Question 1

Opportunity costs are important in special-order and make-or-buy decisions, but not in keep-or-drop decisions

Accepted Answer

Opportunity costs are important in all types of decisions, including keep-or-drop decisions.

Question 2

In deciding whether to eliminate a business segment, managers should consider which costs and benefits will change as a result of the decision

Accepted Answer

Managers should consider the costs and benefits that will be affected by eliminating a business segment before making a decision. This includes factors such as revenue, expenses, sales volume, customer satisfaction, employee morale, and the impact on the organization's overall strategy and goals. By weighing these factors, managers can make an informed decision about whether to continue or eliminate the segment.

Question 3

If machine hours are a constraining factor, the product with the highest contribution margin per machine hour should be prioritized in production

Accepted Answer

Prioritizing the product with the highest contribution margin per machine hour ensures that the limited resource of machine hours is utilized in the most profitable manner.

Question 4

A relevant cost is one that will not change depending upon which alternative is selected

Accepted Answer

A relevant cost is one that is affected by the decision being made and will differ between alternative options.

Question 5

Which of the following is not a step in the managerial decision-making process?
A) Identify the activity cost drivers.
B) Review the results of the decision-making process.
C) Determine the alternatives.
D) Evaluate the costs and benefits of the alternatives.

Accepted Answer

Identifying activity cost drivers is a step in activity-based costing (ABC), but it is not a step in the managerial decision-making process. The other options, including determining alternatives, evaluating costs and benefits, and reviewing results, are all steps in the decision-making process.

Question 6

A product should be processed further if no additional fixed costs are incurred in its processing

Accepted Answer

Whether a product should be processed further depends on whether the incremental revenue from such processing exceeds the incremental variable costs, not just the absence of additional fixed costs.

Question 7

A sunk cost is never a relevant cost

Accepted Answer

A sunk cost is a cost that has already been incurred and cannot be recovered. It is not relevant to future decision making because it cannot be changed or avoided. Therefore, it should not be considered when making future decisions.

Question 8

Which of the following steps in the managerial decision-making process involves differential analysis?
A) Identify the decision problem.
B) Determine the decision alternatives.
C) Evaluate the costs and benefits of the alternatives.
D) Make the decision.

Accepted Answer

Differential analysis involves evaluating the costs and benefits of different alternatives. Therefore, the correct step in the managerial decision-making process that involves differential analysis is C - Evaluate the costs and benefits of the alternatives.

Question 9

The segment margin is the contribution margin of a particular segment

Accepted Answer

The answer of The segment margin is the contribution margin...

Question 10

Which of the following is not a step in the managerial decision-making process?
A) Identify the decision problem.
B) Calculate the payback period.
C) Determine the decision alternatives.
D) Evaluate the costs and benefits of the alternatives.

Accepted Answer

Calculating the payback period is not a step in the managerial decision-making process. The steps in the process typically include identifying the decision problem, determining the decision alternatives, evaluating the costs and benefits of the alternatives, and choosing and implementing the best alternative. Payback period calculations are more commonly used in financial decision-making.

Question 11

When managers make a decision, they base it strictly on the numerical analysis performed in step three of the decision making process

Accepted Answer

Step three, which involves analyzing the options and gathering relevant information, is just one part of the decision making process. Managers also consider other factors such as intuition, experience, and ethical concerns before making a final decision.

Question 12

An avoidable cost is one that has already been spent

Accepted Answer

An avoidable cost refers to future expenses that can be eliminated if a certain decision is made. It has not already been spent; rather, it can be avoided going forward.

Question 13

Opportunity costs are not relevant when a company has idle capacity

Accepted Answer

The answer of Opportunity costs are not relevant when a...

Question 14

The final step in the decision making process is to:
A) make the decision.
B) identify the decision problem.
C) evaluate costs and benefits of alternatives.
D) review the results of the decision.

Accepted Answer

The final step in the decision-making process is to review the results of the decision. This step is crucial for learning and improving future decision-making processes by evaluating the outcomes against the expected results.

Question 15

The first step in the managerial decision making process is to:
A) identify the decision problem.
B) determine the decision alternatives.
C) make the decision.
D) evaluate costs and benefits.

Accepted Answer

The first step in the managerial decision making process is to identify the decision problem. Without a clear understanding of the problem, it is impossible to determine alternatives, make a decision, or evaluate costs and benefits. Identifying the decision problem involves defining the goal or objective, collecting relevant data, and identifying any constraints or limitations.

Question 16

If a company has idle capacity, it means it has reached the limit on its resources

Accepted Answer

If a company has idle capacity, it means it has resources that are not being utilized or maximized. It has not reached the limit on its resources.

Question 17

A special-order decision analysis should not be used if the firm is operating at full capacity

Accepted Answer

A special-order decision analysis can still be used when a firm is operating at full capacity to evaluate the profitability and feasibility of accepting the order, which might involve considering opportunity costs or the potential for expanding capacity.

Question 18

An opportunity cost is the foregone benefit of choosing to do one thing instead of another

Accepted Answer

This is the definition of opportunity cost.

Question 19

The quality of the goods in question is irrelevant to a make-or-buy decision

Accepted Answer

The quality of the goods is a crucial factor in a make-or-buy decision, as it impacts customer satisfaction, brand reputation, and compliance with standards, influencing the overall decision on whether to produce in-house or purchase from external suppliers.

Question 20

A special-order decision analysis should not be used to make long-term pricing decisions

Accepted Answer

Special-order decisions are usually short-term in nature and involve making decisions about whether to fulfill a one-time order at a given price. Long-term pricing decisions are generally strategic and involve setting prices for a range of products or services over an extended period of time, and thus require a different approach to analysis and decision-making.

Quiz 7: Incremental Analysis for Short-Term Decision Making