Question 1

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

Accepted Answer

Contribution per unit of scarce resource is the most appropriate device for dealing with production problems involving multiple products and limited resources because it helps in identifying the most profitable product that can be produced with the limited resources. This method involves calculating the contribution margin per unit of each product and dividing it by the amount of scarce resource used in producing that unit. This gives us a measure of the profit generated for each unit of scarce resource used. By comparing the contribution per unit of scarce resource for each product, we can decide which product to produce to maximize profits.

Question 2

Fixed costs will often be irrelevant because they:
A)Are fixed in amount.
B)Are the same each time period.
C)Typically do not differ between options.
D)Are not committed.

Accepted Answer

Fixed costs are those costs that do not vary with the level of production or sales. Therefore, they do not differ between options and are not relevant in making decisions between those options. It is the variable costs that are important in decision-making as they change with the level of production or sales.

Question 3

A cost is not relevant 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 does not affect the decision-making process. Relevant costs are those that vary between different options and have an impact on the decision.

Question 4

Operating at or near full capacity will require a firm considering a special order to recognize potentially the:
A)Opportunity cost from lost sales.
B)Value of full employment.
C)Time value of money.
D)Need for good management.
E)Value of capacity resource management.

Accepted Answer

If a firm is already operating at or near full capacity, it may not have the ability to fulfill a special order without sacrificing sales of its regular products. Recognizing the opportunity cost from lost sales is crucial in making the decision to take on the special order or not.

Question 5

Which one of the following is correct for determining relevant costs?
A)Differential.
B)Integrative.
C)Long-term focus.
D)Subjective.
E)Opportunistic.

Accepted Answer

Differential costs are the relevant costs that are incurred due to a specific decision or alternative. These costs differ between the alternatives and help in the decision-making process. Option B is incorrect as integrative costs are not relevant costs but instead are the costs that are spread across multiple products or departments. Option C (long-term focus) and option E (opportunistic) do not relate specifically to relevant costs. Option D (subjective) is incorrect as relevant costs need to be objective and verifiable.

Question 6

The decision to keep or drop products or services involves strategic consideration of all the following except:
A)Potential impact on remaining products or services.
B)Impact on employee morale.
C)Impact on organizational effectiveness.
D)Growth potential of the firm.
E)The current inventory of the product.

Accepted Answer

The current inventory of the product may be a tactical consideration, but it is not a strategic one. The other options all involve strategic considerations when making a decision to keep or drop a product or service.

Question 7

Committed,or "sunk" costs are generally:
A)Not fixed.
B)Small in amount.
C)From bad decisions.
D)Occurred in the past.
E)Recoverable in trade.

Accepted Answer

Sunk costs are costs that have already been incurred and cannot be recovered. They are "sunk" because they are in the past and cannot be undone or changed.

Question 8

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 in the future.
E)They are inventory costs.

Accepted Answer

Relevant costs are future costs that will differ among different options, and they are not necessarily variable or uncommitted. However, they are not inventory costs, but rather costs that are necessary to consider in decision making.

Question 9

An effective analysis of sales mix needs to include an analysis of:
A)Value chain analysis.
B)Production constraints.
C)Sales mix costing.
D)Revenue forecasting.
E)Joint manufacturing costs.

Accepted Answer

An effective sales mix analysis should consider production constraints, as these can impact the ability to produce and sell different products, thus affecting the overall sales mix.

Question 10

A special order is:
A)Typically expected.
B)A profitable opportunity to sell a specified quantity of a firm's product or service.
C)Typically unexpected.
D)A particularly large customer order.
E)A rush order.

Accepted Answer

The answer of A special order is:
A)Typically expected.
B)A profitable opportunity...

Question 11

Special orders:
A)Are frequent.
B)Are infrequent.
C)Commonly represent a large part of a firm's overall business.
D)Can never be profitable to a firm.

Accepted Answer

Special orders are infrequent because they involve unique or non-standard requests from customers that are not part of the regular operations of a business. They may represent a large part of a firm's overall business in certain industries or at certain times, but they are not a common occurrence. While special orders may not always be profitable to a firm, they can also offer opportunities for revenue growth and customer satisfaction.

