2037 - R9

A student purchased a used car for $5,000 three months ago. The car now needs a major repair which will cost $2,000. If the student decides to keep the car and make the repair to the car, then the out-of-pocket costs will be:

2000

A student purchases a concert ticket for $50. Before entering the concert, the student is offered $75 for the ticket. If the student decides to keep the ticket and attend the concert, the opportunity cost is: Multiple choice question.

75

A student is considering adding a minor to her degree. The additional courses would cost $1,500 but would allow additional income upon graduation of $10,000. The incremental income related to this decision is:

8500

List the steps of the decision making process, with the first step on top. Collect relevant information Select the course of action Define the decision Analyze and assess decision Identify alternatives

Define the decision Identify alternatives Collect relevant info Select course of action Analyze and assess decision

In a make or buy decision, management should consider: (Check all that apply.) Employee morale Workload product quality Incremental costs Sunk costs Existing sales

Employee morale Workload product quality Incremental Costs

_______ costs, also called differential costs, are the additional costs from selecting a certain course of action.

Incremental

A company produces two products. Product A sells for $25, has variable costs of $15, and requires 2 machine hours to produce. Product B sells for $35, has variable costs of $20, and requires 5 machine hours to produce. 40,000 machine hours are available. The company can sell all it can make of either product. Which statement is true?

Product A should be produced because it will provide greater contribution margin per machine hour.

A company currently makes a component used in production. The per unit costs incurred to make the component include: Direct materials: $5; Direct labor: $2; Overhead: $4; Total cost: $11. Twenty-five percent of the overhead costs are considered incremental. The company can purchase the component from another source for $10. The company should do which of the following?

The company should make the components because incremental costs are $2 less than the purchase price.

A company produces two products. Product A sells for $25, has variable costs of $15, requires 2 machine hours to produce, and the market is limited to 8,000 units. Product B sells for $35, has variable costs of $20, requires 5 machine hours to produce, and the market is limited to 6,000 units. 40,000 machine hours are available. Which statement is true?

The company should produce 8,000 units of Product A and 4,800 units of Product B.

A student purchased a used car for $5,000. Three months later, the student discovers the car needs major repairs which will cost $2,000. The student must decide whether to repair the car or purchase another car. Which statement is correct? The relevant costs are $7,000. The relevant costs are $5,000. The relevant costs are $2,000.

The relevant costs are $2,000.

The last step in the decision making process is:

analyze and assess the decision

When resources are constrained and products use different inputs, the company should produce the product with the:

highest contribution margin per unit of constrained resource

When production facilities are limited, the company should produce the mix that will not exceed demand and maximize the production of the product with the:

highest contribution margin per unit of scarce resources

Incremental __________ is incremental revenues minus incremental costs

income

When making decisions, managers should consider all relevant benefits and relevant costs, which include: (Check all that apply.) opportunity costs. out-of-pocket costs. historical costs. incremental costs. sunk costs.

incremental out-of-pocket costs opportunity cost

A(n)__________ cost is the potential benefit lost by taking an action instead of an alternative action.

opportunity

A student is deciding whether to take an additional class or work extra hours. Which amounts are relevant to this decision?

opportunity costs out-of-pocket costs

A(n) ______ cost requires a future outlay of cash and is relevant for decisions.

out-of-pocket

Incremental or differential costs are _______ costs in making decisions

relevant

A(n) cost arises from a past decision, cannot be avoided or changed, and is irrelevant to current and future decisions

sunk

When products use the same inputs, the company should produce the product with:

the highest contribution margin per constrained resource