Solved > 11) In making a short-term decision, which of:1855201 …

11) In making a short-term decision, which of the following is MOST important?

A) Separate variable costs from fixed costs

B) Focus on total costs

C) Use a conventional absorption costing approach

D) Focus on the bottom line net income

12) Which of the following describes a sunk cost?

A) One that is relevant to a decision because it changes depending on different courses of action

B) An outlay expected to be incurred in the future

C) A historical cost that is always irrelevant

D) A historical cost that may be relevant to future events

13) Which of the following is the format of the income statement that is MOST useful in decision-making?

A) Absorption costing format

B) Multiple-step format

C) Single-step format

D) Contribution margin format

14) Smith Industries is considering replacing a machine that is presently used in its production process. The following information is available:

Old Machine

Replacement Machine

Original cost

$45,000

$35,000

Remaining useful life in years

5

5

Current age in years

5

0

Book value 

$25,000

Current disposal value in cash

$8,000

Future disposal value in cash (in 5 years)

$0

$0

Annual cash operating costs

$7,000

$4,000

Which of the information provided in the table is irrelevant to the replacement decision?

A) The price of the new machine

B) The original cost of the old machine

C) The current disposal value of the old machine

D) Annual operating costs

15) Smith Industries is considering replacing a machine that is presently used in its production process. The following information is available:

Old Machine

Replacement Machine

Original cost

$45,000

$35,000

Remaining useful life in years

5

5

Current age in years

5

0

Book value 

$25,000

Current disposal value in cash

$8,000

Future disposal value in cash (in 5 years)

$0

$0

Annual cash operating costs

$7,000

$4,000

For a machine replacement decision which of the information provided in the table is a sunk cost?

A) The original cost of the old machine

B) The current disposal value of the old machine

C) The current annual operating cost of the old machine

D) The price of the new machine

16) The benefit foregone by NOT choosing an alternative course of action is referred to as a(n):

A) opportunity cost.

B) sunk cost.

C) variable cost.

D) incremental cost.

17) The effect of a plant closing on employee morale is an example of which of the following?

A) A quantitative factor

B) A qualitative factor

C) A sunk cost

D) A variable cost

18) Which of the following is NOT important with respect to short-run decision making?

A) Focusing on relevant revenues and costs

B) Using a contribution margin income statement format

C) Focusing on maximizing the gross profit of each unit sold

D) Focusing on analyzing incremental revenues and costs

19) Which of the following is irrelevant when making a decision?

A) The original cost of an asset that the company is considering replacing

B) The fixed overhead costs that differ among decision alternatives

C) The cost of further processing a product that could be sold as is

D) The expected increase in contribution margin of one product line as a result of a decision to drop a separate unprofitable product line

20) Which of the following pieces of information would NOT be relevant in deciding to upgrade a company’s heating and air conditioning system?

A) The energy efficiency of the old equipment versus the energy efficiency of the new equipment

B) The safety of the new equipment compared to the old equipment

C) The purchase price of the old equipment compared to the purchase price of the new equipment

D) The productivity of the old equipment compared to that of the new equipment

21) Which of the following are the two most important keys to short-term business decision-making?

A) Focus on costs which do not change under two alternatives and on historic costs

B) Focus on qualitative data only and ignore future cash flows

C) Focus on sunk costs and quantitative data only

D) Focus on future expected data and use the contribution margin approach

22) If a company wishes to be a price-setter, which of the following strategies should they take?

A) Produce a generic mass-market product

B) Enter a competitive market and boost profits by cost cutting

C) Produce a unique product

D) Produce a commodity and outsource the manufacturing operations

23) Which of the following business strategies would NOT be consistent with a price setter?

A) Enter a competitive market and focus on cost cutting

B) Produce a unique product

C) Exploit the value of a fashionable brand name

D) Differentiate the product clearly from the competitors

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