Chap 07
1. Which of the following is not a step in the managerial decision-making process?
A. Identify the decision problem
B. Calculate the payback period
C. Determine the decision alternatives
D. Evaluate the costs and benefits of the alternatives
2. Which of the following steps in the managerial decision-making process involves differential analysis?
A. Identify the decision problem
B. Determine the decision alternatives
C. Evaluate the costs and benefits of the alternatives
D. Make the decision
3. Which of the following is not a step in the managerial decision-making process?
A. Identify the activity cost drivers.
B. Review the results of the decision-making process.
C. Determine the alternatives.
D. Evaluate the costs and benefits of the alternatives.
4. Which of the following is not a step in the managerial decision-making process?
A. Identify the decision problem
B. Review the results of the decision-making process
C. Determine the decision alternatives
D. Forecast the potential sales
5. Which of the following is not a step in the managerial decision-making process?
A. Identify the decision problem
B. Review the results of the decision-making process
C. Choose the appropriate hurdle rate
D. Evaluate the costs and benefits of the alternatives
6. Which of the following is not another term for relevant costs?
A. differential costs
B. incremental costs
C. opportunity costs
D. avoidable costs
7. Costs that change across decision alternatives are
A. accounting costs.
B. activity-based costs.
C. differential costs.
D. capital costs.
8. A relevant cost is
A. the foregone benefit of choosing to do one thing instead of another.
B. a cost that differs across decision alternatives.
C. a cost that has already been incurred.
D. a cost that is the same regardless of the alternative the manager chooses.
9. Which of the following statements is false?
A. Sunk costs are never relevant.
B. Sunk costs are costs that occurred in the past.
C. To be relevant, a cost must be an opportunity cost.
D. To be relevant, a cost must occur in the future.
10. The manager of Hampton, Inc. is trying to decide whether to make or buy a component of the product
it sells. Which of the following costs and benefits is not relevant to the decision?
A. Direct labor cost involved in making the component
B. The purchase price of the component if it is bought
C. Variable manufacturing overhead involved in making the component
D. The selling price of the product
11. The foregone benefit of choosing one alternative over another is measured by
A. opportunity costs.
B. activity-based costs.
C. differential costs.
D. capital costs.
,12. Which of the following is true of a firm that has reached the limit on its resources?
A. It has idle capacity
B. Opportunity costs are now relevant
C. It has no relevant costs
D. It has excess capacity
13. Which of the following types of decisions involves deciding whether to accept or reject an order that
is outside the scope of normal sales?
A. Special-order
B. Make-or-buy
C. Continue or discontinue
D. Sell-or-process further
14. What are the decision alternatives in a special-order decision?
A. To make or buy the product.
B. To continue or discontinue the product.
C. To accept or reject the offer.
D. To sell-or-process further.
15. Which of the following costs is not relevant in a special-order decision?
A. Direct labor
B. Direct materials
C. Variable overhead
D. Fixed overhead
, 36. Cranberry has received a special order for 100 units of its product at a special price of $2,100. The
product normally sells for $2,800 and has the following manufacturing costs:
Assume that Cranberry has sufficient capacity to fill the order without harming normal production and
sales. If Cranberry accepts the order, what effect will the order have on the company's short-term profit?
A. $42,000 decrease
B. $42,000 increase
C. $70,000 decrease
D. $28,000 increase
37. Potter has received a special order for 10,000 units of its product at a special price of $24. The
product normally sells for $32 and has the following manufacturing costs:
Potter is currently operating at full capacity and cannot fill the order without harming normal production
and sales. If Potter accepts the order, what effect will the order have on the company's short-term profit?
A. $64,000 decrease
B. $64,000 increase
C. $80,000 decrease
D. $16,000 increase
38. Ross has received a special order for 10,000 units of its product at a special price of $30. The
product normally sells for $40 and has the following manufacturing costs:
Assume that Ross has sufficient capacity to fill the order. If Ross accepts the order, what effect will the
order have on the company's short-term profit?
