Chapter 11

1. A cost is not relevant for decision making if it:

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

3. Fixed costs will often be irrelevant
for decision making because they:

4. A special sales order is:

5. Special sales orders:

6. Committed or "sunk" costs are
generally:

7. All the following are characteristic of
relevant costs except:

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

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

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

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

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

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

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

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

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

17. Which one of the following is correct for determining relevant costs for decision-making?

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

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

20. Determination of the optimum short-term product mix needs to include an analysis of:

22. A boat, costing $108,000 and uninsured, was wrecked the very first day it was used. It can either be disposed of for $11,000 cash and be replaced with a similar boat costing
$110,000, or rebuilt for $98,000 and be brand new as far as operating characteristics and looks are concerned. A relevant cost analysis of the decision to replace the boat shows:

25. Joint (common) costs in a joint production process are relevant for determining:

26. In a joint production process, the allocation of joint (common) costs to the joint products is
needed:

27. In a joint production process, joint product costs are:

28. Which of the following statements regarding a joint production process is NOT true?

29. To make a decision whether to accept
or reject a special sales order, managers need critical information about all the following except:

34. In a make-or-buy decision:

42. In deciding whether to accept or a reject a special sales order, which of the following costs are likely relevant to the decision?

45. Lyman Company has the opportunity to
increase annual credit sales $100,000 by selling to a new, riskier group of customers. The expenses of collecting credit sales are expected to be 15 percent of credit sales. The company's manufacturing and selling expenses are 70% of sales, and its effective tax rate is 40%. If Lyman should accept this
opportunity, the company's after-tax profits would increase by:

46. The opportunity cost of making a component part in a factory with no excess capacity is the:

47. The opportunity cost of making a component part in a factory with excess capacity for which there is no alternative use is:

51. For short-run product-mix decisions, relevant costs (for the seller) include
short-run costs plus any costs.

52. Opportunity costs:

53. The contribution margin per machine hour is calculated as:

54.   When there is limited capacity, the minimum acceptable price for a special sales order will equal the from the product that is sacrificed plus the variable costs of the ordered product.

55. When a firm has surplus capacity as opposed to constrained capacity (i.e., resource constraints), relevant costs for decision-making (e.g., determining short-term product mix) will be:

56. In the situation where a firm
produces multiple products and the firm has a single resource constraint (e.g., machine hours), the most profitable use of available capacity (machine hours) requires that we assess:

57. The practice of setting prices below average variable cost and plans to raise prices later to recover the losses from the lower prices, is referred to as:

58. When deciding to purchase a new cutting machine or continue using the existing
machine, the following costs are all relevant EXCEPT the:

59. Relevant costs for a make-or-buy decision for a component part include all of the following EXCEPT:

60. When deciding whether to discontinue a segment of a business, managers should
focus on:

61. In deciding whether to drop or keep a product line, all of the following are relevant to the decision EXCEPT:

63. Employee morale and social responsibility
represent two examples of:

64. Which of the following items does NOT have to be considered when evaluating a make-or-buy decision?

65. Relevant costs in a make-vs.-buy
decision of a part include:

73. Smith Co., maker of high-quality eyewear, incurs fixed costs of $18 and variable costs of $36 in making one unit
of its matrix line of sunglasses. Smith Co.'s major supplier has offered to make all 100,000 matrix sunglasses for $44 each. If Smith accepts the offer of the supplier, Smith will save $4 per unit in fixed costs. Based on this information, should Smith Co. make or buy the sunglasses and how much will be
saved?

74. Orange Computer Co. is quickly
becoming a major player in the personal computer market. The company currently
has multiple companies producing products that go into an Orange computer. This practice of having an outside firm provide a function for Orange Computer Co. is called:

75. One of the key management functions is to perform a regular review of product profitability. Which question(s) below would not be asked when performing the analysis?

