Question 1

In early July,Mike Gottfried purchased a $70 ticket to the December 15 game of the Chicago Titans.(The Titans belong to the Midwest Football League and play their games outdoors on the shore of Lake Michigan. )Parking for the game was expected to cost approximately $22,and Gottfried would probably spend another $15 for a souvenir program and food.It is now December 14.The Titans were having a miserable season and the temperature was expected to peak at 5 degrees on game day.Mike therefore decided to skip the game and took his wife to the movies,with tickets and dinner costing $50.The sunk cost associated with this decision situation is:

Accepted Answer

The sunk cost is the $70 ticket that Mike purchased in July, as it is a cost that has already been incurred and cannot be recovered.

Question 2

Allegiance,Inc.has $125,000 of inventory that suffered minor smoke damage from a fire in the warehouse.The company can sell the goods "as is" for $45,000;alternatively,the goods can be cleaned and shipped to the firm's outlet center at a cost of $23,000.There the goods could be sold for $80,000.What alternative is more desirable and what is the relevant cost for that alternative?

Accepted Answer

The relevant cost for this alternative is the cost of cleaning and shipping, which is $23,000. The company would receive a net gain of $57,000 ($80,000 - $23,000) by choosing this alternative. Selling "as is" would result in a loss of $80,000 - $45,000 = $35,000. Therefore, cleaning and shipping to the outlet center is the more desirable alternative.

Question 3

The City of Columbus should not consider the purchase price of its old vehicle when making the decision to replace it with a more cost effective new vehicle.

Accepted Answer

True

Question 4

The book value of equipment currently owned by a company is an example of a(n):

Accepted Answer

The book value of equipment is a sunk cost, meaning that it is a cost that has already been incurred and cannot be recovered. It is not a future cost because it pertains to assets already owned, not to potential future costs. It is not a differential or comparative cost because it does not involve comparing two different options or choices. And it is not an opportunity cost because it is not a potential benefit that is given up by choosing one option over another.

Question 5

A trade-off in a decision situation sometimes occurs between information:

Accepted Answer

In a decision situation, sometimes there is a trade-off between accuracy and timeliness of the information. It is important to have accurate information, but sometimes decisions need to be made quickly, so timely information can be more useful. However, if the information is not accurate, it can lead to poor decision-making. Therefore, finding the right balance between accuracy and timeliness can be a challenge.

Question 6

An accounting information system should be designed to provide information that is useful.To be useful the information must be:

Accepted Answer

The information provided by an accounting information system must be relevant, accurate, and timely to be useful. Qualitative information may be valuable, but quantitative information is also necessary for decision-making. Uniqueness is not necessarily a requirement for information to be useful, and historical information can sometimes be used to make predictions about the future. Marginal information is not particularly helpful.

Question 7

Managerial accountants:

Accepted Answer

Managerial accountants collect data and provide information to assist in decision making, and they often serve as cross-functional team members, making a wide range of decisions. Therefore, choice E is the best option. Choices A and B are incorrect because managerial accountants are heavily involved in an organization's decision-making activities, not just accounting matters. Choice C is partially correct, but managerial accountants do more than just collect data; they also analyze and interpret it.

Question 8

Factors in a decision problem that cannot be expressed in numerical terms are:

Accepted Answer

Qualitative factors refer to aspects of a decision problem that cannot be expressed in numerical terms. These may include personal preferences, cultural factors, ethical considerations, and other subjective factors that cannot be quantified.

Question 9

The following costs are relevant to the decision situation cited except:

Accepted Answer

The cost to enhance an airline's website is not directly relevant to the decision of expanding service to Salt Lake City or Phoenix, as it does not impact the choice between these two locations.

Question 10

Flowers Company is operating at capacity and wants to add a new service to its expanding business.The new service should be added as long as service revenues exceed the sum of variable costs and fixed costs.

Accepted Answer

The answer of Flowers Company is operating at capacity and...

Question 11

Which of the following costs can be ignored when making a decision?

Accepted Answer

Sunk costs are costs that have already been incurred and cannot be recovered, so they should be ignored when making decisions. Opportunity costs, differential costs, and relevant costs are all important factors in decision making. All future costs may or may not be relevant depending on the decision being made.

Question 12

Which of the following best defines the concept of a relevant cost?

Accepted Answer

A relevant cost is a future cost that differs among alternatives. It is a cost that is directly affected by a decision and can be avoided or saved by choosing one alternative over another. Past costs are not relevant because they cannot be changed or influenced by current or future decisions.

Question 13

A firm that decides to emphasize those goods with the highest contribution margin per unit may have made an incorrect decision when the company has capacity constraints in the form of limited resources.

Accepted Answer

Emphasizing goods with the highest contribution margin per unit may not be the best decision when a company has capacity constraints in the form of limited resources. It could lead to inefficiencies and lost opportunities for products with lower contribution margins but higher demand or faster production times.

Question 14

The cost of inventory currently owned by a company is an example of a(n):

Accepted Answer

Sunk costs are past costs that have already been incurred and cannot be recovered. The cost of inventory currently owned by a company is considered a sunk cost because it represents money that has already been spent and cannot be recovered, regardless of future actions.

Question 15

At which step or steps in the decision-making process do qualitative considerations generally have the greatest impact?

Accepted Answer

The answer of At which step or steps in the...

Question 16

To be useful in decision making,information should possess which of the following characteristics?

Accepted Answer

The answer of To be useful in decision making,information should...

Question 17

Consider the following costs and decision-making situations:
I.The cost of existing inventory,in a keep vs.disposal decision.
II.The cost of special electrical wiring,in an equipment acquisition decision.
III.The salary of a supervisor who will be transferred elsewhere in the organization,in a department-closure decision.
Which of the above costs is (are)relevant to the decision situation noted?

Accepted Answer

The cost of special electrical wiring in an equipment acquisition decision is relevant because it is a future cost that will differ between alternatives. The cost of existing inventory (sunk cost) and the salary of a supervisor who will be transferred (no additional cost) are not relevant to the decisions noted.

Question 18

The City of Miami is about to replace an old fire truck with a new vehicle in an effort to save maintenance and other operating costs.Which of the following items,all related to the transaction,would not be considered in the decision?

Accepted Answer

The purchase price of the old vehicle is not relevant because the decision has already been made to replace it with a new one. The focus is on the costs and benefits of the new vehicle.

Question 19

The term "opportunity cost" is best defined as the benefit associated with a rejected alternative when making a choice.

Accepted Answer

Opportunity cost is the benefit or value of the next best alternative that has to be foregone in order to pursue a certain action or decision. It is the cost of the opportunity lost, not the cost of the actual decision made.

Question 20

The concept of a relevant cost can be defined as a past cost that differs among alternatives.

Accepted Answer

The concept of a relevant cost refers to future costs that differ among alternatives, not past costs.

Quiz 14: Decision Making: Relevant Costs and Benefits