Short-Term Decisions (1)

Question 1

Types of decisions (Minimum)

Answer 1

Minimum price of an order/job/contract

Question 2

Types of decisions (Accept)

Answer 2

Accept or reject

Question 3

Types of decisions (Make)

Answer 3

Make or buy

Question 4

Types of decisions (O)

Answer 4

Outsource

Question 5

Types of decisions (S)

Answer 5

Shutdown

Question 6

Types of decisions (Further)

Answer 6

Further processing decisions

Question 7

What are relevant costs?

Answer 7

These are costs relating to specific management decisions

Question 8

Examples of relevant costs?

Answer 8

Future
Cash
Incremental/Specific
Opportunity cost
Avoidable cost

Question 9

What is meant by future in relevant costs?

Answer 9

They may occur in the future

Question 10

What is meant by incremental in relevant costs?

Answer 10

An additoonal cost to something that was being paid anyway

Question 11

What is a cash flow

Answer 11

Costs or charges which do not reflect additional cash spending, should be ignored for purpose of decision-making

Question 12

What is an opportunity cost?

Answer 12

A benefit sacrificed when one course of action is chosen in preference to an alternative

Question 13

What are avoidable costs?

Answer 13

Costs of an activity or sector of a business that would be avoided if that activity or sector did not exist

Question 14

What are avoidable costs usually associated with?

Answer 14

Shutdown decisions

Question 15

What are non-relevant costs?

Answer 15

Sunk costs

Committed costs

National costs

General fixed costs and fixed overhead costs

Question 16

What are sunk costs?

Answer 16

Costs already incurred. They are not relevant in decision-making and are therefore ignored

Question 17

What are committed costs?

Answer 17

Have already been committed to and so are not relevant to the decision

Question 18

What are national costs?

Answer 18

Non-cash items or accountancy entries

Question 19

Are avoidable fixed costs relevant/

Answer 19

Yes, but fixed voerhead costs and general fixed costs aren’t specific to a decision