Study Guide
1. When a firm maximizes profits it will simultaneously minimize opportunity costs. Answer: True Terms to Learn: opportunity cost
2. The usual starting point in budgeting is to forecast net income. Answer: False Terms to Learn: operating budget The usual starting point in budgeting is to forecast sales demand and revenues.
3. If the $17,000 spent to purchase inventory could be invested and earn interest of $1,000, then the opportunity cost of holding inventory is $17,000. Answer: False Terms to Learn: opportunity cost The opportunity cost of holding inventory is $1,000.
4. The revenues budget should be based on the production budget. Answer: False Terms to Learn: operating budget The production budget should be based on the revenues budget.
5. The operating budget is that part of the master budget that includes the capital expenditures budget, cash budget, budgeted balance sheet, and the budgeted statement of cash flows. Answer: False Terms to Learn: operating budget Described is the financial budget part of the master budget, not the operating budget.
6. Opportunity costs never appear in a company’s accounting records since they are foregone costs and not actual costs. Answer: True Terms to Learn: opportunity cost
7. For short-run product-mix decisions, managers should focus on minimizing total fixed costs. Answer: False Terms to Learn: decision model For short-run product mix decisions, managers should focus on maximizing total contribution margin.
8. Qualitative factors, because they are not measured numerically, are unimportant in the decision-making process. Answer: False Terms to Learn: qualitative factors Qualitative factors are important in the decision-making process even though they cannot be measured numerically.
9. Sometimes qualitative factors are the most important factors in make-or-buy decisions.
2. The usual starting point in budgeting is to forecast net income. Answer: False Terms to Learn: operating budget The usual starting point in budgeting is to forecast sales demand and revenues.
3. If the $17,000 spent to purchase inventory could be invested and earn interest of $1,000, then the opportunity cost of holding inventory is $17,000. Answer: False Terms to Learn: opportunity cost The opportunity cost of holding inventory is $1,000.
4. The revenues budget should be based on the production budget. Answer: False Terms to Learn: operating budget The production budget should be based on the revenues budget.
5. The operating budget is that part of the master budget that includes the capital expenditures budget, cash budget, budgeted balance sheet, and the budgeted statement of cash flows. Answer: False Terms to Learn: operating budget Described is the financial budget part of the master budget, not the operating budget.
6. Opportunity costs never appear in a company’s accounting records since they are foregone costs and not actual costs. Answer: True Terms to Learn: opportunity cost
7. For short-run product-mix decisions, managers should focus on minimizing total fixed costs. Answer: False Terms to Learn: decision model For short-run product mix decisions, managers should focus on maximizing total contribution margin.
8. Qualitative factors, because they are not measured numerically, are unimportant in the decision-making process. Answer: False Terms to Learn: qualitative factors Qualitative factors are important in the decision-making process even though they cannot be measured numerically.
9. Sometimes qualitative factors are the most important factors in make-or-buy decisions.