Question 1

Irrelevant costs are costs that are the same for more than one alternative.

Accepted Answer

Irrelevant costs do not change based on the alternative being considered, so they are the same for multiple options.

Question 2

Typically in a special-order decision, a customer wants to pay more than the usual price.

Accepted Answer

In a special-order decision, a customer typically wants to pay less than the usual price, as they are often placing a large order or requesting a product or service under different conditions than normal sales.

Question 3

Linear programming is a special technique that can be used to determine the optimal product mix when there are multiple constraints.

Accepted Answer

Linear programming is a mathematical method used to optimize or maximize a given objective, subject to certain constraints. It is commonly used in operations research, management science, and economics to determine the best possible outcome in a given situation. One of the key applications of linear programming is determining the optimal product mix, which can be done by formulating a linear programming model and solving it using specialized algorithms. Thus, the given statement is true.

Question 4

Fixed costs are never relevant.

Accepted Answer

Fixed costs can be relevant in certain decision-making situations such as determining the minimum price a product must be sold for to cover all costs and make a profit, or deciding whether to shut down a production facility temporarily.

Question 5

In deciding the optimal mix of products that use a constrained resource, it is important to determine the contribution margin per unit of scarce resource.

Accepted Answer

This is true because the contribution margin per unit of scarce resource helps to determine which products are the most profitable and should be prioritized in production.

Question 6

A choice between internal and external production is a keep-or-drop decision.

Accepted Answer

A choice between internal and external production is referred to as a make-or-buy decision, not a keep-or-drop decision. Keep-or-drop decisions typically involve determining whether a segment of a business should continue or be discontinued.

Question 7

The benefit sacrificed when one alternative is chosen over another is called sunk cost.

Accepted Answer

Sunk cost is not the benefit sacrificed when one alternative is chosen over another. Sunk cost refers to the cost that has already been incurred and cannot be recovered, regardless of the decision made.

Question 8

Bellair Company produces a product that has manufacturing cost of $30 per unit. Bellair's policy is to charge a price equal to cost plus 30%. The 30% is pure profit to Bellair.

Accepted Answer

The 30% markup on cost is not pure profit because it does not account for other expenses Bellair may incur beyond the manufacturing cost, such as operating expenses, taxes, and interest.

Question 9

In making a short-run decision, all alternatives need to be considered.

Accepted Answer

In making a short-run decision, all alternatives need not be considered.Only feasible alternatives are considered.

Question 10

A segment margin is always greater than or equal to zero.

Accepted Answer

A segment margin can be negative if the segment's revenue does not cover its variable expenses.

Question 11

In short-run decision making, the alternative with the lowest overall cost is always chosen.

Accepted Answer

In short-run decision making, factors other than cost may also be taken into consideration, such as time constraints, availability of resources, and urgency of the situation. Therefore, the lowest overall cost may not always be the only or the most important factor in decision making.

Question 12

A situation in which management tells divisions that they must reduce costs by 10% is called target costing.

Accepted Answer

The situation described is not target costing. Target costing involves setting a target cost for a product or service and then designing and producing it within that cost constraint.

Question 13

The first step in making a short-run decision is to identify alternatives as possible solutions to the problem.

Accepted Answer

The first step in making a short-run decision is to define the problem.

Question 14

At split-off, the joint costs of production for joint products are not relevant to the sell-or-process-further decision.

Accepted Answer

At split-off, the joint costs have already been incurred and are sunk costs. They are not relevant to the sell-or-process-further decision as they cannot be changed. Relevant costs for this decision include the additional costs to process further and the potential additional revenue from selling the products in their further processed state.

Question 15

Short-run decision making only involves short-run decisions that have nothing to do with the firm's overall strategy.

Accepted Answer

Short-run decision making may have an impact on the firm's overall strategy, as it can affect the financial performance and resources available for long-term planning.

Question 16

Flexible resources may have unused capacity.

Accepted Answer

The answer of Flexible resources may have unused capacity....

Question 17

A sunk cost is always relevant.

Accepted Answer

A sunk cost is a cost that has already been incurred and cannot be recovered. It is not relevant in making future decisions because it cannot be changed or undone. Therefore, a sunk cost is not always relevant.

Question 18

In keep-or-drop decisions, both the segment's contribution margin and its segment margin are useful in evaluating the performance of the segment.

Accepted Answer

Both the contribution margin and the segment margin provide important information when making keep-or-drop decisions for a segment. Contribution margin helps to assess the profitability of each unit or product, while segment margin takes into account all the costs associated with running the segment. Using both measures can provide a more comprehensive picture of the segment's performance and its potential impact on the company as a whole.

Question 19

Resources that are acquired in advance of usage are flexible resources.

Accepted Answer

Resources acquired in advance of usage are considered committed resources, not flexible resources. Flexible resources can be adjusted or scaled according to the needs of the moment, whereas committed resources are fixed investments made before their actual use.

Question 20

Future costs that differ across alternatives are relevant costs.

Accepted Answer

Future costs that differ across alternatives are relevant because they can impact the decision-making process by affecting the profitability and feasibility of each alternative. Therefore, these costs should be taken into consideration when comparing different options.

Quiz 13: Short-Run Decision Making: Relevant Costing