials } & \$ 0.25 \\\text { Direct labour } & 0.03 \\\text { Unit-related support costs } & 0.10 \\\text { Batch-related support costs } & 0.12 \\\text { Product-sustaining support costs } & 0.22 \\\text { Facility-sustaining support costs } & 0.28 \\ { \text { Total cost per jar } } & \underline{ \$ 1.00}\end{array}$$

-The relevant cost per jar is:

A)$0.72 per jar.
B)$1.00 per jar.
C)$0.38 per jar.
D)$0.28 per jar.

Question 52

The cost to produce Part A was $10 per unit in 2017 and in 2018 it has increased to $11 per unit.In 2018,Supplier XYZ has offered to supply Part A for $9 per unit.For the make-or-buy decision:

A)incremental costs are $1 per unit.
B)incremental revenues are $2 per unit.
C)net relevant costs are $1 per unit.
D)differential costs are $2 per unit.

Question 53

The sum of all the costs incurred in a particular business function (for example,marketing)is called the:

A)business function cost.
B)multi-product cost.
C)full product cost.
D)gross product cost.

Question 54

Answer the following questions using the information below:
Jamberry Preserves currently makes jams and spreads and a variety of decorative jars used for packaging.An outside supplier has offered to supply all of the needed decorative jars.For this make-or-buy decision,a cost analysis revealed the following avoidable unit costs for the decorative jars:
$$\begin{array} { l r } \text { Direct materials } & \$ 0.25 \\\text { Direct labour } & 0.03 \\\text { Unit-related support costs } & 0.10 \\\text { Batch-related support costs } & 0.12 \\\text { Product-sustaining support costs } & 0.22 \\\text { Facility-sustaining support costs } & 0.28 \\ { \text { Total cost per jar } } & \underline{ \$ 1.00}\end{array}$$

-The maximum price that Jamberry Preserves should be willing to pay for the decorative jars is:

A)$0.28 per jar.
B)$0.72 per jar.
C)$0.38 per jar.
D)$1.00 per jar.

Question 55

Answer the following questions using the information below:
Grant's Cakes is approached by Ms Tammy Wang,a new customer,to fulfil a large one-time-only special order for a product similar to one offered to regular customers.The following per unit data apply for sales to regular customers:
$$\begin{array} { l r } \text { Direct materials } & \$ 455 \\\text { Direct labour } & 300 \\\text { Variable manufacturing support } & 45 \\\text { Fixed manufacturing support } & 100 \\\text { Total manufacturing costs } & 900 \\\text { Mark-up (60\%) } & \underline { 540 } \\\text { Targeted selling price } & \$ 1440\end{array}$$ Grant's Kitchens has excess capacity.Ms Wang wants layered cream cheese pound cakes rather than plain pound cakes,so direct material costs will increase by $30 per unit.

-If Ms Wang wanted a long-term commitment for supplying this product,this analysis:

A)would definitely be different.
B)would not be different.
C)may be different.
D)does not contain enough information to determine if there would be a difference.

Question 56

The sum of all costs incurred in all business functions in the value chain (product design,manufacturing,marketing and customer service,for example)is known as the:

A)full product cost
B)multi-product cost
C)business cost
D)gross product cost

Question 57

Answer the following questions using the information below:
Grant's Cakes is approached by Ms Tammy Wang,a new customer,to fulfil a large one-time-only special order for a product similar to one offered to regular customers.The following per unit data apply for sales to regular customers:
$$\begin{array} { l r } \text { Direct materials } & \$ 455 \\\text { Direct labour } & 300 \\\text { Variable manufacturing support } & 45 \\\text { Fixed manufacturing support } & 100 \\\text { Total manufacturing costs } & 900 \\\text { Mark-up (60\%) } & \underline { 540 } \\\text { Targeted selling price } & \$ 1440\end{array}$$ Grant's Kitchens has excess capacity.Ms Wang wants layered cream cheese pound cakes rather than plain pound cakes,so direct material costs will increase by $30 per unit.

-Other than price,what other items should Grant's Cakes consider before accepting this one-time-only special order?

A)Price is the only consideration
B)Demand for cherry cabinets
C)Reaction of shareholders
D)Reaction of existing customers to the lower price offered to Ms Wang

Question 58

Answer the following questions using the information below:
Welch Manufacturing is approached by a European customer to fulfil a one-time-only special order for a product similar to one offered to domestic customers.Welch Manufacturing has excess capacity.The following per unit data apply for sales to regular customers:
$$\begin{array} { l r } \text { Variable costs: } & \\\quad \text { Direct materials } & \$ 40 \\\quad \text { Direct labour } & 20 \\\text { Manufacturing support } & 35 \\\quad \text { Marketing costs } & 15 \\\text { Fixed costs: } & \\\quad \text { Manufacturing support } & 45 \\\quad \text { Marketing costs } & 15 \\\text { Total costs } & 170 \\\text { Mark-up (50\%) } & \underline { 85 } \\\text { Targeted selling price } & \$ 255\end{array}$$

-What is the change in operating profits if the one-time-only special order for 1000 units is accepted for $180 a unit by Welch?