76. Value streams are useful in decision-making because:

77. Zippy Company has a product which it
currently sells in the market for $50 per unit. Zippy has developed a new feature which, if added to the existing product, will allow Zippy to receive a price of $65 per unit. The cost of adding this new feature is $26,000 and Zippy
expects to sell 1,600 units over the next year. What is the effect on operating income of adding the feature to the product?

78. The Robinson-Patman Act, administered by the U.S. Federal Trade Commission,
addresses pricing that could substantially damage the competition in an industry. This pricing is called:

80. In deciding between alternative choices for a given situation, managers usually employ a five-step process. Which of the following is not a step in the decision-making process?

81. Maxwell Manufacturing is contemplating
the purchase of a new machine to replace a machine that has been in use for seven years. The old machine has a net book value of $50,000 and still has five years of useful life remaining. The old machine has a current market value of $5,000, and would have no market value after five years. The variable operating costs and depreciation expenses (straight-line) are $135,000 per year. The new machine will cost $90,000, has an estimated useful life of five years with zero
disposal value after five years, and an annual operating expense of $118,000 (including straight-line depreciation). Considering the five years in total and ignoring the time value of money and income taxes, what is the difference in total relevant decision-making costs if the old machine is replaced?

82. You just bought a new car for $125,000. Before you had time to get insurance, the car was wrecked. Weird Wally offers to take it off your hands for $10,000. You can then purchase a similar model for $128,000. A body-shop with an excellent reputation offers to rebuild it for $90,000 and loan you a similar model while the vehicle is being rebuilt. Once rebuilt, the body-shop claims, it will run like a new car and nobody will be able to tell the difference. What would you do from a financial point of view?

83. A truck, costing $25,000 and uninsured, was wrecked the very first day it was used. It can either be disposed of for $5,000 cash and be replaced with a similar truck costing $27,000, or rebuilt for $20,000 and be brand new as far as operating characteristics and looks are concerned. The net relevant cost of the replacing option is:

84. A truck, costing $25,000 and
uninsured, was wrecked the very first day it was used. It can either be disposed of for $5,000 cash and be replaced with a similar truck costing $27,000, or rebuilt for $20,000 and be brand new as far as operating characteristics and looks are concerned. The best choice provides a net cost savings of:

85. The mathematical tool used to determine the optimum short-term product (or service) mix is:

86. The make-or-buy decision can apply to decisions about all of the following except:

87. A decision bias is an inherent tendency of most decision makers that leads to incorrect decisions. An example of decision bias is:

88. In a sell-or-process-further decision, joint production costs:

89. In a manufacturing environment the best short-term profit-maximizing approach would be to:

90. A company's approach to a make-or-buy decision:

91. Sunk costs:

93. If the plugs are purchased and the facility rented, Regis Company wishes to realize $100,000 in net savings annually. To achieve this goal, the minimum annual rent on the
facility must be:

94. Costs relevant to a make-versus-buy decision include variable manufacturing costs as well as:

95. Opportunity costs are:

96. Relevant or differential cost analysis:

99. Which of the following costs would be relevant in short-term decision making?

100.When a decision is made in an organization, it is selected from a group of
alternative courses of action. The loss associated with choosing the alternative that does not maximize the benefit is the:

101.The best way to allocate scare resources to attain a specific objective, such as the maximization of operating income, is:

102.Sensitivity analysis in linear programming is used to:

103.The shadow price in a linear programming model is:

107.Which one of the following is most relevant to a manufacturing equipment-replacement decision?

108. In situations when management must
decide on accepting or rejecting one-time-only special orders, where there is
sufficient idle capacity, which one of the following is not relevant to the decision?

109.Southern Company packages and sells
nuts in cans. Pecans, cashews, Brazil nuts, hazelnuts, and peanuts are packaged individually as well in combinations and mixtures. Southern wants to package
the nuts so that it can maximize its operating profit while considering market
demand. In addition, there are limited supplies for some types of nuts. The
technique that Southern should employ is:

111.United Industries manufactures three
products in its highly automated factory. The products are all popular with demand far exceeding the company's ability to supply the marketplace. To maximize (short-­term) operating income, management should focus on each product's: