Question 1

One of the behavioral problems with relevant cost analysis is a possible overemphasis on:
A) Short-term goals.
B) Unit fixed costs.
C) Opportunity costs.
D) Strategic goals.
E) Goal congruency issues.

Accepted Answer

Relevant cost analysis focuses on considering only the costs and benefits that are relevant to the decision at hand. However, one of the potential behavioral problems with this approach is that decision-makers may overemphasize short-term goals or immediate cost savings, rather than considering the long-term strategic goals of the organization. This can result in decisions that may be cost-effective in the short-term but may not be optimal in the long-term.

Question 2

Which one of the following issues would least likely be addressed during the regular review of product profitability?
A) Which product managers should be rewarded?
B) Which products are most profitable?
C) Which products provide the greatest contribution margin per unit of any scarce resources?
D) Which products should be promoted and advertised most aggressively?
E) Are the products priced properly?

Accepted Answer

C

Question 3

Depreciation expense is relevant in a decision only in the context of:
A) Time value of money.
B) Amortized values.
C) Reducing the tax liability of the organization.
D) Determining sunk costs associated with the decision problem.
E) Regulatory reporting.

Accepted Answer

Depreciation expense is relevant in a decision-making context primarily because it can reduce the tax liability of an organization by lowering taxable income.

Question 4

Which one of the following is most descriptive of a strategic analysis conducted as part of a decision analysis?
A) Quantitative.
B) Customer focus.
C) Short-term orientation.
D) Individual product focus.
E) Differential costing.

Accepted Answer

A strategic analysis conducted as part of a decision analysis should be customer-focused, aiming to identify and analyze the needs and preferences of the target market in order to inform the decision-making process. This analysis may also incorporate some quantitative data, but this is not the primary focus. A strategic analysis should have a long-term orientation, considering the impact of decisions on the overall business, rather than just focusing on individual products. Differential costing may be considered as part of the analysis, but it is not the most descriptive aspect.

Question 5

A "special sales order" within the context of Chapter 11 is:
A) Typically expected.
B) A profitable opportunity to sell a specified quantity of a firm's product or service.
C) A one-time opportunity to sell a specified quantity of a product or service.
D) A particularly large customer order.
E) In most cases, a rush order.

Accepted Answer

A special sales order within the context of Chapter 11 is a one-time opportunity to sell a specified quantity of a product or service. It is often used by companies in bankruptcy to generate revenue and improve cash flow.

Question 6

All the following are characteristic of relevant costs except:
A) They are generally variable.
B) They are not committed.
C) They are different in amount for different options.
D) They are costs that will be incurred in the future.
E) They are confined to inventory-related (i.e., product) costs.

Accepted Answer

Relevant costs are not confined to inventory-related (i.e., product) costs. Relevant costs can include all costs that are applicable to a decision being made.

Question 7

The major problem with relevant cost determination is that it fails to recognize the:
A) Impact of variable costs in the long run.
B) Long-term nature of most product-related decisions.
C) "Sunk" nature of most fixed product costs.
D) Short-term nature of most product-related decisions.
E) Need to calculate costs more precisely.

Accepted Answer

The answer of The major problem with relevant cost determination...

Question 8

Which one of the following concepts is correct for determining relevant costs for short-term decision-making?
A) Differential.
B) Integrative.
C) Variable.
D) Subjective.
E) Absorption.

Accepted Answer

The concept of differential cost is appropriate for determining relevant costs for short-term decision-making. Differential cost refers to the difference in cost between two alternatives being considered. It includes all incremental costs and forgone costs that are directly caused by a specific decision. By comparing the differential costs of different options, management can choose the one that provides the greatest benefit for the company. Thus, Option A is the correct choice. Option B, C, D, and E do not apply to short-term decision-making.

Question 9

The decision to keep or drop products or services involves strategic consideration of all the following except:
A) Potential impact of the decision on the demand for the remaining products or services.
B) Potential impact of the decision on employee morale.
C) Potential impact of the decision on pricing of other products offered by the firm.
D) Growth potential of the firm.
E) The desired inventory levels of the product.

Accepted Answer

The desired inventory levels of the product are more of an operational concern rather than a strategic consideration when deciding to keep or drop products or services.

Question 10

A useful concept for solving production-planning problems involving multiple products and limited resources is:
A) Gross profit per unit of product.
B) Contribution per unit of scarce resource.
C) Value-stream costing.
D) Relevant cost pricing.
E) The contribution income statement.

Accepted Answer

The concept of contribution per unit of scarce resource helps in determining which product uses the limited resources more efficiently and which product may need to be prioritized over others. This can aid in production planning to optimize the use of resources and maximize profits.

Question 11

Determination of the optimum short-term product mix should focus on:
A) Fully absorbed costs.
B) Production (that is, resource) and demand constraints.
C) Sales-mix costs.
D) Revenue forecasts for each of the firm's products or services.
E) The relative sales values of the firm's outputs (goods or services).

Accepted Answer

The optimum short-term product mix should be determined based on the available resources and demand for each product. Production and demand constraints are crucial factors in deciding the product mix to ensure efficient utilization of resources and to meet customer needs. A and C are not relevant as fully absorbed costs and sales-mix costs may not provide a complete picture of profitability. D and E are also important but are only part of the overall consideration in determining the product mix.

Question 12

Operating at or near full capacity will require a firm considering a "special sales order" to potentially recognize the:
A) Opportunity cost from lost sales.
B) Value of full employment.
C) Use of operating leverage.
D) Likely increase in terms of the fixed cost associated with the order.
E) The amount of facility-level cost drivers.

