Question 1

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

Accepted Answer

Qualitative factors are outcomes that cannot be measured in numerical terms, such as customer satisfaction or brand reputation. Direct labor costs are an example of a quantitative factor.

Question 2

Sunk costs are past costs that are unavoidable.

Accepted Answer

Sunk costs refer to costs that have already been incurred and cannot be recovered regardless of future actions or decisions. They are considered unavoidable because they are already spent and cannot be recovered.

Question 3

Bid prices and costs that are relevant for regular orders are the same costs that are relevant for one-time-only special orders.

Accepted Answer

Bid prices and costs that are relevant for regular orders may not be the same for one-time-only special orders because special orders may require different materials, labor, or production processes that could increase costs. Therefore, it is important to consider the specific costs and requirements for each type of order separately.

Question 4

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

Accepted Answer

Full costs of a product include both variable costs and fixed costs.

Question 5

For one-time-only special orders, fixed costs may be relevant but NOT variable costs.

Accepted Answer

For one-time-only special orders, variable costs may be relevant but not fixed costs.

Question 6

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 partially on qualitative factors.

Accepted Answer

The statement is true. Qualitative factors, such as trust, reliability, and communication, can play a significant role in the decision-making process for a manufacturer when it comes to purchasing direct materials from a supplier.

Question 7

The price quoted for a one-time-only special order may be LESS than the price for a long-term customer.

Accepted Answer

This is because a special order may involve factors such as bulk buying or specific requirements that allow for negotiated discounts, while a long-term customer may have already received discounts and negotiated prices.

Question 8

The cost of a machine purchased last year will be irrelevant in a decision for next year.

Accepted Answer

The cost of a machine purchased last year is a sunk cost and cannot be recovered regardless of the decision made next year. Therefore, it should not be considered in making decisions for next year.

Question 9

In a one-time special order situation, if the price offered by the buyer is less than the absorption cost per unit, the special order may still be profitable since absorption costs include allocated fixed manufacturing overhead.

Accepted Answer

This is because absorption costing allocates fixed overhead costs to units of production, so the per unit absorption cost includes a portion of the fixed overhead cost. Therefore, even if the price offered by the buyer is less than the variable cost per unit, the additional contribution from allocating some fixed overhead costs may make the special order profitable.

Question 10

Quantitative factors are outcomes that are measured in numerical terms.

Accepted Answer

Quantitative factors are outcomes that are measurable in numerical terms, such as revenue, sales figures, or customer satisfaction scores.

Question 11

A sunk cost can never be relevant.

Accepted Answer

A sunk cost is a cost that has already been incurred and cannot be recovered. Therefore, it is not relevant to any future decisions.

Question 12

An incremental product cost is generally a fixed cost.

Accepted Answer

An incremental product cost is variable and varies with each unit produced. Fixed costs remain constant regardless of the quantity produced.

Question 13

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

Accepted Answer

Variable cost per unit is the best product cost to use for one-time-only special order decisions as it considers all the costs that vary with the level of production and provides a more accurate estimate of the true cost of producing an additional unit. Fixed costs are not relevant in one-time-only decisions as they do not change with changes in production levels.

Question 14

Qualitative factors, because they are NOT measured numerically, are unimportant in the decision-making process.

Accepted Answer

Qualitative factors can be important in the decision-making process. While they may not be measured numerically, they can provide valuable insights and considerations for decision-makers. Factors such as company culture, brand reputation, and customer satisfaction are all qualitative factors that can impact business decisions.

Question 15

If additional capacity is added to produce another 10,000 units, this may increase the fixed cost of rent.

Accepted Answer

Adding additional capacity may require the business to rent a larger space or pay more rent for the existing space, thus increasing the fixed cost of rent.

Question 16

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

Accepted Answer

Managers also need to consider qualitative factors, strategic alignment, and potential risks when selecting among alternatives.

Question 17

In relevant cost analysis, managers should avoid incorrect general assumptions and beware of misleading unit cost information.

Accepted Answer

In relevant cost analysis, managers need to consider only those costs and revenues that are relevant to a specific decision. If incorrect general assumptions or misleading unit cost information is used, it may lead to incorrect decision-making. Therefore, managers should avoid such errors and carefully analyze only the relevant information.

Question 18

Sometimes qualitative factors are the most important factors in make-or-buy decisions.

Accepted Answer

Qualitative factors, such as quality control, intellectual property protection, and organizational culture fit, may be critical considerations in deciding whether to outsource or keep production in-house.

Question 19

If Option 1 costs $120 and Option 2 costs $90, then the differential cost is $210.

Accepted Answer

The differential cost is the difference between the costs of Option 1 and Option 2, which is $120 - $90 = $30.

Question 20

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

Accepted Answer

For one-time-only special order pricing decisions, only the incremental costs directly associated with the order are relevant, not the full costs.

Quiz 11: Decision Making and Relevant Information