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Cost Accounting, 14e (Horngren/Datar/Rajan)Chapter 11 Decision Making and Relevant InformationObjective 11.11) A decision model involves:A) only quantitative analysesB) both quantitative and qualitative analysesC) only qualitative analysesD) a manager's instinctAnswer: BDiff: 1Terms: decision modelObjective: 1AACSB: Reflective thinking2) Feedback regarding previous actions may affect:A) future predictionsB) implementation of the decisionC) the decision modelD) All of these answers are correct.Answer: DDiff: 2Terms: decision modelObjective: 1AACSB: Reflective thinking3) Place the following steps from the five-step decision process in order:A Make predictions about future costsB Evaluate performance to provide feedbackC Implement the decisionD Choose an alternativeA) A D B CB) C D A BC) A D C BD) D C B AAnswer: CDiff: 2Terms: decision modelObjective: 1AACSB: Reflective thinking1Copyright 2012 Pearson Education, Inc.

4) The formal process of choosing between alternatives is known as a(n):A) relevant modelB) decision modelC) alternative modelD) prediction modelAnswer: BDiff: 1Terms: decision modelObjective: 1AACSB: Reflective thinking5) Ruttles Circuit Company manufactures circuit boards for other firms. Management is attempting tosearch for ways to reduce manufacturing labor costs and has received a proposal from a consultingcompany to rearrange the production floor next year. Using the information below regarding currentoperations and the new proposal, which of the following decisions should management accept?Required machine operatorsMaterials-handling workersEmployee average payHours worked per employeeProposedCurrently431.501.50 10 per hour 12 per hour2,1002,000A) Do not change the production floor.B) Rearrange the production floor.C) Either, because it makes no difference to the employees.D) It doesn't matter because the costs incurred will remain the same.Answer: BExplanation: B) Current operations: 4 workers 2,100 hours 10.00 84,000Proposal: 3 workers 2,000 hours 12.00 72,000Diff: 2Terms: decision modelObjective: 1AACSB: Analytical skills2Copyright 2012 Pearson Education, Inc.

Answer the following questions using the information below:Schwimmer Lighting manufactures small flashlights and is considering raising the price by 50 cents aunit for the coming year. With a 50-cent price increase, demand is expected to fall by 6,000 units.DemandSelling priceIncremental cost per unitCurrently40,000 units 4.50 3.00Projected34,000 units 5.00 3.006) If the price increase is implemented, operating profit is projected to:A) increase by 8,000B) decrease by 8,000C) increase by 12,000D) decrease by 9,000Answer: AExplanation: A) [34,000 ( 5 - 3)] - [40,000 ( 4.50 - 3.00)] increase of 8,000Diff: 2Terms: decision modelObjective: 1AACSB: Analytical skills7) Would you recommend the 50-cent price increase?A) No, because demand decreased.B) No, because the selling price increases.C) Yes, because contribution margin per unit increases.D) Yes, because operating profits increase.Answer: DDiff: 2Terms: decision modelObjective: 1AACSB: Analytical skills8) When using the five-step decision process, which one of the following steps should be done last?A) Obtain informationB) Choose an alternativeC) Evaluation and feedbackD) Implementing the decisionAnswer: CDiff: 2Terms: decision modelObjective: 1AACSB: Reflective thinking3Copyright 2012 Pearson Education, Inc.

9) When using the five-step decision process, which one of the following steps should be done first?A) Obtain informationB) Choose an alternativeC) Evaluation and feedbackD) Implementing the decisionAnswer: ADiff: 2Terms: decision modelObjective: 1AACSB: Reflective thinking10) A decision model is a formal method for making a choice, frequently involving both quantitativeand qualitative analyses.Answer: TRUEDiff: 1Terms: decision model, quantitative factors, qualitative factorsObjective: 1AACSB: Reflective thinking11) Feedback from previous decisions uses historical information and, therefore, is irrelevant for makingfuture predictions.Answer: FALSEExplanation: Historical costs may be helpful in making future predictions, but are not relevant costs fordecision making.Diff: 2Terms: relevant costsObjective: 1AACSB: Communication4Copyright 2012 Pearson Education, Inc.

12) The textbook discusses a five-step decision process. Briefly explain each of the five steps.Answer: The five step decision process is (a) obtain information, (b) make predictions, (c) choose analternative, (d) implement the decision, and (e) evaluate performance to provide feedback.Obtaining information involves collecting all data pertinent to the decision situation, both quantitativeand qualitative, and determining which information is relevant to the decision, and determining whichalternatives are being considered.Making predictions involves using the information obtained above and attempting to predict what thefuture costs and benefits will be for each of the various alternatives.Choosing an alternative involves comparing the predicted benefits of each alternative with each of thepredicted costs (as well as other non-quantitative factors), and selecting an alternative that maximizesthe difference between the expected benefits and the expected costs.Implementing the decision involves actually doing the alternative selected above and making all thenecessary changes in operations to support the decision.Evaluating the performance of the decision involves learning from the results of the decision and seeingwhich predictions were accurate and determining how to avoid any difficulties encountered in either thedecision-process or the implementation.Diff: 2Terms: decision modelObjective: 1AACSB: Reflective thinkingObjective 11.21) For decision making, a listing of the relevant costs:A) will help the decision maker concentrate on the pertinent dataB) will only include future costsC) will only include costs that differ among alternativesD) All of these answers are correct.Answer: DDiff: 2Terms: relevant costsObjective: 2AACSB: Reflective thinking2) Sunk costs:A) are historical costsB) cannot be changedC) are never relevantD) all of the aboveAnswer: DDiff: 2Terms: sunk costsObjective: 2AACSB: Reflective thinking5Copyright 2012 Pearson Education, Inc.

