M4-Marginal Analysis

Question 1

The relevance of a particular cost to a decision is determined by potential effect on the decision. Relevant costs are expected future costs that vary with action taken. All other costs are assumed to be constant and thus have no effect on the decision. (true or false)

Answer 1

true

Question 2

The use of resource markets outside of the company involves opportunity costs. Opportunity costs are costs that would have been saved or the profit that would have been earned if another decision alternative had been selected. Financial accounting records do not record opportunity costs. (true or false)

Answer 2

true

Question 3

Accounting profit is total revenue minus total explicit costs, NOT total explicit and implicit costs. Implicit costs are opportunity costs and are ignored in financial accounting. (true or false)

Answer 3

true

Question 4

In making decisions about which products to emphasize, managers should select products with the highest contribution margin per unit of the constraining resource. (true or false)

Answer 4

true

Question 5

If there is excess capacity, then it is not possible to have an opportunity costs because nothing is being foregone. (true or false)

Answer 5

true

Idle space that has no alternative use has an opportunity cost of zero.

Question 6

Research and development costs are considered sunk costs because they are in the past, unavoidable, and will not change with different alternatives. (true or false)

Answer 6

true

Question 7

When considering alternatives, such as discontinuation of a product line, management should consider relevant costs. Relevant costs are those costs that will change under different alternatives. (true or false)

Answer 7

true