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BADM 3150 Advanced Managerial Accounting University of Guelph

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University of Guelph

BADM 3150 Advanced Managerial Accounting

Cost Accounting, Cdn. Ed., 7e (Horngren) Chapter 11 Decision Making and Relevant Information
11.1 Distinguish relevant from irrelevant information in decision situations.
1) A decision model is a formal method of making a choice that uses only quantitative analyses. Answer: FALSE Explanation: A decision model is a formal method of making a choice that often involves both quantitative and qualitative analyses. Diff: 1 Type: TF Skill: Remember Objective: LO 11-1
11.2 Identify the differences among relevant costs for short-term and long-term production output decisions.
1) The purpose of evaluating performance in the decision process is to provide feedback. Answer: TRUE Diff: 1 Type: TF Skill: Remember Objective: LO 11-2
2) Anticipated future costs that differ with alternative courses of action are known as relevant costs. Answer: TRUE Diff: 1 Type: TF Skill: Remember Objective: LO 11-2
3) Divisional revenues which remain at the same level from year to year are known as relevant revenues. Answer: FALSE Explanation: Relevant revenues are expected future revenues. Diff: 2 Type: TF Skill: Remember Objective: LO 11-2
4) The total cost difference between two separate alternatives in a decision making process is the net relevant cost. Answer: TRUE Diff: 2 Type: TF Skill: Understand Objective: LO 11-2
5) Each item included in the relevant-cost analysis should differ according to the alternative being considered and be an expected future revenue or cost. Answer: TRUE Diff: 2 Type: TF Skill: Remember Objective: LO 11-2
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6) When choosing between two alternatives, costs that do not differ between the two alternatives can be considered to be irrelevant to that decision. Answer: TRUE Diff: 1 Type: TF Skill: Remember Objective: LO 11-2
7) All fixed costs are irrelevant in relevant-cost analysis. Answer: FALSE Explanation: Fixed costs that occur in the future or are different between alternatives are relevant. Diff: 2 Type: TF Skill: Understand Objective: LO 11-2
8) All variable costs are relevant in relevant-cost analysis. Answer: FALSE Explanation: Fixed costs that occur in the future or are different between alternatives are relevant. Diff: 2 Type: TF Skill: Understand Objective: LO 11-2
9) The last step in the decision process is normally to A) evaluate and explain outcomes. B) make assumptions and predictions. C) choose alternatives. D) perform quantitative analysis. E) gather information. Answer: A Diff: 2 Type: MC Skill: Understand Objective: LO 11-2
10) The feedback obtained in the decision process cannot affect A) future predictions. B) the prediction method. C) the decision model. D) implementation. E) past performance. Answer: E Diff: 2 Type: MC Skill: Understand Objective: LO 11-1
© 2016 Pearson Canada Inc.
11) The Gameshop manufactures specialized board games. Management is attempting to search for ways to reduce costs and is considering two alternatives for an upcoming project of special games that must be delivered to the customer in 12 months’ time. Management agreed to the special project job as they have an idle plant that is scheduled for demolition 18 months from now, and either alternative will easily meet the delivery deadline.
Alternative 1 requires 10 machine operators and 2.5 individuals to handle direct materials. Employee pay averages $17.50 per hour and will increase to $18.50 at the mid-point (July 1) of next year. Each employee currently works 2,500 hours but will decrease to 2,400 hours if Alternative 2 is implemented. The second proposal only requires 8.5 workers. Which of the following items of information are relevant to this decision? A) property taxes for the idle plant B) hourly wage rates C) the timing of the wage increase D) the number of employees required in each alternative E) the delivery deadline Answer: D Explanation: D) Note: none of the other items differ between the available alternative. Diff: 2 Type: MC Skill: Understand Objective: LO 11-2
12) Which of the following anticipated future costs always differ among alternative courses of actions? A) direct labour costs B) historical costs C) relevant costs D) direct materials costs E) indirect costs Answer: C Diff: 1 Type: MC Skill: Remember Objective: LO 11-1
13) When making decisions, it is best to use A) average costs. B) fixed costs that would be incurred. C) unit cost, rather than total cost. D) variable costs that would be incurred. E) relevant costs. Answer: E Diff: 1 Type: MC Skill: Remember Objective: LO 11-1

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BADM 3150 Advanced Managerial Accounting University of Guelph

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