Question 12

Which one of the following is most descriptive of strategic analysis?
A)Quantitative.
B)Customer focus.
C)Short-term focus.
D)Individual product focus.
E)Not linked to the firm's strategy.

Accepted Answer

Strategic analysis is a customer-focused process that aims to understand and meet the needs of the target audience. It involves analyzing market trends, competition, customer preferences, and internal strengths and weaknesses to develop a plan of action that aligns with the organization's objectives. Quantitative analysis is a tool used in strategic analysis, but it is not the only factor considered. Strategic analysis typically takes a long-term perspective and considers the overall strategy of the organization rather than focusing solely on individual products or short-term goals.

Question 13

Depreciation is a relevant cost in a decision only in the context of:
A)Time value of money.
B)Amortized values.
C)Reducing tax liability.
D)Sunk cost.
E)Financial accounting.

Accepted Answer

Depreciation is relevant in decision-making when it affects cash flows, such as reducing tax liability, because it is a non-cash expense that can lower taxable income.

Question 14

The value chain analysis used in connection with the make or buy decision often leads a firm to make use of:
A)Activity-based costing.
B)Cost-volume profit analysis.
C)Outsourcing activities.
D)Relevant cost-based pricing.
E)Process improvement.

Accepted Answer

The value chain analysis helps a firm identify the activities it can perform efficiently and those that are better outsourced. Thus, choice C - outsourcing activities is the most suitable option. Activity-based costing and cost-volume-profit analysis can be used to aid in the decision-making process but are not directly related to the make or buy decision. Relevant cost-based pricing is also useful but not often used solely in the make or buy decision. Process improvement can enhance value chain activities but is not directly related to the make or buy decision.

Question 15

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 product are most efficiently produced?
D)Which products should be promoted and advertised most aggressively?
E)Are the products priced properly?

Accepted Answer

The answer of Which one of the following issues would...

Question 16

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.

Accepted Answer

Unit variable costs are relevant costs because they change with the level of production and should be included in relevant cost analysis.

Question 17

One of the behavioral problems with relevant cost analysis is the overemphasis on:
A)Short-term goals.
B)Unit fixed costs.
C)Opportunity costs.
D)Long-term strategic goals.

Accepted Answer

Relevant cost analysis tends to focus more on short-term goals, which may result in ignoring long-term strategic goals. This can lead to making decisions that benefit the short-term, but may be detrimental in the long run. It is important to consider both short-term and long-term goals when making decisions that involve relevant costs.

Question 18

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 loss in the firm's profitability.
C)Conflicting goals between management and sales personnel.
D)A cost leadership strategy.
E)Maximization of resources.

Accepted Answer

Relevant cost pricing in special order decisions may result in a loss in the firm's profitability if the price offered for the special order is lower than the normal selling price. This erosion of profitability could potentially be harmful to the firm's financial stability in the long run. Overconfidence in decision-making, conflicting goals between management and sales personnel, and cost leadership strategies are not directly related to relevant cost pricing in special order decisions. Maximization of resources, while a positive outcome, is not directly related to the potential negative impact of relevant cost pricing on profitability.

Question 19

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

Accepted Answer

Variable costs are costs that change depending on the level of output or activity. They are not fixed and can be avoided if a particular decision is made. Therefore, they are relevant for decision making because they have not been committed and differ between options. Option A is partially correct but does not fully capture the relevance of variable costs. Option B is incorrect as volume-based costs may or may not be variable costs. Option D is also incorrect as committed costs are not relevant for decision making since they cannot be avoided. Option E is incorrect as opportunity cost is not the same as variable cost.

Question 20

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...

Quiz 11: Decision Making With a Strategic Emphasis

A useful device for solving production problems involving multiple products and limited resources is:

Fixed costs will often be irrelevant because they:

A cost is not relevant if it:

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

Which one of the following is correct for determining relevant costs?

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

Committed,or "sunk" costs are generally:

All the following are characteristic of relevant costs except:

An effective analysis of sales mix needs to include an analysis of:

A special order is:

Special orders:

Which one of the following is most descriptive of strategic analysis?

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

The value chain analysis used in connection with the make or buy decision often leads a firm to make use of:

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

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

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

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:

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