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LO 10.1Your 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?


LO 10.1Explain how to differentiate short-term decisions from long-term decisions of a business and the changes in analyses that influence these decisions.


LO 10.1Felipe’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?
Baker wages    
Felipe’s culinary school tuition    
Berries for pies    
Painting dining area last year    
Felipe’s decision not to attend graduate school    

LO 10.2What factors must any company consider before accepting a special-order contract?


LO 10.2What are some of the qualitative issues that a special order can create?


LO 10.3In “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.


LO 10.3Many 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.


LO 10.4What type of qualitative issues should management consider if a quantitative analysis reveals that a segment should be dropped?


LO 10.4In 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?


LO 10.5What is of key importance for a company whose products can be processed further?


LO 10.5What is a general rule to remember with respect to a sell-or-process-further environment, and what costs are irrelevant to the decision?


  • 5“The Trouble with Outsourcing.” The Economist. July 30, 2011.
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