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Exam 13: Relevant Information for Special Decisions

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Question 21

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Facility-level costs are not involved in decisions to eliminate a segment of a business.

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Question 22

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Select the incorrect statement regarding sunk costs.

A) Sunk costs cannot be avoided.
B) Sunk costs are relevant if they differ between the alternatives.
C) Sunk costs are costs that have been incurred in past transactions.
D) Sunk costs include historical costs such as equipment acquisition costs.

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Question 23

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The Page Turner Publishing Company is trying to decide whether or not to accept a special order for its latest blockbuster. In making this decision, which level of costs will most likely be relevant to the decision?

The decision to accept a lower-than-normal selling price may depend on the availability of excess capacity.

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

Alex brought his lunch today but now a co-worker has asked him to go to the deli across the street. Select the correct statement from the following.

The costs and revenues associated with two alternatives are listed below: Which alternative should be selected based on this information?

The Mansfield Company manufactures and sells two lines of fishing rods. During the most recent accounting period, the Pro line and the Novice line sold 15,000 and 2,000 units, respectively. The company's most recent financial statements are shown below: Based on this information, the company should:

Stephenson Company is trying to decide which one of two contracts it will accept. The costs and revenues associated with each are listed below: The equipment was purchased last year and has no resale value. Which of these amounts is relevant for the selection of one contract over another?

Jack currently works for a law firm full time and earns $60,000 a year. He is thinking of quitting his job to pursue a medical degree. Medical school will cost him $100,000 per year. If Jack quits his job and goes to medical school, the salary he currently earns would be considered what type of cost?

The book value of equipment generally is one of the most important factors to consider in deciding to replace the equipment.

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

Clean, Inc. cleans and waxes floors for commercial customers. The company is presently operating at less than capacity with equipment and employees idle at times. The company recently received an order from a potential customer outside the company's normal geographic service region for a price of $4,500. The size of the proposed job is 11,000 square feet. The company's normal service costs are as follows: If the company accepts the special offer:

Special order decisions involve:

Outdoor Living Company has just received a special order for 500 hammocks. Outdoor Living has sufficient idle capacity to accept the order. Accepting the order will increase Outdoor Living's variable manufacturing costs. Which type of cost is considered a sunk cost to Outdoor Living's decision of whether to accept or reject the special order?

Jason is trying to decide which one of two job offers he will accept. Several items are presented below: Which of the above items would be considered relevant costs?

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

Monica paid $12 for a music CD for which she later was offered $15. After that someone offered her $18 for the CD. If Monica keeps the CD, the amount of her opportunity cost is $33.

Scholastic Tours is trying to decide which one of two tours it will introduce. The costs and revenues associated with each alternative are listed below: What are the incremental (differential) costs of the Western Tour?

Sunk costs are sometimes relevant for decision-making purposes.