Below is a list of decisions and an associated cost or benefit that may or may not be relevant to the decision. For each situation, state whether the associated cost or benefit is relevant to the related decision. If a cost or benefit is irrelevant, justify your answer by briefly stating why it’s irrelevant.
1. Decision: Should you take the bus or drive your car to school for the semester? Cost: $300 repair bill to fix brakes.
2. Decision: Eliminate an unprofitable segment. Cost: Unavoidable fixed overhead.
3. Decision: Make or buy a component used in manufacturing a product. Benefit: Selling price of the final product.
4. Decision: Accept a special order. Cost: Variable overhead.
5. Decision: Sell unassembled and unfinished furniture or sell finished assembled furniture.
Cost: The cost of producing an unfinished and unassembled table.
6. Decision: XYZ Tire Company is considering dropping one of its 10 models of tires. Cost:
Common fixed costs.
7. Decision: ABC Golf Co. produces custom golf clubs and is considering purchasing the putter from a manufacturer of custom putters. Cost: Direct labor.
8. Decision: A major regional airline has been approached to provide 200 seats at a discounted price to Tampa, Florida, for an executive training session. The airline has excess capacity on the scheduled flight date. Cost: Cost of flight crew.
9. Decision: A major regional airline has been approached to provide 200 seats at a discounted price to Tampa, Florida, for an executive training session. The airline has excess capacity on the scheduled flight date. Cost: In-flight meals.
10. Decision: A major regional airline has been approached to provide 200 seats at a discounted price to Tampa, Florida, for an executive training session. The airline does not have excess capacity on the scheduled flight date. Benefit: Discounted ticket price.