Question

What differentiates a sunk cost from a relevant cost?

a. A sunk cost occurred in the past and doesn’t affect decision making. A relevant cost differs between alternatives and is used in decision making.

b. A relevant cost occurred in the past and doesn’t affect decision making. A sunk cost differs between alternatives and is used in decision making.

c. Both costs are used is decision making.

d. Neither cost is used in decision making.

What is true of opportunity costs in making decisions?

a. Because opportunity costs are irrelevant, managers should not consider them.

b. Because opportunity costs represent the future benefit that is given up when a choice is made, managers should consider them.

c.Because opportunity costs occur in the past, managers should not consider them.

d. Managers should only consider variable opportunity costs.

When should managers accept special orders?

a. After examining qualitative and quantitative factors

b. If incremental revenues exceed incremental costs

c. If there is a net advantage in accepting the special order

d. All of the above

Which of the following is a potential qualitative factor to consider when accepting a special order?

a. The company will lose $10,000 by accepting the special order.

b. The special order requires purchase of a special engraving machine.

c. The perceived quality of the regular product is negatively impacted could be negatively impacted by the special order.

d. All of the above.

Answer 1

1.
Answer is a. A sunk cost occurred in the past and doesn’t affect decision making. A relevant cost differs between alternatives and is used in decision making.

2.
Answer is b. Because opportunity costs represent the future benefit that is given up when a choice is made, managers should consider them.

3.
Answer is d. All of the above

4.
Answer is c. The perceived quality of the regular product is negatively impacted could be negatively impacted by the special order.