Exam 6: Relevant Information for Decision Making With a Focus

In practice,sunk costs often influence important decisions,especially when a decision maker does not want to admit that a previous decision was a bad decision.

When determining the opportunity cost of a project,it depends on the alternatives available.

A key factor in a make-or-buy decision is ________.

Past costs that are unavoidable and unchangeable are known as sunk costs.

Hitch Company currently produces 10,000 units of a key part at a total cost of $512,000 annually.Annual variable costs are $300,000.Of the annual fixed costs,$140,000 relate specifically to this part.The remaining fixed costs are unavoidable. Another manufacturer has offered to supply the part for $48 per unit.The facilities currently used to manufacture the part could be used to manufacture a new product with an expected contribution margin of $55,000 annually.Alternatively,the facilities could be rented out at $68,000 annually.If Hitch Company makes the part,what is the annual opportunity cost of the facilities?

Bert Company is considering the replacement of a machine that is presently used in production.The following data are available: Adding all five years together,the difference in total cost between the old machine and the new machine is ________ the old machine.

In retail sales,the limiting resource is often floor space.

When adding or dropping a product line,fixed avoidable costs may be relevant costs.

If the limiting factor is demand,the most profitable product is the one with the highest contribution margin per unit.

If the limiting factor is demand and there are no scarce resources,managers should emphasize the product with ________.

Goldwater Company manufactures a part for its production cycle.The annual costs per unit for 10,000 units of the part are as follows: The fixed factory overhead costs are unavoidable.Olson Company has offered to sell 10,000 units of the same part to Goldwater Company for $60 per unit.The facilities currently used to make the part could be used to make 10,000 units per year of a new product that has a contribution margin of $20 per unit.No additional fixed costs would be incurred with the new product.Goldwater Company should ________.

Aloa Company has three product lines: A,B and C.The following annual information is available: Assume Aloa Company drops Product C.Aloa Company then doubles the production and sales of Product B without increasing fixed costs.What will happen to operating income?

The salary foregone by a person who quits a job to start a business is an example of a(n)________.

Conflicts in the decision-making process can arise when superiors evaluate a manager's performance using a model consistent with the decision model used by the manager.

Jack Bowers has paid off the mortgage on his house and continues to live in the house.The interest income foregone by not selling the house and investing the proceeds is an example of a(n)________.

Past costs may affect future payments for income taxes.

Birch Company manufactures a part for its production cycle.The costs per unit for 5,000 units of the part are as follows: The fixed factory overhead costs are unavoidable.Spalding Company has offered to sell 5,000 units of the same part to Birch Company for $15 per unit.Assuming no other use for the facilities,Birch Company should ________.

An equipment's book value is the original cost plus accumulated depreciation.

Heating and air conditioning costs are examples of common costs to the different departments in a retail store.

Examples of joint products include chemicals,lumber and flour.