Cost Management A strategic Emphasis 7th Edition by Edward Blocher – Test Bank

Chapter 11
Decision Making with a Strategic Emphasis

Multiple Choice Questions

1. A cost is not relevant for decision making if it:

A. Does not differ for each option available to the decision maker.

B. Changes from period to period.

C. Is a future cost.

D. Is a mixed cost.

E. Is a fixed cost.

2. Variable costs will generally be relevant for decision making because they:

A. Differ between decision options.

B. Are volume-based.

C. Have not been committed and are likely to differ between decision options.

D. Differ between decision options and have been committed.

E. Measure opportunity cost.

3. Fixed costs will often be irrelevant for short-term decision making because they:

A. Do not vary on a per-unit-of-output basis.

B. Are the same each time period.

C. Typically do not differ between decision alternatives being considered.

D. Are not committed.

E. Cannot be estimated with precision.

4. A “special sales order” within the context of Chapter 11 is:

A. Typically expected.

B. A profitable opportunity to sell a specified quantity of a firm’s product or service.

C. A one-time opportunity to sell a specified quantity of a product or service.

D. A particularly large customer order.

E. In most cases, a rush order.

5. “Special sales orders,” as this term is used in Chapter 11

A. Generally arise from special marketing campaigns on the part of the seller.

B. Typically come directly from the customer rather than through normal sales or distribution channels.

C. Commonly represent a large part of a firm’s overall business.

D. Are usually not profitable to a firm in the short run.

E. Do not involve long-term (that is, “normal”) pricing considerations.

6. “Committed” and “Sunk” costs are generally:

A. Not fixed.

B. Small in amount.

C. The result of prior bad decisions.

D. Not relevant for decision-making.

E. Recoverable in trade.

7. All of the following are characteristic of relevant costs except:

A. They are generally variable.

B. They are not committed.

C. They are different in amount for different options.

D. They are costs that will be incurred in the future.

E. They are inventory-related costs.

8. The major problem with relevant cost determination is that it fails to recognize the:

A. Impact of variable costs in the long run.

B. Long-term nature of most product-related decisions.

C. “Sunk” nature of most fixed product costs.

D. Short-term nature of most product-related decisions.

E. Need to calculate costs more precisely.

9. Depreciation expense is relevant in a decision only in the context of:

A. Time value of money.

B. Amortized values.

C. Reducing the tax liability of the organization.

D. Determining sunk costs associated with the decision problem.

E. Financial accounting.

10. Operating at or near full capacity will require a firm considering a “special sales order” to potentially recognize the:

A. Opportunity cost from lost sales.

B. Value of full employment.

C. use of operating leverage.

D. Likely increase in fixed cost associated with the order.

E. Importance of facility-level cost drivers.

11. Done on a regular basis, relevant cost pricing in “special-order decisions” can erode normal pricing policies and lead to:

A. Overconfidence in decision-making.

B. A decrease in the firm’s long-term profitability.

C. Goal congruence between management and sales personnel.

D. A cost leadership strategy.

E. Maximization of the value stream.

12. The value chain analysis used in connection with the “make-or-buy decision” often leads a firm to make use of:

A. Activity-based costing (ABC).

B. Cost-volume profit (CVP) analysis.

C. Outsourcing options.

D. Relevant cost-based pricing.

E. Value stream accounting.

13. The decision to keep or drop products or services involves strategic consideration all of the following except:

A. Potential impact of the decision on remaining products or services.

B. Impact of the decision on employee morale.

C. Impact of the decision on organizational effectiveness.

D. Growth potential of the firm.

E. The desired inventory levels of the product.

14. A useful device or concept for solving production problems involving multiple products and limited resources is:

A. Gross profit per unit of product.

B. Contribution per unit of scarce resource.

C. Value-stream costing.

D. Relevant cost pricing.

E. The contribution income statement.

15. One of the behavioral problems with relevant cost analysis is a possible overemphasis on:

A. Short-term goals.

B. Unit fixed costs.

C. Opportunity costs.

D. Long-term strategic goals.

E. Goal congruency issues.

16. When using relevant cost analysis, it is a common mistake for untrained managers to include in their analysis all of the following except:

A. Sunk costs.

B. Allocated fixed costs.

C. Average fixed costs.

D. Unit variable costs.

E. Total fixed costs.

17. Which one of the following concepts is correct for determining relevant costs for decision-making?

A. Differential.

B. Integrative.

C. Long-term focus.

D. Subjective.

E. Absorption.

18. Which one of the following is most descriptive of a strategic analysis conducted as part of a decision analysis?

A. Quantitative.

B. Customer focus.

C. Short-term orientation.

D. Individual product focus.

E. Differential costing.

19. Which one of the following issues would least likely be addressed during the regular review of product profitability?

A. Which product managers should be rewarded?

B. Which products are most profitable?

C. Which products provide the greatest contribution margin per unit of any scarce resources?

D. Which products should be promoted and advertised most aggressively?

E. Are the products priced properly?

20. Determination of the optimum short-term product mix needs to include an analysis of:

A. Fully absorbed costs.

B. Production (that is, resource) constraints.

C. Sales-mix costs.

D. Revenue forecasts.

E. Joint manufacturing cost