What is a sunk cost?

a. a cost that you can no longer get a refund for

b. a cost incurred in the past that cannot be changed by future decisions

c. the cost of a scuttled ocean tanker

d. this is another name for fixed costs

What is an opportunity cost and why are opportunity costs important?

a. they are benefits foregone when one alternative is selected over another. Opportunity costs are differential costs and must be included when performing differential analysis

b. they are the costs associated with various alternative courses of action. they are important in determining or selecting competitive prices.

c. they are benefits gained when one alternative is selected over another. opportunity costs are differential costs and must be included when performing differential analysis.

d. they are costs associated with capitalizing on n opportunity. opportunity costs can be either differential or non-differential costs.

What is the definition of an avoidable costs?

a. a cost that can be avoided, or eliminated, if one alternative is chosen over another.

b. a cost that does not add value to a product

c. a cost that is only incurred at the customer's request

d. a cost that is not required to meet minimum quality standards.

What is the first step in evaluating an investment using the NPV approach?

a. establish an appropriate interest rate to be used for evaluating the investment

b. calculate and evaluate the Net Present Value (NPV) of the investment

c. identify the amount and timing of the cash flows required over the life of the investment

d. you can start with any of the steps

What is the NPV rule?

a. If the NPV is greater than or equal to zero, accept the investment; otherwise, reject the investment.

b. if the NPV is greater than zero, accept the investment; otherwise, reject the investment.

c. if the NPV is equal to or less than zero, accept the investment; otherwise, reject the investment.

d. if the NPV is less than zero, accept the investment; otherwise, reject the investment.

What is the purpose of differential analysis in business?

a. to compare rates of change in various equations

b. to compare the costs and benefits of alternate courses of action

c. to collect data on different product lines

d. to analyzing how competing firms are doing

Which is not true of the net present value method of determining the acceptability of an investment?

a. a positive net present value of the cash flows is required

b. net cash flows from the investment are estimated

c. the net cash flows are discounted at an acceptable rate of return

d. the initial cost of the investment is added to the net cash flows

Which of the following factors must be taken into account in make-or-by decisions?

a. The cost of purchasing the good/service from supplier, including opportunity costs, and the number of units to be purchased times the existing per unit cost of units made.

b. the cost of purchasing the goods/service from supplier, including opportunity costs, and the per unit production costs

c. the cost of purchasing the goods/service from a supplier , including opportunity costs, and the direct fixed costs of producing the goods/service internally

d. the cost of purchasing the goods/service from a supplier, including opportunity costs, and the fixed and variable costs of producing the goods/service internally

Which of the following is not a relevant cost in decision making?

a. sunk costs

b. opportunity costs

c. avoidable costs

d. relevant costs