Acctg for Decision Making

Powerful Essays
Topics: Costs, Variable cost
RELEVANT INFORMATION & DECISION MAKING

1. Which of the following best defines the concept of a relevant cost?
A. A past cost that is the same among alternatives.
B. A past cost that differs among alternatives.
C. A future cost that is the same among alternatives.
D. A future cost that differs among alternatives.
E. A cost that is based on past experience.

2. Susan is contemplating a job offer with an advertising agency where she will make $54,000 in her first year of employment. Alternatively, Susan can begin to work in her father 's business where she will earn an annual salary of $38,000. If Susan decides to work with her father, the opportunity cost would be:
A. $0.
B. $38,000.
C. $54,000.
D. $92,000.
E. irrelevant in deciding which job offer to accept.

3. Clancy Van Lines is considering the acquisition of two new trucks. Because of improved mileage, these vehicles are expected to have a lower operating cost per mile than the trucks the company plans to replace. Management is studying whether the firm would be better-off keeping the older vehicles or going ahead with the replacement, and has identified the following decision factors to evaluate:

1. Cost and book value of the old trucks 2. Moving revenues, which are not expected to change with the acquisition 3. Operating costs of the new and old vehicles 4. New truck purchase price and related depreciation charges 5. Proceeds from sale of the old vehicles 6. The 8% return on alternative investments that Clancy will forego by tying up cash in the new trucks 7. Drivers ' wages and fringe benefits

Required: Classify the seven decision factors listed into the following categories (note: factors may be used more than once): A. Relevant costs. 3, 4, 6 B. Opportunity costs. 6 C. Sunk costs. 1 D. Factors to be considered in the decision. 3, 4, 5, 6

4. Greg Smithson builds custom homes in Cincinnati. Smithson was approached not too long ago by a client about a

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