6 1 questions 1 the key to determining the financial difference between two alternat 4309124

 

6.1   Questions

1) The key to determining the financial difference between two alternative courses of action is to identify the ________.

A) opportunity cost of one alternative

B) joint cost of both alternatives

C) differential costs and revenues

D) joint cost of one alternative

2) The term opportunity cost applies to a resource that a company ________.

A) is thinking about purchasing

B) already owns

C) has committed to purchase

D) already owns or has committed to purchase

3) An opportunity cost is ________.

A) the additional costs generated by a proposed alternative

B) the difference in total cost between two alternatives

C) a cash disbursement in the future

D) the maximum available benefit foregone by using a resource for a particular purpose instead of the best alternative use

4) Jack Bowers has paid off the mortgage on his house and continues to live in the house.  The interest income foregone by not selling the house and investing the proceeds is an example of a(n) ________.

A) sunk cost

B) differential cost

C) opportunity cost

D) outlay cost

5) Opportunity cost ________.

A) is the contribution margin of the best alternative that is included in the analysis

B) is the contribution margin of the worst alternative that is included in the analysis

C) is the cost of resources owned by the company

D) applies to resources owned by a company

6) The salary foregone by a person who quits a job to start a business is an example of a(n) ________.

A) sunk cost

B) opportunity cost

C) depreciable cost

D) outlay cost

7) Nestle Company paid $130,000 for a machine used to mill oats. The annual contribution margin from oat sales is $60,000.  The machine could be sold for $80,000.  The opportunity cost of producing the oats is ________.

A) $20,000

B) $60,000

C) $80,000

D) $130,000

8) Beth is considering leaving her current position to open a coffee shop.  Beth's current annual salary is $56,000.  Beth is going to invest $200,000 of her own money to start the business.  Estimated annual revenue from the new business is $250,000.  What is the outlay cost associated with the decision to open the coffee shop?

A) $50,000

B) $56,000

C) $200,000

D) $250,000

9) Sue is considering leaving her current position to open a coffee shop.  Sue's current annual salary is $83,000.  Annual coffee shop revenue and costs are estimated at $260,000 and $210,000, respectively.  What is Sue's opportunity cost of opening the coffee shop in the first year?

A) $40,000

B) $83,000

C) $210,000

D) $343,000

10) Mary is considering leaving her current position to open an ice cream shop.  Mary's current annual salary is $77,000.  Annual ice cream shop revenue and costs are estimated at $260,000 and $210,000, respectively.  What is Mary's annual opportunity cost of remaining employed in her current position?

A) $50,000

B) $77,000

C) $210,000

D) $260,000

11) Christina is considering leaving her current position to open a music store.  Christina's current annual salary is $45,000.  Annual music store revenue and costs are estimated at $250,000 and $210,000, respectively.  If Christina decides to open the music store, what is the change in her annual income?

A) $5,000 decrease

B) $40,000 increase

C) $85,000 increase

D) $250,000 increase

12) When determining the opportunity cost of a project, it depends on the alternatives available.

13) Opportunity costs and outlay costs are widely used synonyms.

14) Opportunity costs apply to resources that a company has committed to purchase.

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