Question 1

The quality of the goods in question is irrelevant to a make-or-buy decision.The quality of the goods in question is a qualitative factor that should be considered in a make-or-buy decision.

Accepted Answer

The quality of the goods in question is a factor that should always be considered in a make-or-buy decision. Poor quality goods may lead to customer dissatisfaction, product failures, and increased costs in the long run. Therefore, it is important to evaluate the quality of the goods before making a decision to make or buy them.

Question 2

Another term for relevant cost is opportunity cost.Other terms for relevant costs include differential costs,incremental costs,and avoidable costs.Opportunity costs can be relevant,but the two are not synonymous.

Accepted Answer

Opportunity cost is not synonymous with relevant cost, although it can be relevant in decision-making. Relevant costs are those that will be affected by a decision, while opportunity cost refers to the benefits foregone by choosing one alternative over another.

Question 3

The first step in the managerial decision making process is to identify the decision problem.The first step in the managerial decision making process is to identify the decision problem.

Accepted Answer

This is correct. The first step in the managerial decision making process is to identify the decision problem. Only after the problem is identified can the decision making process continue with gathering information, evaluating alternatives, making a choice, and implementing the decision.

Question 4

A sunk cost is never a relevant cost.Sunk costs cannot change depending on the alternative,so they are never relevant.

Accepted Answer

Sunk costs are costs that have already been incurred and cannot be recovered regardless of the alternative chosen. Therefore, they are not relevant to future decisions and cannot be changed by choosing a different alternative.

Question 5

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

Accepted Answer

A relevant cost is one that will change depending on which alternative is selected.

Question 6

Opportunity costs are important in special-order and make-or-buy decisions,but not in keep-or-drop decisions.Any time business managers must choose one alternative over another,they will face opportunity costs.

Accepted Answer

Opportunity costs are relevant in keep-or-drop decisions as well, as they represent the benefits foregone by not choosing the next best alternative.

Question 7

A special-order decision analysis cannot be used to make long-term pricing decisions.Prices must cover all costs if the company is to be profitable in the long run,and all costs are not considered in a special-order decision analysis.

Accepted Answer

Special-order decision analysis only considers the costs relevant to the specific order and does not take into account all the fixed costs and overhead expenses that must be covered to ensure long-term profitability.

Question 8

If a company has idle capacity,it means it has reached the limit on its resources.If a company has idle capacity,it means it has not yet reached the limit on its resources.

Accepted Answer

If a company has idle capacity, it means that it has resources that are not currently being utilized. Therefore, it has not yet reached the limit on its resources.

Question 9

A special-order decision analysis cannot be used if the firm is operating at full capacity.If the firm is operating at full capacity,the analysis must consider opportunity costs,but it can still be performed.

Accepted Answer

The answer of A special-order decision analysis cannot be used...

Question 10

When managers make a decision,they base it strictly on the numerical analysis performed in step three of the decision making process.Managers base decisions on the numerical analysis and a variety of other factors.

Accepted Answer

While numerical analysis is an important part of the decision making process, managers often consider other factors such as intuition, experience, and input from others before making a decision.

Question 11

Capacity is a measure of the limit placed on specific resources.This is the definition of capacity.

Accepted Answer

Capacity is indeed a measure of the limit placed on specific resources.

Question 12

If machine hours are a constraining factor,the product with the highest contribution margin per machine hour should be prioritized in production.Managers should maximize the contribution margin earned per amount of constrained resource.

Accepted Answer

This statement is true. Prioritizing the product with the highest contribution margin per machine hour will help maximize profits and efficiently use the constrained resource.

Question 13

A make-or-buy decision is the same as an insourcing versus outsourcing decision.Both terms are used for decisions about whether to perform an activity in-house or purchase it from an outside supplier.

Accepted Answer

Both terms refer to deciding whether to do a task or activity internally (insourcing) or externally (outsourcing) through purchasing from a supplier.

Question 14

An avoidable cost is one that has already been spent.An avoidable cost is one a manager can avoid by choosing one alternative instead of another.A sunk cost is one that has already been spent.

Accepted Answer

An avoidable cost is one that can be eliminated by choosing a different option, while a sunk cost is one that has already been incurred and cannot be recovered.

Question 15

Opportunity costs are not relevant when a company has idle capacity.If a company has idle capacity,it does not have to give up the opportunity to do something else.

Accepted Answer

When a company has idle capacity, it means that it has resources that are not being used. In this case, the company does not have to give up the opportunity to do something else, as it can simply use the idle capacity to produce more goods or services.

Question 16

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

Accepted Answer

The given definition accurately defines opportunity cost as the foregone benefit of choosing one option over another.

Question 17

In deciding whether to eliminate a business segment,managers should consider which costs and benefits will change as a result of the decision.Costs and benefits that will not change will not be relevant to the decision.

Accepted Answer

This statement is true as only costs and benefits that will change as a result of the decision to eliminate a business segment are relevant to the decision-making process. Costs and benefits that will not change are not relevant to the decision.

Question 18

A product should be processed further if no additional fixed costs are incurred in its processing.If the increased revenue from processing further is enough to offset the incremental cost,the product should be processed further.

Accepted Answer

The answer of A product should be processed further if...

Question 19

The final step in the decision making process is to make the decision.The final step in the decision making process is to review the results of the decision-making process.

Accepted Answer

The final step in the decision-making process is to review the results and evaluate the effectiveness of the decision, not just making the decision itself.

Question 20

The segment margin is the contribution margin of a particular segment.The segment margin is sales revenue less all costs that are directly attributable to the segment,including variable costs and direct fixed costs.

Accepted Answer

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

Quiz 7: Incremental Analysis for Short-Term Decision Making