Free Practice Quiz Question List

5 Managerial Decision Making Online Quiz Questions

Use this free practice quiz with 20 questions to review 5 Managerial Decision Making, test your knowledge, and prepare for your next test or exam.

20 questions

True or false

1 point

A company paid $\$8{,}000$ for a design study last month. The study cannot be recovered or changed, and managers are now deciding whether to continue the product. Should the $\$8{,}000$ be treated as relevant to this decision?

A
True
B
False

Fill in the blank

1 point

When comparing two plans, a future cost that differs between the plans is a cost.

Choose one

1 point

A manager is beginning a short-term decision analysis. Which action should come first in the practical decision process?

A
Calculate the average full cost per unit for each alternative.
B
State the alternatives and the decision period.
C
Remove every fixed cost from the analysis.
D
Choose the option with the lowest reported cost.

True or false

1 point

A cost is fixed, so it must be irrelevant to a short-term decision between alternatives.

A
True
B
False

Written response

1 point

A company can use a machine either to make a component or to complete another job that would earn a contribution margin of $\$6{,}000$ . If it uses the machine to make the component, what is the $\$6{,}000$ benefit it gives up called?

Choose all

1 point

A company is considering a one-time order that appears financially attractive. Which qualitative factors should managers assess before deciding? Select all that apply.

A
Whether the order can meet the customer's quality expectations.
B
Whether accepting the order could affect the customer relationship.
C
Whether legal or contractual obligations restrict acceptance.
D
Whether the order could affect the company's reputation.
E
A setup cost already incurred and unchanged by the decision.
F
Headquarters costs allocated to the order that remain unchanged.

Choose one

1 point

A firm can avoid direct materials, direct labor, and variable overhead by buying a component. The supplier charges a purchase price and an inspection fee on purchased units. Allocated factory rent will continue either way. Which set of amounts belongs in the make-or-buy comparison?

A
Avoidable manufacturing costs only; exclude the supplier’s purchase price and inspection fee.
B
Supplier’s purchase price and allocated factory rent; exclude avoidable manufacturing costs and the inspection fee.
C
Avoidable manufacturing costs, the supplier’s purchase price, and the purchase-specific inspection fee; exclude allocated factory rent.
D
All manufacturing costs, allocated factory rent, the supplier’s purchase price, and the inspection fee, even if some costs continue either way.

Fill in the blank

1 point

If a special order would displace regular sales because capacity is full, the analysis must include the from those displaced sales.

Choose one

1 point

A company has idle capacity and will not displace regular sales. It receives a one-time order for $700$ units at $\$24$ each. Variable production cost is $\$15$ per unit, special handling adds $\$2$ per unit, and the order requires a $\$1{,}200$ setup cost. Existing fixed costs will not change. By how much will accepting the order change operating income?

A
Operating income decreases by $\$3{,}700$ .
B
Operating income increases by $\$3{,}700$ .
C
Operating income increases by $\$5{,}100$ .
D
Operating income increases by $\$16{,}800$ .

Written response

1 point

A company needs $5{,}000$ components. Making them costs $\$9$ per unit in variable costs plus $\$12{,}000$ in avoidable fixed costs. Buying them costs $\$10$ per unit plus $\$1{,}500$ in inspection costs. Other effects are comparable. By how many dollars does buying reduce relevant cost?

Choose all

1 point

A manager is assessing whether to discontinue a product segment. Which amounts are central to the financial comparison? Select all that apply.

A
Contribution margin the segment would lose.
B
Fixed costs that would be avoided by dropping the segment.
C
Common fixed costs allocated to the segment that continue after closure.
D
A sunk cost already incurred by the segment.

Written response

1 point

A product segment earns a contribution margin of $\$68{,}000$ and has $\$45{,}000$ of avoidable fixed costs. Assume there are no other effects. If the segment is dropped, by how many dollars will operating income decrease?

Choose one

1 point

Making a component has an avoidable cost of $\$31{,}000$ , while buying it costs $\$29{,}000$ . Buying would also free capacity for another job expected to earn a contribution margin of $\$5{,}000$ . If the job can be completed and other effects are comparable, which conclusion best reflects the total financial advantage?

A
Making is better by $\$2{,}000$ , because only the direct production and purchase costs matter.
B
Buying is better by $\$2{,}000$ ; the alternative use of capacity is not relevant.
C
Buying is better by $\$7{,}000$ , including the contribution margin from the alternative work.
D
The alternatives are equal because the alternative work is not part of component production.

Open ended

1 point

A company can make $4{,}000$ components at a variable cost of $\$5.50$ each and $\$6{,}000$ in avoidable fixed costs. A supplier offers them for $\$6.25$ each. Buying would free capacity for other work expected to earn a $\$4{,}000$ contribution margin, but the supplier has a record of unreliable deliveries that could affect customer orders. Explain how the manager should compare the financial effects and assess the qualitative risk before deciding whether to make or buy.

Choose one

1 point

A company is comparing two plans for next month. Rent and insurance will be the same under either plan, but labor costs will differ. Which information should affect the financial comparison?

A
The monthly rent that will be paid under either plan
B
The difference in future labor costs between the plans
C
The insurance cost that will continue under either plan
D
A cost incurred last year that cannot be recovered

Written response

1 point

A business paid a nonrefundable engineering fee last month. It is now deciding whether to proceed with the project, and the fee cannot be recovered under either choice. What cost category describes that fee?

Choose one

1 point

A department is considering closure. Its supervisor's future salary would end if it closes, while shared insurance and headquarters costs would continue. Which cost is relevant to the closure decision?

A
The supervisor's salary that ends if the department closes
B
A shared insurance cost that continues after closure
C
A previous year's equipment purchase cost
D
An allocated headquarters charge that continues either way

Choose one

1 point

A company is considering outsourcing work that its employees currently perform. Even if outsourcing appears financially attractive, which additional consequence should management assess?

A
Whether the current equipment's purchase cost can be recovered
B
Whether allocated fixed costs will appear in internal reports
C
How outsourcing could affect employees and workforce morale
D
Whether the supplier's quoted price is lower than last year's price

True or false

1 point

A product segment has a contribution margin of $\$42{,}000$ and avoidable fixed costs of $\$30{,}000$ . Allocated common costs will continue if the segment closes. True or false: Dropping the segment will increase operating income by $\$12{,}000$ .

A
True
B
False

Choose one

1 point

A company receives a lower bid from a new supplier and is considering switching. Before deciding, which additional issue should management check?

A
Whether the existing supplier's costs are sunk
B
Whether legal or contractual obligations restrict switching
C
Whether allocated costs can be assigned to the supplier
D
Whether all fixed costs would disappear after switching