Ch 7 – Relevant Costs and Produce Planning Decisions SOLUTION 1Indicate whether the following statements are True (T) or False (F): __F___ Special-order decisions are long-run decisions. __F___ If extra-capacity exists, a company should always agree to accept a special order at a reduced sales price. __F___ A company will never make any profit on a special order if the special order’s sales price is below the normal sales price charge to other customers. __T___ Fixed costs are relevant to special-order decisions only when they differ between alternatives. __F___ Only quantitative data should be considered in special order and make or buy decisions. __T___ The “theory of constraints” is a management tool where bottlenecks in the production process are identified and attempted to be eliminated. __F___ A product should be processed further if the additional cost is greater than the additional revenue. __T___ In a multi-product environment with a resource constraint (i.e. labor hours available), managers should maximize the contribution margin per unit of limited resource. __T___ A relevant cost is one that differs between alternatives. __F___ A product line should be dropped whenever it has negative net income. Only if the decrease in contribution margin is less than the decrease in fixed cost.
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