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ch11tif - CHAPTER 11: DECISION MAKING AND RELEVANT...

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ch11tif - CHAPTER 11: DECISION MAKING AND RELEVANT...

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CHAPTER 11: DECISION MAKING AND RELEVANT INFORMATION TRUE/FALSE 1. A decision model is a formal method for making a choice, frequently involving both quantitative and qualitative analyses. Answer : True Difficulty : 1 Objective : 1 2. Feedback from previous decisions uses historical information and, therefore, is irrelevant for making future predictions. Answer : False Difficulty : 2 Objective : 1 Historical costs may be helpful in making future predictions, but are not relevant costs for decision making. 3. The amount paid to purchase tools last month is an example of a sunk cost. Answer : True Difficulty : 2 Objective : 2 4. For decision making, differential costs assist in choosing between alternatives. Answer : True Difficulty : 1 Objective : 2 5. For a particular decision, differential revenues and differential costs are always relevant. Answer : True Difficulty : 1 Objective : 2 6. A cost may be relevant for one decision, but not relevant for a different decision. Answer : True Difficulty : 2 Objective : 2 7. Revenues that remain the same for two alternatives being examined are relevant revenues. Answer : False Difficulty : 1 Objective : 2 Revenues that remain the same between two alternatives are irrelevant for that decision since they do not differ between alternatives. 8. Sunk costs are past costs that are unavoidable. Answer : True Difficulty : 1 Objective : 2 9. Quantitative factors are always expressed in numerical terms. Answer : True Difficulty : 2 Objective : 3 Chapter 11 Page 1
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10. Qualitative factors are outcomes that are measured in numerical terms, such as the costs of direct labor. Answer : False Difficulty : 1 Objective : 3 Quantitative factors are outcomes that are measured in numerical terms, such as the costs of direct labor. 11. If a manufacturer chooses to continue purchasing direct materials from a supplier because of the ongoing relationship that has developed over the years, the decision is based on qualitative factors. Answer : True Difficulty : 2 Objective : 3 12. Relevant revenues and relevant costs are the only information managers need to select among alternatives. Answer : False Difficulty : 3 Objective : 3 Qualitative factors, as well as relevant revenues and relevant costs need to be considered when selecting among alternatives. 13. Full costs of a product are relevant for one-time-only special order pricing decisions. Answer : False Difficulty : 2 Objective : 3 Incremental costs of a product are relevant for one-time-only special order pricing decisions. 14. Full costs of a product include variable costs, but not fixed costs. Answer : False Difficulty : 1 Objective : 3 Full costs of a product include variable and fixed costs for all business functions in the value chain. 15. For one-time-only special orders, variable costs may be relevant but not fixed costs.
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