A. $40,000 decrease
B. $180,000 increase
C. $60,000 decrease
D. $80,000 increase
1. Which of the following is not a step in the managerial decision-making process?
A. Identify the decision problem
B. Calculate the payback period
C. Determine the decision alternatives
D. Evaluate the costs and benefits of the alternatives
2. Which of the following steps in the managerial decision-making process involves differential analysis?
A. Identify the decision problem
B. Determine the decision alternatives
C. Evaluate the costs and benefits of the alternatives
D. Make the decision
3. Which of the following is not a step in the managerial decision-making process?
A. Identify the activity cost drivers.
B. Review the results of the decision-making process.
C. Determine the alternatives.
D. Evaluate the costs and benefits of the alternatives.
4. Which of the following is not a step in the managerial decision-making process?
A. Identify the decision problem
B. Review the results of the decision-making process
C. Determine the decision alternatives
D. Forecast the potential sales
5. Which of the following is not a step in the managerial decision-making process?
A. Identify the decision problem
B. Review the results of the decision-making process
C. Choose the appropriate hurdle rate
D. Evaluate the costs and benefits of the alternatives
6. Which of the following is not another term for relevant costs?
A. differential costs
B. incremental costs
C. opportunity costs
D. avoidable costs
7. Costs that change across decision alternatives are
A. accounting costs.
B. activity-based costs.
C. differential costs.
D. capital costs.
8. A relevant cost is
A. the foregone benefit of choosing to do one thing instead of another.
B. a cost that differs across decision alternatives.
C. a cost that has already been incurred.
D. a cost that is the same regardless of the alternative the manager chooses.
9. Which of the following statements is false?
A. Sunk costs are never relevant.
B. Sunk costs are costs that occurred in the past.
C. To be relevant, a cost must be an opportunity cost.
D. To be relevant, a cost must occur in the future.
10. The manager of Hampton, Inc. is trying to decide whether to make or buy a component of the product
it sells. Which of the following costs and benefits is not relevant to the decision?
A. Direct labor cost involved in making the component
B. The purchase price of the component if it is bought
C. Variable manufacturing overhead involved in making the component
D. The selling price of the product
11. The foregone benefit of choosing one alternative over another is measured by
A. opportunity costs.
B. activity-based costs.
C. differential costs.
D. capital costs.
,12. Which of the following is true of a firm that has reached the limit on its resources?
A. It has idle capacity
B. Opportunity costs are now relevant
C. It has no relevant costs
D. It has excess capacity
13. Which of the following types of decisions involves deciding whether to accept or reject an order that
is outside the scope of normal sales?
A. Special-order
B. Make-or-buy
C. Continue or discontinue
D. Sell-or-process further
14. What are the decision alternatives in a special-order decision?
A. To make or buy the product.
B. To continue or discontinue the product.
C. To accept or reject the offer.
D. To sell-or-process further.
15. Which of the following costs is not relevant in a special-order decision?
A. Direct labor
B. Direct materials
C. Variable overhead
D. Fixed overhead
, 36. Cranberry has received a special order for 100 units of its product at a special price of $2,100. The
product normally sells for $2,800 and has the following manufacturing costs:
Assume that Cranberry has sufficient capacity to fill the order without harming normal production and
sales. If Cranberry accepts the order, what effect will the order have on the company's short-term profit?
A. $42,000 decrease
B. $42,000 increase
C. $70,000 decrease
D. $28,000 increase
37. Potter has received a special order for 10,000 units of its product at a special price of $24. The
product normally sells for $32 and has the following manufacturing costs:
Potter is currently operating at full capacity and cannot fill the order without harming normal production
and sales. If Potter accepts the order, what effect will the order have on the company's short-term profit?
A. $64,000 decrease
B. $64,000 increase
C. $80,000 decrease
D. $16,000 increase
38. Ross has received a special order for 10,000 units of its product at a special price of $30. The
product normally sells for $40 and has the following manufacturing costs:
Assume that Ross has sufficient capacity to fill the order. If Ross accepts the order, what effect will the
order have on the company's short-term profit?
A. $40,000 decrease
B. $180,000 increase
C. $60,000 decrease
D. $80,000 increase
