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A306 Healy Exam 2Ch 6-7
Costs and benefits that always differ between alternatives are ______ costs and
benefits - CORRECT ANSWER-Relevant
Opportunity costs are not found in accounting records because they are not relevant
to decisions. - CORRECT ANSWER-False
When considering decision alternatives, only relevant costs are included when using
the _______ cost approach - CORRECT ANSWER-differential
When planning a trip and deciding to drive your car or take the train, gasoline is a(n)
______ cost. - CORRECT ANSWER-relevant
A cost that can be eliminated in whole or in part by choosing one alternative over
another is a(n) ______ cost. - CORRECT ANSWER-avoidable
Future costs and benefits that do not differ between alternatives are ______ costs to
the decision-making process. - CORRECT ANSWER-
The first step in decision making is to ______ - CORRECT ANSWER-Define the
alternatives (2: identify relevant costs and benefits, 3: perform a differential analysis)
The key to effective decision making is ______. - CORRECT ANSWER-Differential
analysis
Synonyms for differential costs include ______ cost. - CORRECT
ANSWER-incremental and avoidable
When making a decision, qualitative differences between alternatives ______ be
ignored. - CORRECT ANSWER-should not
When making a decision whether to keep an existing piece of equipment or replace
it, which of the following is (are) considered a sunk cost? - CORRECT
ANSWER-Both the original purchase price and annual depreciation expense
When making a decision, irrelevant items are included in the analysis of both
alternatives when using ______. - CORRECT ANSWER-the total cost approach
ONLY.
, In order to prevent confusion and keep attention focused on critical information, it is
desirable to ________. - CORRECT ANSWER-isolate relevant costs from irrelevant
costs.
A business segment should only be dropped if a company can avoid more in fixed
costs than it gives up in ______. - CORRECT ANSWER-contribution margin
Stephens, Inc. is considering dropping a product line. During the prior year, the line
had sales of $170,000, variable costs of $86,000 and total fixed expenses of
$110,000. Of the fixed expenses, $95,000 are avoidable. If Stephens drops the
product line, net operating income will ______. - CORRECT ANSWER-increase by
11,000
- relevant costs : VC and avoidable FC
170,000-86,000 = contribution margin of $84,000
$95,000-$84,000= $11,000
A set of activities ranging from development to production to after-sales service is
called ______. - CORRECT ANSWER-the value chain
Which term refers to a company that is involved in more than one activity in the value
chain? - CORRECT ANSWER-Vertical Integration
Every decision has at least ______ alternative(s) - CORRECT ANSWER-two (every
decision has at least 2 alternatives, even if the choices are yes and no)
Focusing on future costs and benefits that are not the same between the choices is
______ - CORRECT ANSWER-differential analysis
Determining whether to carry out an activity in the value chain internally or use a
supplier is a ______ decision. - CORRECT ANSWER-sourcing
A company is considering buying a component part that they currently make. Items
related to the equipment being used to make the component that are relevant to this
decision include ______. - CORRECT ANSWER-the salvage value and alternative
uses for the equipment
When a resource, such as space in the factory, has no alternative use, its
opportunity cost is ______. - CORRECT ANSWER-zero
A one-time order that is not considered part of the company's normal ongoing
business is called a ______ order. - CORRECT ANSWER-special
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