1. An opportunity cost:A. Is an unavoidable cost because it remains the same regardless of the alternative chosen.B. Requires a current outlay of cash.C. Results from past managerial decisions.D. Is the potential benefit lost by choosing a specific alternative course of action among two or more.E. Is irrelevant in decision making because it occurred in the past.2 .A cost that cannot be avoided or changed because it arises from a past decision, and is irrelevant to future decisions, is called a (n):a. Uncontrollable cost. b. Incremental cost.c. Opportunity cost.d. Out-of-pocket cost.e. Sunk cost.3. An additional cost incurred only if a company pursues a particular course of action is a(n):A. sunk cost.B. pocket cost.C. Period cost.D. Incremental cost.E. discount cost4. Gordon Corporation inadvertently produced 10,000 defective digital watches. The watches cost $8 each to produce. A salvage company will purchase the defective units as they are for $3 each. Gordon’s production manager reports that the defects can be corrected for $5 per unit, enabling them to be sold at their regular market price of $12.50. Gordon should: Sell the watches for $3 per unit. Sell 5,000 watches to the salvage company and repair the remainder. Throw the watches away. Sell the watches as they are because repairing them will cause their total cost to exceed their selling price. Correct the defects and sell the watches at the regular price.A. Sell the watches for $3 per unit.B. Correct the defects and sell the watches at the regular price.C. Sell the watches as they are because repairing them will cause their total cost to exceed their selling price.D. Sell 5,000 watches to the salvage company and repair the remainder.E. Scrap the watches.5. Product A requires 5 machine hours per unit to be produced, Product B requires only 3 machine hours per unit, and the company’s productive capacity is limited to 240,000 machine hours. Product A sells for $16 per unit and has variable costs of $6 per unit. Product B sells for $12 per unit and has variable costs of $5 per unit. Assuming the company can sell as many units of either product as it produces, the company should:A. Produce only Product A.B. Produce only Product B.C. Produce equal amounts of A and B.D. Produce A and B in the ratio of 62.5% A to 37.5% B.E. Produce A and B in the ratio of 40% A and 60% B.6.Epsilon Co. can produce a unit of product for the following costs:Direct material $7.90Direct labor $23.90Overhead $39.50Total costs per unit $71.30An outside supplier offers to provide Epsilon with all the units it needs at $60 per unit. If Epsilon buys from the supplier, the company will still incur 30% of its overhead. Epsilon should choose to:A. Buy since the relevant cost to make it is $71.30.B. Make since the relevant cost to make it is $59.45.C. Buy since the relevant cost to make it is $43.65.D. Make since the relevant cost to make it is $43.65.E.Buy since the relevant cost to make it is $59.45.7.Maxim manufactures a hamster food product called Green Health. Maxim currently has 11,000 bags of Green Health on hand. The variable production costs per bag are $2 and total fixed costs are $12,000. The hamster food can be sold as it is for $9.00 per bag or be processed further into Premium Green and Green Deluxe at an additional cost. The additional processing will yield 11,000 bags of Premium Green and 3,200 bags of Green Deluxe, which can be sold for $8 and $6 per bag, respectively. The net advantage (incremental income) of processing Green Health further into Premium Green and Green Deluxe would be:A. $107,200.B. $105,400.C. $8,200.D. $6,400.E. $1,800.
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