Question

True or False—Indicate if the statement is True (T) or False (F) for each of the following 10 statements:

__________ 1. While variable costs are always relevant to a business decision, fixed costs are not, and need to be analyzed closely to determine if they will be different amongst the alternatives being considered.

__________ 2. Facility level costs often include costs such as rent, property taxes, building maintenance, and utilities; facility level costs benefit the production process as a whole and are not related to any specific product, batch or unit of production.

__________ 3. In deciding to replace Machine A or Machine B, the original cost of Machine A of $20,000 and the original cost of Machine B of $30,000 would be relevant costs because they are different amounts.

__________ 4. The starting point in developing a business’s master budget is the preparation of the inventory purchases budget and schedule of cash payments for inventory.

__________ 5. In deciding to outsource the production of a product component to a third party supplier, a company has the ability to lease the floor space currently occupied by the production process if they decide to outsource; this potential revenue stream is an opportunity cost that is relevant to the business decision.

__________ 6. While participative budgeting that invites participation in the budget process by personnel at all levels of the organization is one of the approaches that can be taken, the most effective budgets are those that are established by senior-level management and pushed down to lower levels of management for planning and coordination of day-to-day operations.

__________ 7. While sunk costs are often referred to as historical costs and have been incurred in the past, these costs are not relevant in making current business decisions.  

__________ 8. As companies automate their production processes, the use of activity-based cost drivers will generally provide more accurate allocation of overhead costs than the use of a single volume-based allocation driver such as direct labor hours or dollars.

__________ 9. When making equipment replacement decisions, the original cost of the equipment currently being used, the accumulated depreciation to date, and the annual depreciation expense are all costs that need to be considered in deciding whether to replace the existing equipment with new equipment.    

__________ 10. While qualitative factors need to be considered in making business decisions related to acceptance of a special offer or elimination of a business segment, it is the quantitative factors that are most important and should always drive the final decision.    

Answer 1

Answer is given below with explanation