Study Guide

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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. Answer:True
Terms to Learn:qualitative factors

10.If a company is deciding whether to outsource a part, the reliability of the supplier is an important factor to consider. Answer:True
Terms to Learn:outsourcing, make-or-buy decision

11.Outsourcing is risk free to the manufacturer because the supplier now has the responsibility of producing the part. Answer:False
Terms to Learn:outsourcing, make-or-buy decision
Outsourcing has risks since the manufacturer is dependent on the supplier for a quality product, delivered in a timely manner, for a reasonable price. 12.When a firm maximizes profits it will simultaneously minimize opportunity costs. Answer:True

Terms to Learn:opportunity cost

13.For short-run product-mix decisions, maximizing contribution margin will also result in maximizing operating income. Answer:True
Terms to Learn:decision model

14.Management should focus on per unit costs when deciding whether to discontinue a product or not. Answer:False
Terms to Learn:full costs of the product
Management should focus on total costs when deciding whether to discontinue a product or not.

15.Avoidable variable and fixed costs should be evaluated when deciding whether to discontinue a product, product line, business segment, or customer. Answer:True
Terms to Learn:differential cost

16.All variable costs are relevant and all fixed costs are irrelevant. Answer:False
Terms to Learn:relevant costs
All variable costs are not necessarily relevant and all fixed costs are not necessarily irrelevant.

17.In a decision as to whether or not to drop a product, fixed costs that have been allocated to that product are always relevant. Answer:False
Terms to Learn:relevant costs
In a decision as to whether or not to drop a product, fixed costs that have been allocated to that product are generally not relevant.

18.When...
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