Question

1.To be relevant in decision making, cost or revenue information must be future-oriented and differ between the alternatives.

True

False

2. Stephanie must decide between two alternatives for the weekend: babysitting or yard work. If she babysits, she will receive $40 and will incur $15 in food and snack costs. If she does yard work, she will receive $40 and will incur $3 in lawn mower gas and oil costs and $5 in snack costs. The amount of money she would receive for the jobs is relevant in deciding which alternative to select.

True

False

3. Differential revenues are expected future revenues that vary between the alternatives under consideration.

True

False

Answer 1

Answer 1: The given statement is false.

In order to decide the best alternative, the present as well the future costs and cash flows are to be considered. Only an analysis of the future cash flows cannot decide the best decision. The initial cost incurred in an alternative is also a very crucial factor in determining whether the alternative is feasible or not.

Answer 2: The given statement is false.

In the given case, the amount of money she receives in both the jobs is the same, i.e. $40. Hence, the deciding factor is not how much she gets but instead, the amount she expends determines the best alternative.

Answer 3: The given statement is true.

Differential revenues are the revenues pertaining to different alternatives that are different. If Alternative 1 yields revenue of $100 per annum and Alternative 2 yields revenue of $200 per annum, then, it is implied that both the alternatives yield differential revenues.