Deck 11: Short-Term Planning Decisions

Question 1

It is important that a business analyses the changes in its costs and revenues caused by each decision alternative, so that it understands the _______________ impact of each alternative.

Answer 1

profit

Question 2

_______________costs are future costs that will change as a result of a decision.

Answer 2

Relevant

Question 3

Costs or revenues that do not differ between alternatives can be ____________________ because they will not help in choosing between alternatives.

Answer 3

ignored

Question 4

No cost incurred ____________________ to the decision is relevant.

Question 5

Only future costs are ____________________ costs.

Question 6

The first step in identifying and separating relevant costs from irrelevant costs is to remove all ______________ costs.

Question 7

_______________costs are cost increases resulting from the performance of an additional activity.

Question 8

________________costs are the costs that must be incurred to perform an activity, but that can be avoided if that activity is reduced or discontinued.

Question 9

_______________ ____________ are the profits forgone by following a particular course of action.

Question 10

The information gathered to support a decision to accept or reject a special order could be ____________________ if based only on past operations.

Question 11

Based on accounting information alone, a business should drop a product only if the total ____________________ costs are more than the revenue it would lose if it dropped the product.

Question 12

Even if a product turns out to be ____________________ a business' managers may consider dropping it for other reasons, such as the product is hazardous.

Question 13

_________________________ is a decision that occurs if the profitability of a product declines.

Question 14

In the make versus buy decision, the business should ultimately choose the alternative with the lowest ____________________.

Question 15

A business can sometimes obtain a ____________________cost advantage by making a part.

Question 16

In the make versus buy decision, when the ____________________ _________ are determined the product profitability component of a manager's decision to drop the product is straightforward.

Question 17

A _________________________ is a decision on whether it would be less costly to produce a part or to purchase it from an outside supplier.

Question 18

The _________________________ decision is a question of selling a product 'as is' or use it as a direct material in the manufacture of another product.

Question 19

In the sell-or-process-further decision, management will choose the alternative with the _________________ profit.

Question 20

In the sell-or-process-further decision, the analysis involves subtracting the _______________ ____________ from the relevant revenues under each alternative.

Question 21

When a business evaluates decision alternatives the key question is "What did we do in the past?"

Question 22

Relevant revenues are revenues that will change as a result of the decision.

Question 23

A cost or revenue relevant for one decision will always be relevant for another decision.

Question 24

Costs and revenues that are not relevant to a decision should be omitted from the analysis, because they are not helpful.

Question 25

The only question a manager needs to ask when identifying relevant costs is by how much will be the costs be affected if the business undertakes the activities.

Question 26

In decision making, only future costs can be relevant costs.

Question 27

No cost incurred prior to making a decision is relevant.

Question 28

Sunk costs are relevant for decision making.

Question 29

A business is considering purchasing a new production machine and will consider the original cost of the existing machine as relevant to its decision making.

Question 30

Incremental costs are the costs that a business must incur to perform at a given activity level.

Question 31

Incremental costs are cost increases resulting from a higher volume of activity or from the performance of an additional activity.

Question 32

Special packaging costs to be incurred as part of a special order are an example of incremental costs.

Question 33

Opportunity costs are the profits that a business forgoes by following a particular course of action.

Question 34

Losing regular sales as a result of accepting a special order is an example of avoidable costs.

Question 35

If a business decides to buy a part instead of making it, the costs of raw materials used in producing the part are avoidable costs.

Question 36

The key to evaluating the profit effects of a business' decision to drop a product is to determine the avoidable costs and the revenues that it would not earn if it discontinued production and sale of the product.

Question 37

When making the decision to drop a product, avoidable costs are only variable costs.

Question 38

A business may decide to make a part it currently purchases due to issues of quality and supplier reliability.

Question 39

A business that buys parts from other companies may question whether it would be less costly to produce a part than to purchase it from an outside supplier.

Question 40

Management accounting information helps managers compare the 'profit' from selling the product 'as is' with the 'profit' from using the product as a direct material in the manufacture of another product.

Question 41

Which of the following is the first step in decision making?

A) Evaluating alternative decisions
B) Identifying alternative solutions
C) Recognising the need for a decision
D) Making the decision

Question 42

What types of business normally make short-term inventory planning decisions?

A) Manufacturing businesses only
B) Manufacturing and service businesses
C) Manufacturing and merchandising businesses
D) Merchandising and service businesses

Question 43

What are relevant costs and relevant revenues?

A) Future costs and revenues that will change as a result of a decision
B) The costs and revenues that customers deem important
C) Historical costs and revenues associated with decision making
D) Budgeted costs and revenues

Question 44

Relevant costs and revenues are _______ costs and revenues that will change as a result of a decision.

A) Future
B) Short-term
C) Long-term
D) Present

Question 45

Not including relevant costs and relevant revenues in an analysis results in:

A) unwanted investigations.
B) overstating profit.
C) not meeting budgeted profit.
D) incomplete information, which could lead to an incorrect decision.