Accepted Answer

Operating at or near full capacity means the firm does not have excess capacity to fulfill special sales orders without sacrificing regular sales, thus potentially losing out on revenue and profits (opportunity cost).

Question 13

The value-chain analysis used regarding the "make-or-buy decision" often leads a firm to make use of:
A) Activity-based costing (ABC).
B) Cost-volume profit (CVP) analysis.
C) Outsourcing options.
D) Relevant cost-based pricing.
E) Value stream accounting.

Accepted Answer

The make-or-buy decision involves analyzing the costs and benefits of producing a product or service in-house versus outsourcing it from another company. Therefore, outsourcing options are often considered in this analysis. Activity-based costing (ABC) and cost-volume profit (CVP) analysis may also be used to determine the costs of producing the product or service, but they do not directly address the make-or-buy decision. Relevant cost-based pricing and value stream accounting are not typically used in this particular analysis.

Question 14

Fixed costs will often be irrelevant for short-term decision making because they:
A) Do not vary on a per-unit-of-output basis.
B) Are the same each time period.
C) Typically do not differ in total between decision alternatives being considered.
D) Are not committed.
E) Cannot be estimated with precision.

Accepted Answer

Fixed costs do not vary between decision alternatives being considered, so they do not have an impact on short-term decision making. Only costs that are directly affected by the decision, such as variable costs, should be considered in short-term decision making.

Question 15

"Special sales orders," as this term is used in Chapter 11:
A) Generally arise from special marketing campaigns on the part of the seller.
B) Typically come directly from the customer rather than through normal sales or distribution channels.
C) Commonly represent a large part of a firm's overall business.
D) Are usually not profitable to a firm in the short run.
E) Do not involve long-term (that is, "normal") pricing considerations.

Accepted Answer

"Special sales orders" are orders that come directly from the customer rather than through normal sales or distribution channels. They may involve non-standard terms or specifications and may require customized production or delivery arrangements.

Question 16

A cost is not relevant for decision making if it:
A) Does not differ for each option available to the decision maker.
B) Changes from period to period.
C) Is a future cost.
D) Is a mixed cost.
E) Is a fixed cost.

Accepted Answer

A cost that does not differ for each option available to the decision maker is not relevant because it will not affect the decision between alternatives. Only costs that vary between options need to be considered when making a decision.

Question 17

When using relevant cost analysis, it is a common mistake for untrained managers to include in their analysis all the following except:
A) Sunk costs.
B) Allocated fixed costs.
C) Average fixed costs.
D) Unit variable costs.
E) Total fixed costs.

Accepted Answer

Unit variable costs are relevant in cost analysis because they change with the level of production or service activity, unlike sunk costs, allocated fixed costs, average fixed costs, and total fixed costs, which are typically not relevant for decision-making as they do not change with the decision at hand.

Question 18

"Committed" and "Sunk" costs are:
A) Generally not fixed.
B) Generally small in amount.
C) The result of prior bad decisions.
D) Not relevant for decision-making.
E) Recoverable in trade.

Accepted Answer

Committed and sunk costs refer to costs that have already been incurred and cannot be recovered or changed. These costs are not relevant for decision-making since they cannot be altered by future actions.

Question 19

Done on a regular basis, relevant cost pricing in "special-order decisions" can erode normal pricing policies and lead to:
A) Overconfidence in decision-making.
B) A decrease in the firm's long-term profitability.
C) Goal congruence between management and sales personnel.
D) A cost leadership strategy.
E) Maximization of the internal value stream.

Accepted Answer

Regular use of relevant cost pricing in special-order decisions could cause a decrease in the firm's long-term profitability, as it can erode normal pricing policies, which might eventually lead to financial losses or lower profits. Therefore, it is important to evaluate the costs and benefits of accepting special-order decisions properly.

Question 20

Variable costs will generally be relevant for decision making because they:
A) Differ between decision options.
B) Are volume-based.
C) Have not been committed and are likely to differ between decision alternatives.
D) Differ between decision options and have been committed.
E) Measure opportunity cost.

Accepted Answer

Variable costs are those costs that vary with production or sales volume and have not yet been committed. As decision making involves choosing between different alternatives, variable costs will generally be relevant because they can differ between options and affect the overall profitability of each alternative. Also, committed costs (such as fixed costs) are not relevant for decision making because they cannot be changed, while variable costs can be controlled and reduced.

Quiz 11: Decision Making With a Strategic Emphasis

One of the behavioral problems with relevant cost analysis is a possible overemphasis on:

Which one of the following issues would least likely be addressed during the regular review of product profitability?

Depreciation expense is relevant in a decision only in the context of:

Which one of the following is most descriptive of a strategic analysis conducted as part of a decision analysis?

A "special sales order" within the context of Chapter 11 is:

All the following are characteristic of relevant costs except:

The major problem with relevant cost determination is that it fails to recognize the:

Which one of the following concepts is correct for determining relevant costs for short-term decision-making?

The decision to keep or drop products or services involves strategic consideration of all the following except:

A useful concept for solving production-planning problems involving multiple products and limited resources is:

Determination of the optimum short-term product mix should focus on:

Operating at or near full capacity will require a firm considering a "special sales order" to potentially recognize the:

The value-chain analysis used regarding the "make-or-buy decision" often leads a firm to make use of:

Fixed costs will often be irrelevant for short-term decision making because they:

"Special sales orders," as this term is used in Chapter 11:

A cost is not relevant for decision making if it:

When using relevant cost analysis, it is a common mistake for untrained managers to include in their analysis all the following except:

"Committed" and "Sunk" costs are:

Done on a regular basis, relevant cost pricing in "special-order decisions" can erode normal pricing policies and lead to:

Variable costs will generally be relevant for decision making because they: