16) 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) amortizable cost.

D) outlay cost.

17) A cost that requires a cash disbursement is called a(n)

A) sunk cost.

B) opportunity cost.

C) outlay cost.

D) common cost.

18) Differential cost is a synonym for

A) detrimental cost.

B) opportunity cost.

C) accidental cost.

D) incremental cost.

19) Opportunity cost is

A) the contribution of the best alternative that is excluded from consideration.

B) the same as outlay cost.

C) never relevant to a decision.

D) always an experimental cost.

20) A homeowner 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) detrimental cost.

C) opportunity cost.

D) outlay cost.

21) A key factor in a make or buy decision is

A) whether or not there are idle facilities.

B) the amount of the sunk costs.

C) gain or loss on the disposal of equipment.

D) the total joint costs.

22) Fixed costs that may be avoided in the future are

A) unavoidable costs.

B) sunk costs.

C) relevant costs.

D) replacement costs.

23) Future costs are relevant in decision making when

A) they differ between alternatives.

B) they equal future revenues.

C) they are not based on an estimate.

D) they are the same between alternatives.

24) Which of the following would NOT be a consideration in a make or buy decision?

A) Excess capacity

B) Unavoidable fixed costs

C) Variable factory overhead

D) Rental income from unused facilities

25) If a company has excess capacity, the most it would pay for buying a product that it currently makes would be the

A) total cost of producing the product.

B) market value of the product.

C) market value less usual markup on the product.

D) total variable cost of producing the product.

Speck Company manufactures a part for its production cycle. The costs per unit for 10,000 units of this part are as follows:

Direct materials

$  6

Direct labour


Variable factory overhead


Fixed factory overhead


Total costs



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