1. True or false? Strategic decisions are usually long-term.

• ✅ True

• ❌ False
  Explanation: Strategic decisions set long-term direction (e.g., entering new markets, major capital investments).

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2. Which of the following are examples of operational decisions? (Check all that apply.)

• ✅ Make or buy

• ❌ Add a product line

• ✅ Accept a special order

• ✅ Sell a product as-is or process further

Explanation: Operational decisions are short-term, day-to-day choices (make-or-buy, special orders, process-further). Adding a product line is typically strategic (longer-term).

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3. Sally deciding whether to buy legs from Chris or hire Leonard — True or false? Sally is making an operational decision.

• ✅ True

• ❌ False
  Explanation: This is a short-term production / make-or-buy operational decision (hire vs. outsource).

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4. True or false? Relevant information includes information that has the potential to make a difference in a decision.

• ✅ True

• ❌ False
  Explanation: Relevant info is future-oriented and differs across alternatives — it can affect the decision.

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5. True or false? Sunk costs are costs that differ between decision alternatives.

• ❌ True

• ✅ False
  Explanation: Sunk costs are past and cannot be changed by the decision, so they do not differ between alternatives and are irrelevant.

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6. Ryan has contracted salary costs for one-year contracts. Which statements are true? (Check all that apply.)

• ❌ Ryan can deem contracted salary costs as relevant for most decisions.

• ❌ Ryan can classify contracted salary costs as sunk.

• ❌ Ryan must consider contracted salary costs in most operational decisions.

• ✅ Ryan can deem contracted salary costs as irrelevant for most operational decisions.

Explanation: Contracted salaries are committed/avoidable only if the contract can be changed; for many operational decisions they won’t change and are therefore irrelevant. They are not “sunk” (sunk = already incurred).

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7. Allocated administrative costs that won’t change if product line dropped — which are true? (Check all that apply.)

• ❌ The allocated administrative costs are irrelevant because they are not direct costs.

• ✅ The allocated administrative costs may look like cost savings resulting from dropping the product line but are actually irrelevant.

• ❌ Shelby will drop the product line from her business because of administrative cost savings.

• ❌ Administrative costs are always irrelevant.

Explanation: If allocated admin costs do not change when the line is dropped, they are irrelevant even if they appear as savings on paper. They are not irrelevant solely because they’re not direct; and admin costs are not always irrelevant — they can be relevant if they change.

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8. True or false? Fixed costs are always irrelevant in operational decisions because they do not change with production volume.

• ❌ True

• ✅ False

Explanation: Fixed costs are irrelevant when they remain unchanged across alternatives, but they can be relevant if a decision causes them to change (e.g., closing a plant, adding capacity).

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9. Sal deciding to purchase vs manufacture inputs — which is true regarding decision?

• ❌ Sal will consider the cost to manufacturing the inputs as irrelevant since he is already purchasing the inputs.

• ❌ Sal will base his decision solely on input quality.

• ✅ Sal will compare the relevant costs associated with purchasing the inputs versus manufacturing the inputs.

• ❌ Sal will consider the purchase price as irrelevant since he has the option to manufacture the inputs in his own firm.

Explanation: The make-vs-buy decision requires comparing relevant incremental costs and benefits of both options (and quality as a factor, but not sole).

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10. Ben adding hockey equipment — which reflect potentially relevant information? (Check all that apply.)

• ❌ Original cost of floor space already owned that will be used to display the hockey equipment

• ✅ Cost to purchase the hockey equipment from the manufacturer

• ✅ Lost sales revenue from the original use of the floor space that would be used for hockey equipment

• ✅ Revenues earned from the hockey equipment

Explanation: Original cost of owned floor space is sunk/irrelevant. Purchase cost, opportunity cost (lost revenue from alternative use of space), and projected revenues are relevant.

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11. Jaclyn and Lydia cookie offer — which issues will Jaclyn consider? (Check all that apply.)

• ✅ Current use of cookie production capacity for existing customers

• ✅ Jaclyn’s existing customers’ view of this decision

• ✅ Jaclyn’s Friday cake sales

• ✅ Whether Lydia will become a recurring customer on other orders

Explanation: Capacity, customer reactions, cannibalization of cake sales, and the potential for repeat business are all relevant to accepting a discounted special order.

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12. Zach blueberry plants — which information would be irrelevant to the decision to sell now or process further? (Check all that apply.)

• ✅ Variable costs incurred during the first two years

• ✅ Fixed costs associated with land maintenance

• ❌ Risks of poor weather and plant disease associated with processing the two-year old plants further

• ❌ Variable costs incurred during the additional year

Explanation: Costs already incurred (variable costs in first two years) are sunk and irrelevant. Fixed land maintenance that won’t change with the decision is also irrelevant. Future risks and additional-year variable costs are future-oriented and relevant.

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🧾 Summary Table

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