Horngrens Cost Accounting A Managerial Emphasis 16th Edition By Srikant M. Datar – Test Bank

Chapter 11 Decision Making and Relevant Information

11.1 Objective 11.1

1) A decision model involves a(n) ________.
A) informal method of making a choice at the lower level management using sensitivity analysis
B) formal method of making a choice that often involves both quantitative and qualitative analyses
C) informal method of making a choice which is discussed in detailed in the financial reports
D) formal method of making a choice at the lower level management using advanced management techniques such as balance scorecard
Answer: B
Diff: 1
Objective: 1
AACSB: Analytical thinking

2) Feedback regarding previous actions may affect ________.
A) future predictions
B) implementation of the decision
C) the decision model
D) All of these answers are correct.
Answer: D
Diff: 2
Objective: 1
AACSB: Analytical thinking

3) Place the following steps from the five-step decision process in order:

A = Obtain information including historical costs
B = Evaluate performance to provide feedback
C = Make decisions choosing among alternatives
D = Make predictions about the future
E = Identify the problem and uncertainties

A) A, E, D, B, C
B) E, A, D, B, C
C) E, A, D, C, B
D) D, C, B, A, E
Answer: C
Diff: 2
Objective: 1
AACSB: Analytical thinking

4) The formal process of choosing between alternatives is known as a(n) ________.
A) relevant model
B) decision model
C) alternative model
D) prediction model
Answer: B
Diff: 1
Objective: 1
AACSB: Analytical thinking

5) Flash City Inc. manufactures small flash drives and is considering raising the price by 75 cents a unit for the coming year. With a 75-cent price increase, demand is expected to fall by 7,000 units.

Current Projected
Demand 79,000 units 72,000 units
Selling price $8.50 $9.25
Incremental cost per unit $5.80 $5.80

If the price increase is implemented, operating profit is projected to ________.
A) increase by $35,100
B) decrease by $5,250
C) increase by $5,250
D) decrease by $7,000
Answer: A
Explanation: Change in operating income = [72,000 × ($9.25 – $5.80)] – [79,000 × ($8.50 – $5.80)] = Increase of $35,100
Diff: 2
Objective: 1
AACSB: Application of knowledge

6) Flash City Inc. manufactures small flash drives and is considering raising the price by 75 cents a unit for the coming year. With a 75-cent price increase, demand is expected to fall by 7,000 units.

Current Projected
Demand 78,000 units 71,000 units
Selling price $9.00 $9.75
Incremental cost per unit $6.80 $6.80

Would you recommend the 75-cent price increase?
A) No, because demand decreased.
B) No, because the selling price increases.
C) Yes, because contribution margin per unit increases.
D) Yes, because operating profits increase.
Answer: D
Diff: 2
Objective: 1
AACSB: Application of knowledge

7) When using the five-step decision process, which one of the following steps should be done last?
A) obtain information
B) choose an alternative
C) evaluation and feedback
D) implementing the decision
Answer: C
Diff: 2
Objective: 1
AACSB: Analytical thinking

8) When using the five-step decision process, which one of the following steps should be done first?
A) obtain information
B) choose an alternative
C) evaluation and feedback
D) implementing the decision
Answer: A
Diff: 2
Objective: 1
AACSB: Analytical thinking

9) A decision model is an informal method for making a choice, using simpler methods like surveying.
Answer: FALSE
Explanation: A decision model is a formal method of making a choice that often involves both quantitative and qualitative analyses.
Diff: 1
Objective: 1
AACSB: Analytical thinking

10) Feedback from previous decisions uses historical information and, therefore, is irrelevant for making future predictions.
Answer: FALSE
Explanation: Historical costs may be helpful in making future predictions, but are not relevant costs for decision making.
Diff: 1
Objective: 1
AACSB: Analytical thinking