An opportunity cost:

Multiple Choice

• Is an unavoidable cost because it remains the same regardless of the alternative chosen.

• Requires a future outlay of cash.

• Results from past managerial decisions.

• Is the potential benefit lost by taking a specific action instead of alternative actions.

• Is irrelevant in decision making because it occurred in the past.

Smart Company is in a competitive product market. The expected selling price is $240 per unit, and Smart Companys target profit is 20% of the selling price. If Smart Company uses the target cost method, the highest cost per unit can be is $168.

True or False

Granfield Company has a piece of manufacturing equipment with a book value of $41,000 and a remaining useful life of four years. At the end of the four years the equipment will have a zero-salvage value. Granfield can purchase new equipment for $126,000 and receive $22,800 in return for trading in its current equipment. The current equipment has variable manufacturing costs of $41,000 per year. The new equipment will reduce variable manufacturing costs by $20,000 per year over its four-year life. The total increase or decrease in income by replacing the current equipment with the new equipment is:

rev: 09_13_2021_QC_CS-277011

Multiple Choice

• $23,200 decrease

• $80,000 increase

• $17,800 decrease

• $54,700 increase

• $23,200 increase