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Exam 13: Relevant Information for Special Decisions

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Question 41

True/False

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Costs that are not related to any specific product, batch, or unit of production are referred to as facility-level costs.

A) True
B) False

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Question 42

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When evaluating alternatives, what type of costs should be considered?

A) Relevant costs
B) Sunk costs
C) Prevention costs
D) Fixed costs

E) B) and C)
F) A) and D)

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Question 43

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A company that provides services (not goods) to its customers may incur costs that are appropriately classified as product-level costs.

Select the incorrect statement regarding relevant costs and revenues.

Great Outdoors Company operates a store in downtown Denver that has five departments including a fishing department. If the fishing department is closed, the store manager's position will not be affected, but if the entire store is closed, the manager will be terminated. Which of the following lessons should be learned from this example?

Mountain Gear has been using the same machines to make its name brand clothing for the last five years. A cost efficiency consultant has suggested that production costs may be reduced by purchasing more technologically advanced machinery. The old machines cost the company $100,000. The old machines presently have a book value of $60,000 and a market value of $6,000. They are expected to have a five-year remaining life and zero salvage value. The new machines would cost the company $50,000 and have operating expenses of $9,000 a year. The new machines are expected to have a five-year useful life and no salvage value. The operating expenses associated with the old machines are $15,000 a year. The new machines are expected to increase quality, justifying a price increase, and thereby increasing sales revenue by $5,000 a year. Select the true statement.

Grady Corporation is evaluating two decision alternatives. Alternative One has costs of $2,000 and revenues of $3,000 while Alternative Two has costs of $3,200 and revenues of $4,000. The amount of differential revenue is $1,000.

Engineering design costs are generally referred to as:

Although opportunity costs are not recorded in the financial records, they nevertheless are useful for decision making.

Rachel is deciding whether to remain in the home she has lived in for the past ten years, which is located very near her work, or to move into a newer home that is located in the suburbs further from her job. The old house was purchased for $160,000 and has a market value of $220,000. The new home can be purchased for $285,000. Which of the following is not relevant to Rachel's decision?

QRC Company is trying to decide which one of two alternatives it will accept. The costs and revenues associated with each alternative are listed below: What is the differential revenue for this decision?

Which of the following statements is true?

For decision-making purposes, qualitative factors are relevant if they differ among the alternatives and relate to the future.

Mary must decide between two alternatives for the weekend: babysitting or yard work. If she babysits, she will receive $40 and will incur $15 in transportation costs. If she does yard work, she will receive $40 and will incur $3 in lawn mower gas and oil costs and $5 in transportation costs. The payment she would receive for the jobs is relevant in deciding which alternative to select.

Select the incorrect statement concerning opportunity costs.

One of the potential dangers from outsourcing is the possible occurrence of low-ball pricing.

Select the correct statement regarding opportunity costs.

Outsourcing reduces the extent of a company's vertical integration.

Indicate whether each of the following statements is true or false.

To be relevant in decision making, cost or revenue information must be future-oriented and must not differ between the alternatives.