2-44. Which of the following statements are true and which are false? (all sections)

a. Working capital is a variable cost.

b. The greatest potential for cost savings occurs in the operation phase of the life cycle.

c. If the capacity of an operation is significantly changed (e.g., a manufacturing plant), the fixed costs will also change.

d. A noncash cost is a cash flow.

e. Goods and services have utility because they have the power to satisfy human wants and needs.

f. The demand for necessities is more inelastic than the demand for luxuries. g. Indirect costs can normally be allocated to a specific output or work activity h. Present economy studies are often done when the time value of money is not a significant factor in the situation. i. Overhead costs normally include all costs that are not direct costs. j. Optimal volume (demand) occurs when total costs equal total revenues. k. Standard costs per unit of output are established in advance of actual production or service delivery. l. A related sunk cost will normally affect the prospective cash flows associated with a situation. m. The life cycle needs to be defined within the context of the specific situation. n. The greatest commitment of costs occurs in the acquisition phase of the life cycle. o. High breakeven points in capital intensive industries are desirable. p. The fixed return on borrowed capital (i.e., interest) is more risky than profits paid to equity investors (i.e., stockholders) in a firm. q. There is no D∗ for this Scenario 1 situation: p = 40 − 0.2D and CT = $100 + $50D. r. Most decisions are based on differences that are perceived to exist among alternatives. s. A nonrefundable cash outlay (e.g., money spent on a passport) is an example of an opportunity cost.