Chapter 11 Exam 3

Question 1

What is a relevant cost?

Answer 1

A cost that differs between 2 alternatives –> a cost that can be avoided or eliminated by choosing one alternative over the other

Question 2

What is a relevant benefit?

Answer 2

A benefit that differs between 2 alternatives

Question 3

What are irrelevant costs?

Answer 3

A cost that is not considered in decision making? Sunk costs and a future cost that does not differ between two alternatives

Question 4

Contribution margin approach equation?

Answer 4

Contribution margin of product line - avoidable costs = lost income

Question 5

When in a make or buy decision, what needs to be taken into account?

Answer 5

Variable costs are always relevant, fixed costs are generally not relevant unless that cost can be eliminated and opportunity costs

Question 6

What is a special order?

Answer 6

A one-time order that is not considered part of the company’s normal ongoing business.

Question 7

T/F in utilization of a constrained resource, choose a product that has the highest contribution margin per constrained resource.

Answer 7

True

Question 8

T/F In a special order decision, you should consider sales commissions or existing fixed overhead that will not go away?

Answer 8

False