Question 46

Relevant costs and revenues:

A) are increases on the balance sheet.
B) are found on the cash flows statement.
C) are future costs and revenues.
D) are always variable costs.

Question 47

In short-term decision making the cost of a machine that was purchased last year is known as:

A) a relevant cost.
B) an actual cost.
C) a future cost.
D) a sunk cost.

Question 48

Incremental costs are cost increases:

A) from the last accounting period
B) resulting from a higher volume of activity or from the performance of an additional activity
C) due to inflation
D) due to opportunity costs.

Question 49

Costs that a business does not incur, or can reduce, if it discontinues an activity are known as:

A) relevant costs.
B) incremental costs.
C) avoidable costs.
D) actual costs.

Question 50

Opportunity costs are:

A) the profits that a business forgoes by following a particular course of action.
B) costs that need to be incurred if a business opportunity arises.
C) avoidable costs.
D) costs of holding excess cash to take advantage of opportunities.

Question 51

In deciding whether or not to drop a product, avoidable costs are:

A) always relevant to the decision.
B) never relevant to the decision.
C) sometimes relevant to the decision.
D) only relevant if they are variable costs.

Question 52

The accounting system helps a business' managers evaluate one factor in the decision to drop a product, and that is:

A) the number of customers willing to buy the product.
B) the selling price of the product.
C) the profitability of the product.
D) the safety record of the product.

Question 53

Product D incurred a net loss of $40 000 during the most recent accounting period, calculated as follows:
$$\begin{array} { l l } \text { Sales } & \$ 300000 \\\text { Variable Costs } & ( 150000 ) \\\text { Fixed Costs } & ( 190000 ) \\\text { Net Loss } & \underline { \$ ( 40000 ) }\end{array}$$ An analysis of the fixed costs reveals that $120 000 are avoidable and $70 000 are unavoidable. Profit for the business would increase or decrease by what amount if Product D is discontinued?

A) $30 000 decrease
B) $80 000 decrease
C) $150 000 increase
D) $40 000 increase.

Question 54

During the most recent accounting period, Product A provided a contribution margin of $33 000, but after all costs were allocated, the product incurred a net loss of $20 000. Analysis by the business' controller indicates that $22 000 of fixed costs could be avoided if Product A were dropped. By what amount would the business' profit change if Product A is discontinued?

A) Decrease by $10 000
B) Increase by $10 000
C) Decrease by $11 000
D) Increase by $13 000

Question 55

The decision to produce a part or product or source it from outside the business is called:

A) relevant or irrelevant costs.
B) make or buy.
C) drop or not drop.
D) avoidable or unavoidable.

Question 56

The decision to make or buy a part involves an analysis of:

A) the potential sales of the product.
B) the advertising and marketing costs to promote the product.
C) the business' commitment to each alternative.
D) the relevant costs for each alternative.

Question 57

Which of the following is NOT a consideration when deciding to make or sell a part?

A) The supplier's quality
B) The supplier's price
C) Customer demand for the product 'as is'
D) Employee considerations

Question 58

Which of the following is NOT a consideration when deciding to sell a product or process it further?

A) The difference in profits between the two alternatives
B) Whether customers want the product 'as is' or processed further
C) Whether the business has employees with the necessary skills to process further
D) The supplier's price and quality

Question 59

From a financial perspective the decision to sell a product or process it further is decided upon the:

A) highest profit between the two alternatives.
B) more sales between the two alternatives.
C) less inventory required between the two alternatives.
D) customer demand between the two alternatives

Question 60

What are the steps in decision making and how is accounting information useful in the process?

Question 61

What is a special order? What are elements of the decision?

Question 62

How should a business decide whether to drop a product?

Question 63

What is a make or buy decision and what must be considered in the decision?

Question 64

How does a business decide whether to sell a product or process it further?

Question 65

What is a product-mix decision, and what issues must be considered when addressing a product-mix decision?

Question 66

The Transporter Business produces material handling equipment for use in commercial manufacturing. As part of its operations, Transporter has three distinct product lines: belts, conveyors, and elevators. The business is currently considering the elimination of the belt product line. The belt line's sales average $850 000 annually. Variable manufacturing costs and variable selling costs total $320 000 and $140 000, respectively. Fixed costs total $450 000, of which $120 000 are considered to be unavoidable.
Required:
(1) Prepare an analysis to determine the profit increase or decrease that would result if production of belts is discontinued.
(2) Should the business drop the belt line?

Question 67

Cornell Chemical Limited manufactures a basic chemical compound that is sold for $116 per litre. A new variant of the chemical has been developed, and if the basic compound were processed into the new variant the selling price would be $144 per litre. Cornell expects the market for the new compound variant to be 10 000 litres and determines that processing costs to refine the basic compound into the new variant would be $300 000.
Required:
(1) Should Cornell produce the new compound variant?