Chapter 5, Problem 5BIC

Which of the following statements is false? (You may select more than one answer.)a. Under some circumstances, a sunk cost may be a relevant cost.b. Future costs that do not differ between alternatives are irrelevant.c. The same cost may be relevant or irrelevant depending on the decision context.d. Only variable costs are relevant costs. Fixed costs cannot be relevant costs.

Sunk costs are easy to spot---they're the fixed costs associated with a decision. Do you agree? Please explain the reasoning for your answer.

Many decision problems have the following simple structure. A decision maker has two possible deci-sions, 1 and 2. If decision 1 is made, a sure cost of c is incurred. If decision 2 is made, there are two possibleoutcomes, with costs c1 and c2 and probabilities p and1 2 p. We assume that c1 , c , c2. The idea is thatdecision 1, the riskless decision, has a moderate cost,whereas decision 2, the risky decision, has a low costc1 or a high cost c2.a. Calculate the expected cost from the riskydecision.b. List as many scenarios as you can think of thathave this structure. (Here’s an example to get youstarted. Think of insurance, where you pay a surepremium to avoid a large possible loss.) For eachof these scenarios, indicate whether you wouldbase your decision on EMV or on expected utility.

Label each of the following statements as either true (“T”) or false (“F”). An opportunity cost is the potential benefit that is lost by taking a specific action when two or more alternative choices are available.

4.  In incremental analysis, Group of answer choices costs are not relevant if they change between alternatives. all costs are relevant if they change between alternatives. only fixed costs are relevant. only variable costs are relevant.

The following profit payoff table was presented in Problem 1: The probabilities for the states of nature are P(s1) = 0.65, P(s2) = 0.15, and P(s3) = 0.20. What is the optimal decision strategy if perfect information were available? What is the expected value for the decision strategy developed in part (a)? Using the expected value approach, what is the recommended decision without perfect information? What is its expected value? What is the expected value of perfect information?

Which of the following is not a step in the short-run decision-making model? a. Defining the problem. b. Identifying alternatives. c. Identifying the costs and benefits of feasible alternatives. d. Assessing qualitative factors. e. All of these.

List the acceptable cost flow assumptions under IFRS. Be sure to explain the reasoning as to why IFRS find certain cost flow assumptions unacceptable.

What is the benefit of the lean philosophy?