MBA 5003 UNIT 5 QUESTIONS AND ANSWERS | COMPLETE STUDY GUIDE & EXAM PREP
(2026/2027)
How to determine when cost decisions are relevant or irrelevant in decision making. - ANS
✔✔1. Managers should use data that directly relates to decision making
2. Relevant data is useful for the future COSTS; it differs from available alternatives
3. Irrelevant data WOULD NOT have impact on future costs or competitive alternatives.
Nike earns revenues when selling directly to customers. If Nike were to sell shoes at the same
price, regardless of supplier, is it relevant? - ANS ✔✔No, not relevant since the price remains
the same.
If the price changed, it would directly affect revenues.
Outlay Costs - ANS ✔✔1. The costs incurred but not yet paid for similar revenues.
2. Require future expenditures of cash or other resources
Sunk Costs - ANS ✔✔1. Past costs (generally resolved)
2. NEVER relevant for decisions
3. Can cause ethical dilemmas (Disposing of inventory, etc.)
Example, cost of existing inventory.
Disposal Value - ANS ✔✔Amount of cash an old asset can be sold for at the time the new asset
is purchased.
Useful when considering replacing machinery
, Salvage Value - ANS ✔✔Amount of cash an asset will bring at the end of its useful life if held to
that time
Useful when considering replacing machinery
Relevant Cash inflow - ANS ✔✔Obtained only if the replacement alternative is accepted
Opportunity Costs - ANS ✔✔1. Any benefit foregone as a result of rejecting one alternative in
favor of another (What are you giving up when making a decision?)
2. Always relevant in decision making
Differential Analysis - ANS ✔✔1. An approach to the analysis of relevant costs that focuses on
costs that differ between alternative actions.
2. Preferred over aggregate data
3. Benefits: Focus on only items that differ, fewer items, helps simplify complex situations
Unit Contribution Margin Formula - ANS ✔✔UCM = (Fixed Costs) sales price per unit - Variable
Cost per unit
Discontinuing Operations - ANS ✔✔Contribution Margin Lost = (UCM -Variable Costs) * Number
of Units
Special Orders - ANS ✔✔Occurs when a customer wants to buy merch or obtain services on a
"one-time" bases at a "special" price.
Relevant
1. Sales Revenue
2. Variable Production Costs
(2026/2027)
How to determine when cost decisions are relevant or irrelevant in decision making. - ANS
✔✔1. Managers should use data that directly relates to decision making
2. Relevant data is useful for the future COSTS; it differs from available alternatives
3. Irrelevant data WOULD NOT have impact on future costs or competitive alternatives.
Nike earns revenues when selling directly to customers. If Nike were to sell shoes at the same
price, regardless of supplier, is it relevant? - ANS ✔✔No, not relevant since the price remains
the same.
If the price changed, it would directly affect revenues.
Outlay Costs - ANS ✔✔1. The costs incurred but not yet paid for similar revenues.
2. Require future expenditures of cash or other resources
Sunk Costs - ANS ✔✔1. Past costs (generally resolved)
2. NEVER relevant for decisions
3. Can cause ethical dilemmas (Disposing of inventory, etc.)
Example, cost of existing inventory.
Disposal Value - ANS ✔✔Amount of cash an old asset can be sold for at the time the new asset
is purchased.
Useful when considering replacing machinery
, Salvage Value - ANS ✔✔Amount of cash an asset will bring at the end of its useful life if held to
that time
Useful when considering replacing machinery
Relevant Cash inflow - ANS ✔✔Obtained only if the replacement alternative is accepted
Opportunity Costs - ANS ✔✔1. Any benefit foregone as a result of rejecting one alternative in
favor of another (What are you giving up when making a decision?)
2. Always relevant in decision making
Differential Analysis - ANS ✔✔1. An approach to the analysis of relevant costs that focuses on
costs that differ between alternative actions.
2. Preferred over aggregate data
3. Benefits: Focus on only items that differ, fewer items, helps simplify complex situations
Unit Contribution Margin Formula - ANS ✔✔UCM = (Fixed Costs) sales price per unit - Variable
Cost per unit
Discontinuing Operations - ANS ✔✔Contribution Margin Lost = (UCM -Variable Costs) * Number
of Units
Special Orders - ANS ✔✔Occurs when a customer wants to buy merch or obtain services on a
"one-time" bases at a "special" price.
Relevant
1. Sales Revenue
2. Variable Production Costs
