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ADMS 2510 Chapter 13 Relevant Costs for Decision Making Questions and Answers York University
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Chapter 13 Relevant Costs for Decision Making 652 Garrison, Managerial Accounting, 12th Edition True/False Questions 1. Fixed costs are sunk costs and are therefore irrelevant in decisions. Answer: False Level: Easy LO: 1 2. A complete income statement must be prepared as part of a different...

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  • March 9, 2023
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  • managerial accounting
  • chapter 13 relevant costs for decision making 652 garrison
  • 12th edition truefalse questions 1 fixed costs are sunk costs and are therefore irrelevant in decisions answer f

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Chapter 13 Relevant Costs for Decision Making


True/False Questions

1. Fixed costs are sunk costs and are therefore irrelevant in decisions.

Answer: False Level: Easy LO: 1

2. A complete income statement must be prepared as part of a differential cost analysis.

Answer: False Level: Medium LO: 1

3. Future costs that do not differ between the alternatives in a decision are avoidable
costs.

Answer: False Level: Medium LO: 1

4. The book value of an old machine is always considered a sunk cost in a decision.

Answer: True Level: Easy LO: 1

5. A product that does not cover its allocated share of general corporate administrative
expenses should be dropped.

Answer: False Level: Easy LO: 2

6. In a decision to drop a product, the product should be charged for rent in proportion to
the space it occupies even if the space has no alternative use and the rental payment is
unavoidable.

Answer: False Level: Easy LO: 2

7. Making rather than buying a part that goes into one of the company's products would
increase the company's degree of vertical integration.

Answer: True Level: Easy LO: 3

8. In a special order situation that involves using existing idle capacity, opportunity costs
are zero.

Answer: True Level: Easy LO: 4




652 Garrison, Managerial Accounting, 12th Edition

,Chapter 13 Relevant Costs for Decision Making


9. When a company has a production constraint, the product with the highest
contribution margin per unit of the constrained resource should be given highest
priority.

Answer: True Level: Easy LO: 5

10. Payment of overtime to a worker in order to relax a production constraint could
increase the profits of a company.

Answer: True Level: Medium LO: 5

11. In a plant operating at capacity, every machine and person in the plant would be
working at the maximum possible rate.

Answer: False Level: Hard LO: 5

12. Lumber produced in a lumber mill results in several different products being produced
from each log; such products are called joint products.

Answer: True Level: Easy LO: 6

13. In a sell or process further decision, an avoidable fixed production cost incurred after
the split-off point is relevant to the decision.

Answer: True Level: Medium LO: 6

14. Joint processing after the split-off point is profitable if the incremental revenue from
such processing exceeds the incremental processing costs.

Answer: True Level: Easy LO: 6

15. A cost that is traceable to a segment through activity-based costing is always an
avoidable cost for decision making.

Answer: False Level: Easy LO: 1




Garrison, Managerial Accounting, 12th Edition 653

,Chapter 13 Relevant Costs for Decision Making

Multiple Choice Questions

16. Hal Etoesus currently works as the fry guy at Burger Breath Drive Thru but is thinking
of quitting his job to attend college full time next semester. Which of the following
would be considered an opportunity cost in this decision?
A) the cost of the textbooks
B) the cost of the cola that Hal will consume during class
C) Hal's lost wages at Burger Breath
D) both A and B above

Answer: C Level: Easy LO: 1

17. Which of the following would be relevant in the decision to sell or throw out obsolete
inventory?

Direct material Fixed overhead
cost assigned cost assigned
to the inventory to the inventory
A) Yes Yes
B) Yes No
C) No Yes
D) No No

Answer: D Level: Medium LO: 1

18. Buff Corp. is considering replacing an old machine with a new machine. Which of the
following items is relevant to Buff's decision? (Ignore income tax considerations.)

Book value Disposal value
of old machine of new machine
A) Yes No
B) No Yes
C) No No
D) Yes Yes

Answer: B Level: Medium LO: 1 Source: CPA, adapted

19. In a make-or-buy decision, relevant costs include:
A) unavoidable fixed costs
B) avoidable fixed costs
C) fixed factory overhead costs applied to products
D) fixed selling and administrative expenses

Answer: B Level: Easy LO: 3 Source: CMA, adapted


654 Garrison, Managerial Accounting, 12th Edition

, Chapter 13 Relevant Costs for Decision Making


20. In situations where management must decide between accepting or rejecting a one-
time-only special order where there is sufficient idle capacity to fill the order, which
one of the following is NOT relevant in making the decision?
A) absorption costing unit product costs
B) variable costs
C) incremental costs
D) differential costs

Answer: A Level: Easy LO: 4 Source: CMA, adapted

21. When a multi-product factory operates at full capacity, decisions must be made about
what products to emphasize. In making such decisions, products should be ranked
based on:
A) selling price per unit
B) contribution margin per unit
C) contribution margin per unit of the constraining resource
D) unit sales volume

Answer: C Level: Easy LO: 5 Source: CMA, adapted

22. Two or more products produced from a common input are called:
A) common costs.
B) joint products.
C) joint costs.
D) sunk costs.

Answer: B Level: Easy LO: 6




Garrison, Managerial Accounting, 12th Edition 655

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