Question 1

Identify the four steps in the decision-making process.

Accepted Answer

1.Define business goals.
2.Identify alternative courses of action.
3.Gather and analyze relevant information: compare alternatives.
4.Choose the best alternative.

Question 2

Which of the following is irrelevant when deciding to upgrade a company's heating and air conditioning system?

Accepted Answer

The purchase price of the old equipment is irrelevant when deciding to upgrade a company's heating and air conditioning system because it does not determine the quality or effectiveness of the new equipment. The energy efficiency of the old and new equipment, the safety of the new equipment, and the productivity of the equipment are all relevant factors to consider.

Question 3

If a business is considering buying a new vehicle,the cost of the insurance premium is relevant to the business decision.

Accepted Answer

The insurance premium is an additional cost that the business must consider when making a decision to purchase a new vehicle. It can affect the overall cost of ownership and impact the business's financial position.

Question 4

Fletcher Company is trying to decide whether to trade in equipment used in its manufacturing process for a newer model.The new equipment will save money because it will be more efficient to use.Indicate if the following items are relevant or irrelevant to this decision.
 $$\begin{array} { | l | l | } 
\hline \text { Item } & \begin{array} { c } 
\text { Relevant or } \
\text { Irrelevant }
\end{array} \
\hline \text { The price of the new equipment } & \
\hline \text { The price paid for the old equipment } & \
\hline \text { The trade in value of the old equipment } & \
\hline \text { The repair costs that will be incurred if the old } \
\text { equipment is kept } & \
\hline \text { The expected cost savings of the new equipment } & \
\hline \text { The costs that have been incurred on the old equipment } & \
\hline
\end{array}$$

Accepted Answer

The answer of Fletcher Company is trying to decide whether...

Question 5

Define the terms Relevant Cost and Sunk Cost.

Accepted Answer

The answer of Define the terms Relevant Cost and Sunk...

Question 6

Differential analysis is a method that looks at how operating income would differ under each budget scenario.

Accepted Answer

Differential analysis is a method that looks at how operating income would differ under each decision alternative.

Question 7

Which of the following is always irrelevant to short-term operating decisions?

Accepted Answer

Sunk costs are costs that have already been incurred and cannot be changed or recovered, so they are always irrelevant to short-term operating decisions. Relevant costs, differential costs, and opportunity costs are all important factors to consider when making short-term operating decisions.

Question 8

Bradley Industries is considering replacing a machine that is presently used in its production process. Which of the following is irrelevant to the replacement decision?
$\begin{array}{|l|r|c|} 
\hline& \text { Old Machine } & \begin{array}{c}
\text { Replacement } \
\text { Machine }
\end{array} \
\hline \text { Original cost } & \$ 55,000 & \$ 45,000 \\hline \text { Remaining useful life in years } & 5 & 5 \
\hline \text { Current age in years } & 5 & 0 \
\hline \text { Book value } & \$ 33,000 & \\hline \text { Current disposal value in cash } & \$ 9000 & \
\hline \text { Future disposal value in cash (in 5 years) } & \$ 0 & \$ 0 \
\hline \text { Annual cash operating costs } & \$ 8000 & \$ 4500\
\hline
\end{array}$ Which of the information provided in the table is irrelevant to the replacement decision?

Accepted Answer

The original cost of the old machine is irrelevant to the replacement decision because it is a sunk cost. Sunk costs are costs that have already been incurred and cannot be recovered. Therefore, they should not be considered when making a replacement decision.

Question 9

Costs that do NOT differ between alternatives are ________.

Accepted Answer

Costs that do not differ between alternatives are considered irrelevant to the decision because they do not affect the choice between the alternatives. Only the costs that differ between the alternatives are relevant as they help in determining which alternative is more cost-effective or has a higher return on investment.

