Session:10 Short-Term Decision Making
Questions
Principles of Accounting, Volume 2: Managerial Accounting | Leadership Development – Micro-Learning Session
Rice University 2020 | Michael Laverty, Colorado State University Global Chris Littel, North Carolina State University| https://openstax.org/details/books/principles-managerial-accounting
1. 10.1 Your roommate at school believes that all fixed costs are always avoidable. Do you agree? How
would you explain your point of view to your roommate?
2. 10.1 Explain how to differentiate short-term decisions from long-term decisions of a business and the
changes in analyses that influence these decisions.
Chapter 10 Short-Term Decision Making 545
3. 10.1 Felipe’s Restaurant and Pie Shop needs help defining the costs for his business. He also wants to
know which costs are relevant or irrelevant to his decision. Identify each cost as relevant or irrelevant. Then
identify the type of cost (sunk, fixed, variable, or opportunity).
| Cost | Relevant or Irrelevant? | Sunk, Fixed, Variable, or Opportunity? |
|---|---|---|
| Rent | ||
| Baker wages | ||
| Felipe’s culinary school tuition | ||
| Berries for pies | ||
| Painting dining area last year | ||
| Felipe’s decision not to attend graduate school |
4. 10.2 What factors must any company consider before accepting a special-order contract?
5. 10.2 What are some of the qualitative issues that a special order can create?
6. 10.3 In “The Trouble with Outsourcing,” a Schumpeter column in The Economist, there is a statement of
advice to companies, who outsource products or services: “they need to think harder about what is their core
business, and what is peripheral.”[5] What types of problems do you think they are talking about? In your
answer, present at least five (5) problems that companies should consider when outsourcing products or
services.
7. 10.3 Many outsourced jobs have resulted in “offshoring” jobs, rather than using domestic outsourcing. If
a U.S. company wants to offshore a service like customer service, for example, what are some of their
considerations? In your answer, address offshoring disadvantages as compared with domestic outsourcing.
8. 10.4 What type of qualitative issues should management consider if a quantitative analysis reveals that a
segment should be dropped?
9. 10.4 In the decision by a grocery company that is trying to decide whether to keep or drop the bakery
department in its grocery stores, what would the bakery manager’s salary be in relationship to the decision if
the manager will be laid off?
10. 10.5 What is of key importance for a company whose products can be processed further?
11. 10.5 What is a general rule to remember with respect to a sell-or-process-further environment, and
what costs are irrelevant to the decision?
Footnotes
- 5“The Trouble with Outsourcing.” The Economist. July 30, 2011. https://www.economist.com/business/2011/07/30/the-trouble-with-outsourcing