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Chapter 10: Short-Term Decision Making
14 problems · 0 figuresMultiple Choice 10.1 §10.1 source ↗
________ are the costs associated with not choosing the other alternative.
- a.Sunk costs
- b.Opportunity costs
- c.Differential costs
- d.Avoidable costs
Answer
B. Opportunity costs
Multiple Choice 10.3 §10.1 source ↗
The managerial decision-making process has which of the following as its third step?
- a.Review, analyze and evaluate the results of the decision.
- b.Decide, based upon the analysis, the best course of action.
- c.Identify alternative courses of action to achieve a goal or solve a problem.
- d.Perform a comprehensive differential (differential) analysis of potential solutions.
Answer
D. Perform a comprehensive differential (differential) analysis of potential solutions.
Multiple Choice 10.5 §10.2 source ↗
Which of the following is sometimes referred to as the “Anti Chain Store Act”?
- a.Sarbanes-Oxley Act
- b.Robinson-Patman Act
- c.Wright-Patman Act
- d.Securities Act of 1939
Answer
B. Robinson-Patman Act
Multiple Choice 10.7 §10.3 source ↗
________ is the act of using another company to provide goods or services that your company requires.
- a.Allocating
- b.Outsourcing
- c.Segmenting
- d.Leasing
Answer
B. Outsourcing
Multiple Choice 10.9 §10.3 source ↗
Which of the following is not a qualitative decision that should be considered in an outsourcing decision?
- a.employee morale
- b.product quality
- c.company reputation
- d.relevant costs
Answer
D. relevant costs
Multiple Choice 10.11 §10.4 source ↗
When should a segment be dropped?
- a.only when the decrease in total contribution margin is less than the decrease in fixed cost
- b.only when the decrease in total contribution margin is equal to fixed cost
- c.only when the increase in total contribution margin is more than the decrease in fixed cost
- d.only when the decrease in total contribution margin is less than the decrease in variable cost
Answer
A. only when the decrease in total contribution margin is less than the decrease in fixed cost
Multiple Choice 10.13 §10.5 source ↗
Mallory’s Video Supply has changed its focus tremendously and as a result has dropped the selling price of DVD players from $45 to $38. Some units in the work-in-process inventory have costs of $30 per unit associated with them, but Mallory can only sell these units in their current state for $22 each. Otherwise, it will cost Mallory $11 per unit to rework these units so that they can be sold for $38 each. How much is the financial impact if the units are processed further?
- a.$5 per unit profit
- b.$16 per unit profit
- c.$3 per unit loss
- d.$12 per unit loss
Answer
A. $5 per unit profit
Multiple Choice 10.15 §10.6 source ↗
When operating in a constrained environment, which products should be produced?
- a.products with the highest contribution margin per unit
- b.products with the highest contribution margin per unit of the constrained process
- c.products with the highest selling price
- d.products with the lowest allocated joint cost
Answer
B. products with the highest contribution margin per unit of the constrained process
Question 10.1 §10.1 source ↗
Your roommate at school believes that all fixed costs are always avoidable. Do you agree? How would you explain your point of view to your roommate?
Answer
Primarily disagree, but there are a few times where fixed costs can be avoided or partially avoided. Variable costs are avoidable costs since variable costs do not exist if the product is no longer made, or if the portion of the business (such as a segment or division) that generated the variable costs ceases to operate. Fixed costs, on the other hand, may be unavoidable, partially unavoidable, or avoidable only in certain circumstances. When a company discontinues a product or service, certain fixed costs may not be required.
Question 10.3 §10.1 source ↗
Felipe’s Restaurant and Pie Shop needs help defining the costs for his business. He also wants to know which costs are relevant or irrelevant to his decision. Identify each cost as relevant or irrelevant. Then identify the type of cost (sunk, fixed, variable, or opportunity).
| Cost | Relevant or Irrelevant? | Sunk, Fixed, Variable, or Opportunity? |
|---|---|---|
| Rent | ||
| Baker wages | ||
| Felipe’s culinary school tuition | ||
| Berries for pies | ||
| Painting dining area last year | ||
| Felipe’s decision not to attend graduate school |
Answer
| Cost | Relevant or Irrelevant | Sunk, Fixed, Variable, or Opportunity? |
|---|---|---|
| Rent | Relevant | Fixed |
| Baker wages | Relevant | Variable |
| Felipe’s culinary school tuition | Irrelevant | Sunk |
| Berries for pies | Relevant | Variable |
| Painting dining area last year | Irrelevant | Sunk |
| Felipe’s decision not to attend graduate school | Irrelevant | Opportunity |
Question 10.5 §10.2 source ↗
What are some of the qualitative issues that a special order can create?
Answer
One issue is the concern for how existing customers will feel if they discover that the company offered a lower price to the special-order customer for the same goods or services. If the goods in the special order are modified, and thus cheaper for that reason, current customers may prefer the modified, cheaper version of the product. The company would need to determine if selling the new version of the project would hurt profitability or the company’s reputation.
Question 10.7 §10.3 source ↗
Many outsourced jobs have resulted in “offshoring” jobs, rather than using domestic outsourcing. If a U.S. company wants to offshore a service like customer service, for example, what are some of their considerations? In your answer, address offshoring disadvantages as compared with domestic outsourcing.
Answer
First and foremost, customer service quality is a consideration, followed closely by the ability of the offshore personnel to speak clearly in English and to understand the customer’s needs. Chief operating officers should also make sure that the call centers are adequately staffed and run in an ethical manner, similar to the main company contracting with the outsourced service. Offshoring disadvantages should be weighed against domestic outsourcing in the areas of time zone problems, politically correct labor choices, rising labor costs abroad, as well as culture and language.
Question 10.9 §10.4 source ↗
In the decision by a grocery company that is trying to decide whether to keep or drop the bakery department in its grocery stores, what would the bakery manager’s salary be in relationship to the decision if the manager will be laid off?
Answer
The bakery manager’s salary would be avoidable and therefore differential in the analysis.
Question 10.11 §10.5 source ↗
What is a general rule to remember with respect to a sell-or-process-further environment, and what costs are irrelevant to the decision?
Answer
In general, if the differential revenue from processing further is greater than the differential costs, then it will be profitable to process a joint product after the split-off point. Any costs incurred prior to the split-off point are irrelevant to the decision to process further, as those are sunk costs, and only future costs are relevant costs. Joint product costs are common costs that are incurred simultaneously to produce a variety of end products. Even though they are common costs, they are routinely allocated to the joint products.
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Problems and answers are adapted from Principles of Accounting, Volume 2: Managerial Accounting by Mitchell Franklin, Patty Graybeal and Dixon Cooper, OpenStax, and are used under the CC BY-NC-SA 4.0 licence. Access for free at https://openstax.org/books/principles-managerial-accounting/pages/1-why-it-matters. Illustrations: Copyright Rice University, OpenStax, under CC BY-NC-SA 4.0 license. This adaptation is released under the same licence, is non-commercial, and is neither affiliated with nor endorsed by OpenStax or Rice University.