accounting exam ch. 7 & 8

In the decision to make or buy a new component, if a company is producing at full capacity then the only factors that matter are the costs of materials, direct labor, and variable overhead.

false. Rationale: If the manufacturing capacity available by not producing a product has an alternative use with a greater contribution margin, the fixed costs of production would also be relevant.

Fixed costs are sunk costs.

false

Future costs that do not differ between the alternatives in a decision are avoidable costs.

false

If a business segment is unprofitable, it should always be dropped.

false

In the decision to make or buy a new product, if the differential cost of buying is more than the differential cost of making, the company should buy the product from the outside.

false

Opportunity costs represent costs that can be reduced by effective management of operations.

false

The purchase price of an old machine is always considered an opportunity cost in a decision.

false

Variable costs are always relevant costs in decisions.

false

A company should process a part further if the incremental revenues of doing so exceed the incremental costs.

true

A cost that can be avoided by choosing one alternative over another is relevant for decision purposes.

true

Assuming there are no negative qualitative factors, if incremental revenues exceed incremental costs, then a special order should generally be accepted.

true

If a company would have to incur additional fixed costs to produce a special order, then those costs are considered relevant

true

In the decision to make or buy a product, if there is no alternative use for the manufacturing capacity used to make the product, then fixed costs are irrelevant.

true

Joint costs are irrelevant to the decision whether to process joint products further.

true

Sunk costs are never relevant in decision making.

true