3) Sunk costs:A) are relevantB) are differentialC) have future implicationsD) are ignored when evaluating alternativesAnswer: DDiff: 1Terms: relevant costs, sunk costsObjective: 2AACSB: Reflective thinking4) A car purchased last year is an example of a(n):A) sunk costB) relevant costC) differential costD) avoidable costAnswer: ADiff: 1Terms: sunk costsObjective: 2AACSB: Use of Information Technology5) Costs that CANNOT be changed by any decision made now or in the future are:A) fixed costsB) indirect costsC) avoidable costsD) sunk costsAnswer: DDiff: 1Terms: sunk costsObjective: 2AACSB: Reflective thinking6) In evaluating different alternatives, it is useful to concentrate on:A) variable costsB) fixed costsC) total costsD) relevant costsAnswer: DDiff: 1Terms: relevant costsObjective: 2AACSB: Reflective thinking6Copyright 2012 Pearson Education, Inc.

7) Which of the following costs always differ among future alternatives?A) fixed costsB) historical costsC) relevant costsD) variable costsAnswer: CDiff: 1Terms: relevant costsObjective: 2AACSB: Reflective thinking8) Which of the following costs are NEVER relevant in the decision-making process?A) fixed costsB) historical costsC) relevant costsD) variable costsAnswer: BDiff: 1Terms: relevant costsObjective: 2AACSB: Reflective thinkingAnswer the following questions using the information below:John's 8-year-old Chevrolet Trail Blazer requires repairs estimated at 6,000 to make it roadworthyagain. His wife, Sherry, suggested that he should buy a 5-year-old used Jeep Grand Cherokee instead for 6,000 cash. Sherry estimated the following costs for the two cars:Trail Blazer 25,000 6,000Acquisition costRepairsAnnual operating costs(Gas, maintenance, insurance) 2,280Grand Cherokee 6,000 2,1009) The cost NOT relevant for this decision is the:A) acquisition cost of the Trail BlazerB) acquisition cost of the Grand CherokeeC) repairs to the Trail BlazerD) annual operating costs of the Grand CherokeeAnswer: ADiff: 2Terms: relevant costsObjective: 2AACSB: Analytical skills7Copyright 2012 Pearson Education, Inc.

10) What should John do? What are his savings in the first year?A) Buy the Grand Cherokee; 8,100B) Fix the Trail Blazer; 3,180C) Buy the Grand Cherokee; 180D) Fix the Trail Blazer; 6,280Answer: CExplanation: C) Trail Blazer ( 6,000 2,280) - Grand Cherokee ( 6,000 2,100) 180 costsavings with the Grand Cherokee optionDiff: 2Terms: relevant costsObjective: 2AACSB: Analytical skills11) A relevant revenue is a revenue that is a(n):A) past revenueB) future revenueC) in-hand revenueD) earned revenueAnswer: BDiff: 2Terms: relevant revenuesObjective: 2AACSB: Reflective thinking12) A relevant cost is a cost that is a (n):A) future costB) past costC) sunk costD) non-cash expenseAnswer: ADiff: 2Terms: relevant costsObjective: 2AACSB: Reflective thinking13) Relevant information has all of these characteristics EXCEPT:A) past costs are irrelevantB) all future revenues and expenses are relevantC) different alternatives can be compared by examining differences in total revenue and expensesD) qualitative factors should be consideredAnswer: BDiff: 2Terms: relevant revenues, relevant costsObjective: 2AACSB: Reflective thinking8Copyright 2012 Pearson Education, Inc.

14) Quantitative factors:A) include financial information, but not nonfinancial informationB) can be expressed in monetary termsC) are always relevant when making decisionsD) include employee moraleAnswer: BDiff: 2Terms: quantitative factorsObjective: 2AACSB: Reflective thinking15) Qualitative factors:A) generally are easily measured in quantitative termsB) are generally irrelevant for decision makingC) may include either financial or nonfinancial informationD) include customer satisfactionAnswer: DDiff: 2Terms: qualitative factorsObjective: 2AACSB: Reflective thinking16) Historical costs are helpful:A) for making future predictionsB) for decision makingC) because they are quantitativeD) None of these answers is correct.Answer: ADiff: 2Terms: relevant costsObjective: 2AACSB: Reflective thinking17) When making decisions:A) quantitative factors are the most importantB) qualitative factors are the most importantC) appropriate weight must be given to both quantitative and qualitative factorsD) both quantitative and qualitative factors are unimportantAnswer: CDiff: 2Terms: qualitative factors, quantitative factorsObjective: 2AACSB: Ethical reasoning9Copyright 2012 Pearson Education, Inc.