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Chapter 7 Lab Exercise Solutions

Chapter 7 Lab Exercise Solutions - Ch 7 Relevant Costs and...

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Ch 7 – Relevant Costs and Produce Planning Decisions SOLUTION 1 Indicate 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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