20 Questions
Why is it important to differentiate relevant costs from irrelevant costs in short-term decision making?
To simplify and shorten the data gathering process
Which of the following is an example of an irrelevant cost in short-term decision making?
Depreciation
What characteristic makes a future cost relevant in short-term decision making?
It is cash in nature
When would a future cost not be relevant in short-term decision making?
If each alternative will involve the same amount of cost
What is the primary reason to avoid irrelevant costs in short-term decision making?
To prevent info overload from too much data
Which type of cost refers to the difference in costs between decision options?
Differential cost
What type of costs are incurred as a result of taking an option, which otherwise would not have been incurred?
Special fixed costs
What is the resource item required in the making of a product but is limited in supply?
Limiting factor
What is the process aimed at identifying and removing constraints in organizational processes that are standing in the way of organizational goals?
Theory of Constraints (TOC)
What refers to anything that limits an organizational entity from moving toward or achieving its goal?
Constraint
Why is it important to differentiate relevant costs from irrelevant costs in short-term decision making?
To simplify and shorten the data gathering process
In short-term decision making, when is a future cost not relevant?
When each alternative will involve the same amount of cost
What characteristic makes a future cost relevant in short-term decision making?
Being cash in nature
What refers to anything that limits an organizational entity from moving toward or achieving its goal?
Constraint
When would historic costs (sunk, past, committed costs) be considered irrelevant in short-term decision making?
When they can be changed
Which of the following types of costs refers to the potential benefit given up when choosing one action over another?
Opportunity cost
What type of costs can be saved by not adopting a given alternative and can be identified as potential savings from discontinuing decisions?
Avoidable cost
In the context of labor and overhead costs, which of the following would be considered an irrelevant cost?
Monthly salary which is fixed and therefore irrelevant if the workers are taken away to do extra work
What is the primary characteristic of sunk costs in decision-making?
They are costs that have already been incurred and cannot be changed.
What is the process aimed at identifying and removing constraints in organizational processes that are standing in the way of organizational goals called?
Theory of Constraints (TOC)
This quiz covers the learning objectives and a model of the decision-making process. It emphasizes the importance of differentiating relevant costs from irrelevant costs and how they influence decision making. The quiz also discusses the features of relevant costs and their impact on future decisions.
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