In a manufacturing environment, the best short4erm profit maximizing approach would be to
Answer(s): D
In the short run, the best approach is to maximize the unit contribution margin (price - unit variable cost) times the units sold because fixed costs can be ignored. The important consideration is the total contribution margin available to cover fixed costs and contribute to profits.
When management must decide to accept or reject a one-time-only special order, given sufficient idle capacity, which one of the following is not relevant to the decision?
Answer(s): A
Management decision analysis is based on the concept of relevant costs. Relevant costs differ among decision choices. Thus, incremental or differential costs are always relevant. In special-order situations, given sufficient excess capacity, management is not concerned with full absorption costing because it includes certain product costs (fixed factory overhead) that will not change if the special order is accepted. The principal issue is recovery of the variable costs of processing the special order and earning a contribution margin to apply toward covering fixed costs and profits. Thus, given sufficient capacity that would otherwise be idle (opportunity cost is zero), accepting a special order may be indicated as long as the organization recoups its variable costs.
When an organization decides on a course of action that is selected from a group of alternative courses of action, the benefit lost by not choosing the best alternative course of action is the
An opportunity cost is defined as the benefit forgone, for example, the contribution to income, by not selecting the best alternative use of scarce resources. Opportunity costs are not recorded in the accounting records1 but they are important for management decision making.
In the decision making process, differential cost is a (n)
A differential cost is one that changes among alternative courses of action.
Which one of the following provides a spontaneous source of financing for a firm?
Trade credit is a spontaneous source of financing because it arises automatically as part of a purchase transaction. Because of its ease in use, trade credit is the largest source of short-term financing for many firms both large and small
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