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Question & Answer:

  • Outline the five-step sequence in a decision process.
  • Define relevant costs. Why are historical costs irrelevant?
  • All future costs are relevant do you agree? Why?
  • Distinguish between quantitative and qualitative factors in decision making.
  • Describe two potential problems that should be avoided in relevant-cost analysis.
  • Variable costs are always relevant, and fixed costs are always irrelevant. Do you agree? Why?
  • A component part should be purchased whenever the purchase price is less than its total manufacturing cost per unit. Do you agree? Why?
  • Define opportunity cost.
  • Managers should always but inventory in quantities that result in the lowest purchase cost per unit. Do you agree? Why?
  • Management should always maximize sales of the product with the highest contribution margin per unit. Do you agree? Why?
  • A branch office or business segment that shows negative operating income should be shutdown. Do you agree? Why?
  • Cost written off as depreciation on equipment already purchased is always irrelevant. Do you agree? Why?
  • Managers will always choose the alternative that maximizes operating income or minimizes costs in the decision model. Do you agree? Why?
  • Describe the three steps in solving a linear programming problem
  • How might the optimal solution of a linear programming problem be determined?
  • Why is there an unmistakable trend in manufacturing to improve quality?
  • Distinguish among spoilage, rework, and scrap.
  • Normal spoilage is planned spoilage. Discuss.
  • Costs of abnormal spoilage are losses. Explain
  • What has been regarded as normal spoilage in the past is not necessarily acceptable as normal spoilage in the present or future. Explain.