Question 10

Fuller Industries is considering replacing a machine that is presently used in its production process.Which of the following amounts represents a sunk cost? $\begin{array}{|l|r|c|} 
\hline& \text { Old Machine } & \begin{array}{c}
\text { Replacement } \
\text { Machine }
\end{array} \
\hline \text { Original cost } & \$ 55,000 & \$ 45,000 \\hline \text { Remaining useful life in years } & 5 & 5 \
\hline \text { Current age in years } & 5 & 0 \
\hline \text { Book value } & \$ 30,000 & \\hline \text { Current disposal value in cash } & \$ 9000 & \
\hline \text { Future disposal value in cash (in 5 years) } & \$ 0 & \$ 0 \
\hline \text { Annual cash operating costs } & \$ 8000 & \$ 4500\
\hline
\end{array}$

Accepted Answer

The original cost of the old machine ($55,000) is a sunk cost because it has already been incurred and cannot be recovered.

Question 11

Which of the following is NOT one of the steps in the managerial decision-making process?

Accepted Answer

Basing decisions on sunk costs is not a step in the managerial decision-making process. The other three choices (defining business goals, identifying alternative courses of action, and gathering and analyzing relevant information) are all important steps in the process.

Question 12

A company is planning to replace an old machine with a new one.Which of the following is a sunk cost?

Accepted Answer

A sunk cost is a cost that has already been incurred and cannot be recovered. The original cost of the old machine is a sunk cost, as it has already been paid and cannot be recovered. The cost of the new machine, the sales price of the old machine, and future maintenance costs of the old machine are not sunk costs, as they are all future costs or potential revenue streams that have not yet occurred.

Question 13

Tryniski Company is considering purchasing a new truck.The decision has been narrowed to two models.The cost of each of these two trucks is relevant to this business decision.

Accepted Answer

The cost of each truck is relevant to the business decision, as it will impact the financial resources of the company.

Question 14

When considering whether to replace the building roof,the total amount paid for previous roof repairs is relevant to the business decision.

Accepted Answer

The decision to replace a building's roof should be based on the current condition of the roof, the expected lifespan of any repairs versus a new roof, and the cost-effectiveness of replacement versus ongoing repairs, not solely on past repair costs.

Question 15

A depreciable asset's original cost is relevant when considering whether to replace the asset.

Accepted Answer

The answer of A depreciable asset's original cost is relevant...

Question 16

Managerial accountants assist managers in the decision-making process by gathering and analyzing relevant information.

Accepted Answer

This is the primary role of managerial accountants. They use their expertise to provide information and analysis to assist managers with making informed decisions.

Question 17

When replacing an old asset with a new one,the original purchase price of the old asset represents a(n________ cost.

Accepted Answer

The sunk cost is the cost that has already been incurred and cannot be recovered or changed. Therefore, the original purchase price of the old asset is a sunk cost, as it cannot be altered or recovered once the old asset has been replaced. The other options - relevant, differential, and opportunity costs - do not apply in this scenario as they are related to making decisions for future investments or choices.

Question 18

Management decisions are based primarily on quantitative data because the qualitative factors are usually not relevant to the decision-making process.

Accepted Answer

Management decisions should take into account both quantitative and qualitative factors. Quantitative data provides measurable metrics, such as sales figures and financial ratios, while qualitative factors, such as customer satisfaction and employee morale, can have significant impact on the success of a business. Ignoring qualitative factors can lead to incomplete or flawed decision-making.

Question 19

A sunk cost is a cost that was incurred in the past and cannot be changed regardless of what future action is taken.

Accepted Answer

A sunk cost is a cost that has already been incurred and cannot be recovered or changed, no matter what decision or action is taken in the future.

Question 20

If a business is considering whether to replace old equipment with newer equipment,the cost of operating the old equipment,compared to the cost of operating the new equipment,is relevant to the business decision.

Accepted Answer

The cost of operating the old equipment compared to the cost of operating the new equipment is relevant to the business decision as it can impact the overall profitability and efficiency of the business.

Quiz 8: Short-Term Business Decisions