A)$70 000 increase in operating profits
B)$75 000 decrease in operating profits
C)$10 000 decrease in operating profits
D)$10 000 increase in operating profits

Question 59

Cochran Corporation has a plant capacity of 100 000 units per month.Unit costs at capacity are:
$$\begin{array} { l r } \text { Direct materials } & \$ 4.00 \\\text { Direct labour } & 6.00 \\\text { Variable overhead } & 3.00 \\\text { Fixed overhead } & 1.00 \\\text { Marketing-fixed } & 7.00 \\\text { Marketing/distribution-variable } & 3.60\end{array}$$
Current monthly sales are 95 000 units at $30.00 each.Suzie Inc. ,has contacted Cochran Corporation about purchasing 3000 units at $20.00 each.Current sales would not be affected by the one-time-only special order.What is Cochran's change in operating profits if the one-time-only special order is accepted?

A)$10 200 increase
B)$17 200 increase
C)$33 200 increase
D)$22 000 increase

Question 60

Answer the following questions using the information below:
Northwoods manufactures rustic furniture.The cost accounting system estimates manufacturing costs to be $100 per table,consisting of 80% variable costs and 20% fixed costs.The company has surplus capacity available.It is Northwoods' policy to add a 50% mark-up to full costs.

-A large hotel chain is currently expanding and has decided to decorate all new hotels using the rustic style.Northwoods Incorporated is invited to submit a bid to the hotel chain.What is the lowest price per unit Northwoods should bid on this long-term order?

A)$72
B)$63
C)$90
D)$150

Question 61

Full costs of a product include variable costs,but not fixed costs.

Question 62

One type of decision that affects output levels is accepting or rejecting special orders when there is idle production capacity and the special orders have no long-run implications.

Question 63

TOC considers a short-run time period and assumes that operating costs are fixed costs.

Question 64

Revenues that remain the same for two alternatives being examined are relevant revenues.

Question 65

Qualitative factors are outcomes that are measured in numerical terms,such as the costs of direct labour.

Question 66

Profit margins are often set to earn a reasonable return on investment for short-term pricing decisions,but not long-term pricing decisions.

Question 67

Managers must watch for incorrect general assumptions in relevant-cost-analysis.

Question 68

When are costs relevant to a particular decision?

A)If they are fixed costs
B)If they differ across the alternatives being considered
C)If they are variable costs
D)If they remain unchanged across the alternatives being considered

Question 69

Feedback from previous decisions uses historical information and,therefore,is irrelevant for making future predictions.

Question 70

Relevant costs of a bidding decision should exclude revenues lost on lower-priced sales to existing customers.

Question 71

The assumption of no short-run or strategic implications is crucial to management's analysis of the one-time-only special order decision.

Question 72

Relevant revenues and relevant costs are the only information managers need to select among alternatives.

Question 73

Answer the following questions using the information below:
Stephans Corporation currently manufactures a subassembly for its main product.The costs per unit are as follows:
$$\begin{array} { l r } \text { Direct materials } & \$ 1.00 \\\text { Direct labour } & 10.00 \\\text { Variable overhead } & 5.00 \\\text { Fixed overhead } & \underline { 8.00 } \\\quad \text { Total } & \underline{\$ 24.00} \\\end{array}$$ Bill Company has contacted Stephans with an offer to sell them 5000 of the subassemblies for $22.00 each.Stephans will eliminate $25 000 of fixed overhead if it accepts the proposal.

-What are the relevant costs for Stephans?

A)$125 000
B)$140 000
C)$105 000
D)$80 000

Question 74

Absorption cost per unit is the best product cost to use for one-time-only special order decisions.

Question 75

Quantitative factors are outcomes that are measured in numerical terms.

Question 76

Full costs of a product are relevant for one-time-only special order pricing decisions.

Question 77

Answer the following questions using the information below:
Stephans Corporation currently manufactures a subassembly for its main product.The costs per unit are as follows:
$$\begin{array} { l r } \text { Direct materials } & \$ 1.00 \\\text { Direct labour } & 10.00 \\\text { Variable overhead } & 5.00 \\\text { Fixed overhead } & \underline { 8.00 } \\\quad \text { Total } & \underline{\$ 24.00} \\\end{array}$$ Bill Company has contacted Stephans with an offer to sell them 5000 of the subassemblies for $22.00 each.Stephans will eliminate $25 000 of fixed overhead if it accepts the proposal.

-Should Stephans make or buy the subassemblies? What is the difference between the two alternatives?

A)Buy;savings = $50 000
B)Make;savings = $60 000
C)Buy;savings = $20 000
D)Make;savings = $5000

Question 78

If a manufacturer chooses to continue purchasing direct materials from a supplier because of the ongoing relationship that has developed over the years,the decision is based on qualitative factors.

Question 79

The sum of all costs (variable and fixed)in a particular business function of the value chain,such as manufacturing costs or marketing costs,are called 'business function costs'.

Question 80

Relevant-cost analysis generally emphasises qualitative factors that can be expressed in financial terms.