Quiz18a - Quiz Chapter 18 Solution 1. Opportunity costs...

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Page 1 Quiz – Chapter 18 – Solution 1. Opportunity costs are: A) not used for decision making. B) the same as variable costs. C) the same as historical costs. D) relevant to decision making. The answer is d. 2. Freestone Company is considering renting Machine Y to replace Machine X. It is expected that Y will waste less direct materials than does X. If Y is rented, X will be sold on the open market. For this decision, which of the following factors is (are) relevant? I. Cost of direct materials used II. Resale value of Machine X A) Only I B) Only II C) Both I and II D) Neither I nor II The answer is c. The cost savings is relevant. The money you get from selling the old machine makes your investment in the new machine less. (It is an opportunity cost.) 3. In a sell or process further decision, which of the following costs are relevant? I. A variable production cost incurred prior to the split-off point. II. An avoidable fixed production cost incurred after the split-off point. A) Only I. B) Only II. C) Both I and II. D) Neither I nor II. The answer is b. The costs up to the split off point are the same regardless of whether you sell or process further. Because they are not different, those costs are not relevant. Only the direct fixed costs (avoidable) after split off are relevant because they will go away if you sell the product rather than processing it further.
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Page 2 Use the following to answer questions 4-6: The Tingey Company has 500 obsolete microcomputers that are carried in inventory at a total cost of $720,000. If these microcomputers are upgraded at a total cost of $100,000, they can be sold for a total of $160,000. As an alternative, the microcomputers can be sold in their present condition for $50,000. 4. The sunk cost in this situation is:
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This note was uploaded on 10/02/2008 for the course MGMT 122 taught by Professor Saouma during the Spring '08 term at UCLA.

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Quiz18a - Quiz Chapter 18 Solution 1. Opportunity costs...

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