CHAPTER 5
MANAGEMENT ACCOUNTING INFORMATION FOR ACTIVITY AND PROCESS DECISIONS
TRUE/FALSE
1. Sunk costs are never relevant costs for decision making. a. True b. False
2. An example of a sunk cost is the amount of a guaranteed contract that has not yet been
paid. a. True b. False
3. Personal employee responses are not critical considerations for the business decision
maker. a. True b. False
4. For decision-making, differential costs assist in choosing between alternatives. a. True b. False
5. For a particular decision, differential revenues and costs are always relevant. a. True b. False
6. A cost may be relevant for one decision, but not relevant for a different decision. a. True b. False
7. Avoidable costs should be evaluated when deciding whether to discontinue a part, product,
product line, or business segment. a. True b. False
8. In make-or-buy decisions, facility-sustaining support costs are unavoidable if the facility
can be converted to another use. a. True b. False
9. For one-time-only special orders, flexible costs may be relevant but not capacity-related
costs. a. True b. False
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10. Bid prices and costs that are relevant for regular orders are the same costs that are relevant
for one-time-only special orders. a. True b. False
11. When opportunity costs exist, they are always relevant. a. True b. False
12. Depreciation allocated to a product line is a relevant cost when deciding to discontinue that
product. a. True b. False
13. When replacing an old machine with a new machine, the book value of the old machine is a
relevant cost. a. True b. False
14. If a company is deciding whether to outsource a part, the reliability of the supplier is an
important factor to consider. a. True b. False
15. Sometimes qualitative factors are the most important factors in make-or-buy decisions. a. True b. False
16. If a company is deciding whether to outsource a part, the reliability of the supplier is an
important factor to consider. a. True b. False
17. Outsourcing is risk-free to the manufacturer because the supplier now has the responsibility
of producing the part. a. True b. False
18. The central goal of the facility layout design process is to streamline operations to increase
operating income. a. True b. False
19. In a process layout, batch production causes inventory costs. a. True b. False
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20. 21. 22. 23. 24.
The reduction of setup costs makes smaller batch sizes more feasible. a. True b. False
In batch processing, workers downstream can identify an upstream problem immediately. a. True b. False
The theory of constraints focuses on long-term initiatives to increase operating income. a. True b. False
A processing cycle efficiency (PCE) of 14% indicates better efficiency than a PCE of 50%. a. True b. False
When using a just-in-time manufacturing, a problem anywhere in the system can stop all production. a. True b. False
25. Implementing a just-in-time inventory system requires a major cultural change for an
organization. a. True b. False
26. Global competition led to the development of international quality standards such as ISO
9000 2000 Standards. a. True b. False
27. External quality problems are expensive to fix. a. True b. False
28. Experience shows that it is more expensive to prevent defects than to detect and repair
them. a. True b. False
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MULTIPLE CHOICE
29. Sunk costs: a. are relevant b. are differential c. have future implications d. are ignored when evaluating alternatives
30. A computer system installed last year is an example of: a. a sunk cost b. a relevant cost c. a differential cost d. an avoidable cost
31. Costs that cannot be changed by any decision made now or in the future are: a. fixed costs b. indirect costs c. avoidable costs d. sunk costs
32. For decision making, a listing of the relevant costs: a. will help the decision maker concentrate on the pertinent data b. will only include future costs c. will only include costs that differ among alternatives d. should include all of the above
33. Which of the following costs are NEVER relevant in the decision-making process? a. capacity-related b. historical costs c. relevant costs d. variable costs
34. When deciding to lease a new cutting machine or continue using the old machine, the
following costs are all relevant EXCEPT the: a. $50,000 cost of the old machine b. $20,000 cost of the new machine c. $10,000 selling price of the old machine d. $3,000 annual savings in operating costs if the new machine is purchased
35. In evaluating different alternatives, it is useful to concentrate on: a. flexible costs b. capacity-related costs c. total costs d. relevant costs
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36. 37. 38. 39.
Relevant costs of a make-or-buy decision include all EXCEPT: a. fixed salaries that will not be incurred if the part is outsourced b. current direct material costs of the part
c. special machinery for the part that has no resale value d. material-handling costs that can be eliminated
Which of the following would NOT be considered in a make-or-buy decision? a. capacity-related costs that will no longer be incurred b. flexible costs of production
c. potential rental income from space occupied by the production area d. unchanged supervisory costs
Relevant costs in a make-or-buy decision of a part include:
a. setup overhead for the manufacture of the product using the outsourced part b. currently used manufacturing capacity that has alternative uses c. annual plant insurance costs that will remain the same d. corporate office costs that will be allocated differently
When deciding to accept a one-time-only special order from a wholesaler, management should do all of the following EXCEPT: a. analyze product costs
b. consider the impact of the special order on future prices of their products c. determine whether excess capacity is available d. verify past design costs for the product
40. When there is excess capacity, it makes sense to accept a one-time-only special order for
less than the current selling price when: a. incremental revenues exceed incremental costs b. additional capacity-related costs must be incurred to accommodate the order c. the company placing the order is in the same market segment as your current
customers
d. None of the above is correct.
41. When deciding whether to discontinue a segment of a business, managers should focus on: a. equipment used by the segment that could become idle b. reallocation of corporate costs c. how total costs differ among alternatives d. operating income per unit of the discontinued segment
42. Costs are relevant to a particular decision if they: a. are flexible costs b. are capacity-related costs c. differ across the alternatives being considered d. remain unchanged across the alternatives being considered
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