Chapter 11 Decision Making and Relevant Information

Chapter 11 Decision Making and Relevant Information

Objective 11.1

1) A decision model involves:
A) only quantitative analyses
B) both quantitative and qualitative analyses
C) only qualitative analyses
D) a manager's instinct
Answer: B
Diff: 1
Terms: decision model
Objective: 1
AACSB: Reflective thinking

2) Feedback regarding previous actions may affect:
A) future predictions
B) implementation of the decision
C) the decision model
D) All of these answers are correct.
Answer: D
Diff: 2
Terms: decision model
Objective: 1
AACSB: Reflective thinking

3) Place the following steps from the five-step decision process in order:
A = Make predictions about future costs
B = Evaluate performance to provide feedback
C = Implement the decision
D = Choose an alternative
A) A D B C
B) C D A B
C) A D C B
D) D C B A
Answer: C
Diff: 2
Terms: decision model
Objective: 1
AACSB: Reflective thinking




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,4) The formal process of choosing between alternatives is known as a(n):
A) relevant model
B) decision model
C) alternative model
D) prediction model
Answer: B
Diff: 1
Terms: decision model
Objective: 1
AACSB: Reflective thinking

5) Ruttles Circuit Company manufactures circuit boards for other firms. Management is attempting to
search for ways to reduce manufacturing labor costs and has received a proposal from a consulting
company to rearrange the production floor next year. Using the information below regarding current
operations and the new proposal, which of the following decisions should management accept?

Currently Proposed
Required machine operators 4 3
Materials-handling workers 1.50 1.50
Employee average pay $10 per hour $12 per hour
Hours worked per employee 2,100 2,000

A) Do not change the production floor.
B) Rearrange the production floor.
C) Either, because it makes no difference to the employees.
D) It doesn't matter because the costs incurred will remain the same.
Answer: B
Explanation: B) Current operations: 4 workers × 2,100 hours × $10.00 = $84,000
Proposal: 3 workers × 2,000 hours × $12.00 = $72,000
Diff: 2
Terms: decision model
Objective: 1
AACSB: Analytical skills




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,Answer the following questions using the information below:

Schwimmer Lighting manufactures small flashlights and is considering raising the price by 50 cents a
unit for the coming year. With a 50-cent price increase, demand is expected to fall by 6,000 units.

Currently Projected
Demand 40,000 units 34,000 units
Selling price $4.50 $5.00
Incremental cost per unit $3.00 $3.00

6) If the price increase is implemented, operating profit is projected to:
A) increase by $8,000
B) decrease by $8,000
C) increase by $12,000
D) decrease by $9,000
Answer: A
Explanation: A) [34,000 × ($5 - $3)] - [40,000 × ($4.50 - $3.00)] = increase of $8,000
Diff: 2
Terms: decision model
Objective: 1
AACSB: Analytical skills

7) Would you recommend the 50-cent price increase?
A) No, because demand decreased.
B) No, because the selling price increases.
C) Yes, because contribution margin per unit increases.
D) Yes, because operating profits increase.
Answer: D
Diff: 2
Terms: decision model
Objective: 1
AACSB: Analytical skills

8) When using the five-step decision process, which one of the following steps should be done last?
A) Obtain information
B) Choose an alternative
C) Evaluation and feedback
D) Implementing the decision
Answer: C
Diff: 2
Terms: decision model
Objective: 1
AACSB: Reflective thinking




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Copyright © 2012 Pearson Education, Inc.

, 9) When using the five-step decision process, which one of the following steps should be done first?
A) Obtain information
B) Choose an alternative
C) Evaluation and feedback
D) Implementing the decision
Answer: A
Diff: 2
Terms: decision model
Objective: 1
AACSB: Reflective thinking

10) A decision model is a formal method for making a choice, frequently involving both quantitative
and qualitative analyses.
Answer: TRUE
Diff: 1
Terms: decision model, quantitative factors, qualitative factors
Objective: 1
AACSB: Reflective thinking

11) Feedback from previous decisions uses historical information and, therefore, is irrelevant for making
future predictions.
Answer: FALSE
Explanation: Historical costs may be helpful in making future predictions, but are not relevant costs for
decision making.
Diff: 2
Terms: relevant costs
Objective: 1
AACSB: Communication




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