Decision Analysis - Marginal Analysis

Profit that are loss by moving an input from one use to another use are referred to as

• Out-of-pocket costs

• Cannibalization charges

• Replacement costs

• Opportunity costs

In a joint manufacturing process, joint costs incurred prior to a decision as to whether to process product after the split-off point should be viewed as

• Sunk costs

• Relevant costs

• Standard costs

• Defferential costs

In evaluating costs for decision making purpose, a company would always consider each of the following as relevant, except:

• Incremental costs

• Defferential costs

• Avoidable cost

• Variable costs

Relevant or differential cost analysis

• Allows the decision maker to group all types of costs together to facilitate decision making.

• Takes all variable and fixed costs into account to analyze decision alternatives.

• Considers only variable costs as they change with each decision alternative.

• Considers all variable and fixed costs as they change with each decision alternative.

The definition of economic cost is

• the sum of all explicit and implicit costs of the business firm

• the difference between all implicit and explicit costs of the business firm

• all the dollar costs employers pay for all inputs purchased

• the opportunity cost of all inputs minus the dollar cost of those inputs

Which one of the following costs would be relevant in short-term decision making?

• All costs of inventory.

• Total variable costs that are the same in the considered alternatives.

• Incremental fixed costs.

• Opportunity costs that are the same in the considered alternatives.

The term that best refers to past costs that have been incurred and are not relevant to any future decisions is

• sunk costs.

• discretionary costs.

• incurred marginal costs.

• .full absorption costs.

The opportunity cost of making a component part in a factory with excess capacity for which there is no alternative use is

• The total manufacturing cost of the component.

• The fixed manufacturing cost of the component.

• The total variable cost of the component.

• Zero.

Relevant costs refer to

• Anticipated future costs that will differ among various alternatives.

• Costs that would be incurred within the relevant range of production.

• Past costs that are expected to be different in the future.

• All fixed costs.

The relevance of a particular cost to a decision is determined by the

• Potential effect on the decision.

• Riskiness of the decision.

• Accuracy and verifiability of the cost.

• Size of the cost.