Deck 14: Short-Term Decision Making

Question 1

Which of these are all relevant costs?

A) Cash, incremental, allocated
B) Sunk, cash, opportunity
C) Incremental, opportunity, committed
D) Cash, future, incremental

Answer 1

D

Question 2

Which definition best describes an opportunity cost?

A) A hypothetical cost taken into account to represent a benefit
B) A cost relating to a particular business opportunity
C) The value of the benefit sacrificed in favour of an alternative course of action
D) A cost that has no effect on the current decision

Answer 2

C

Question 3

A bus company is offering cheap fares for special excursions. It has advertised its trips in newspapers and has already paid a quarter of the advertising fee, and has agreed to pay the final installment soon. Which of the following statements is correct?

A) Quarter of the advertising cost is relevant
B) None of the advertising costs are relevant
C) All the advertising costs are relevant
D) Three-quarters of the advertising cost is relevant

Answer 3

B

Question 4

To complete a contract for fitting out a new shop in time for its opening, a refurbishment company has employed three temporary painters for 10 days at £45 per day and moved two carpenters who are paid £70 per day from another job for three days. The penalty for late completion of the shop is £300 but the delay to the carpenters' current job will only cost £150. What are the relevant costs?

A) £1,770
B) £1,800
C) £1,500
D) £1,650

Question 5

An outdoor clothing manufacturer has to make decisions about which items to make itself and which to buy-in from third party suppliers. The design costs are a fixed charge, only incurred if the product is made in-house. Which should it buy in?

A) Hats only
B) Hats and gloves
C) All
D) None

Question 6

A company produces hand-made greetings cards. If labour is limited, in what order should these cards be produced to maximise the company's profits?

A) New home, Birthday, Anniversary, Congratulations
B) Congratulations, Birthday, New home, Anniversary,
C) Anniversary, New home, Birthday, Congratulations
D) Birthday, Congratulations, New home, Anniversary

Question 7

A company makes different coloured pens but has a limited supply of materials. Using the data below, in what order of priority should the pens be made:

A) Black, blue, red
B) Black, red, blue.
C) Blue, black, red
D) Red, black, blue

Question 8

A company is estimating the benefits of investing in a new machine to improve its output. Its current variable costs are £12 per unit and current fixed costs are £48,000. If the new machine increases fixed costs by 20% but reduces variable costs by 10%, at what level of production should they change to the new method?

A) 4,000 units
B) 4,363 units
C) 8,000 units
D) 2,000 units

Question 9

A company is considering leasing a new photocopier, which would save 20% of printing costs per copy but would increase the annual leasing charge by £400. If they expect to make 200,000 copies per year, what would the cost per copy need to be to make it worth changing?

A) 0.2p
B) 1p
C) £1.00
D) 20p

Question 10

Which of the following factories should be closed down?

A) South only
B) South and West
C) All
D) None