Question 1

What characteristics must qualitative information have to be relevant to a particular decision?

Accepted Answer

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Question 2

Discuss the conflict that often occurs between short-run and long-run performance in asset replacement decisions.

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Question 3

For an equipment replacement decision,what costs are relevant,and what costs are not relevant?

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The answer of For an equipment replacement decision,what costs are...

Question 4

If managers' performance is evaluated solely on the current year's profitability,managers are likely to make decisions that lead to the company's long-term profitability.

Accepted Answer

If managers' performance is evaluated solely on the current year's profitability, they are likely to make short-term decisions that may sacrifice long-term profitability for immediate gains.

Question 5

How can a manager's time horizon affect his/her decision making?

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Question 6

How can managers manage (that is,reduce the impact of)constraints?

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Question 7

What is a segment elimination decision? Under what conditions should a company decide to eliminate a segment?

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Question 8

The practice of relaxing constraints is likely to increase a business's profitability.

Accepted Answer

Many businesses use a management practice known as the theory of constraints (TOC)to increase profitability by managing bottlenecks or constrained resources.
Essay Questions

Question 9

Discuss why qualitative characteristics must be considered when making decisions such as special orders,outsourcing,elimination and replacement decisions and scarce resource allocation decisions.Give examples.

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Question 10

A company that is subject to the effect of a scarce resource should concentrate on providing products or services that give the greatest contribution margin per unit of product or service.

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Question 11

Smith Company makes three different products,each of which must pass through one very expensive machine.Assuming that availability of machine time is limited to 4,000 hours per year,which is less than the 5,000 hours demanded,how should the company decide which product to make?

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Question 12

Select the term from the list provided that best matches each of the following descriptions.Put the number of the term in the column for Your Answer.

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Question 13

A company's compensation system for its managers should provide incentives for the managers to maximize the company's long-term profitability.

Accepted Answer

A compensation system that incentivizes managers to maximize long-term profitability aligns their goals with the company's overall success and encourages responsible decision-making.

Question 14

What are constraints? Provide an example.

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The answer of What are constraints? Provide an example....

Question 15

Variable costs that are proxies for long-term costs should be used to measure profitability.

Accepted Answer

To the extent that variable costs are proxies for avoidable costs,the contribution margin can be used as a measure of profitability.

Question 16

A constraint is a factor that restricts sales of a company's products or services.

Accepted Answer

A constraint limits or hinders the sales or production of a company's products or services. It could be due to factors like limited resources or competition.

Question 17

The market value of equipment owned by a company is a sunk cost and should not be taken into account in deciding whether or not to replace the equipment.

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Question 18

How would you determine whether a particular cost is unit-level or batch-level? Use as an example: product inspection costs.

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Question 19

Taylor Company is considering whether or not to replace a drill press that is several years old.The current market value of the old equipment is an opportunity cost of replacing the drill press.

Accepted Answer

The market value of the old equipment is a potential benefit or opportunity cost that should be considered in the decision to replace or keep the drill press.

Question 20

For many managerial decisions (such as outsourcing and special order decisions),unit-level costs are avoidable costs.

Accepted Answer

Unit-level costs are those costs that vary depending on the number of units produced or sold, and they can be avoided if the activity is not undertaken or outsourced. Therefore, for managerial decisions such as outsourcing and special order decisions, unit-level costs are avoidable costs.

Quiz 6: Relevant Information for Special Decisions