Pender has prepared the following list of statements about decision making and i

Question

Pender has prepared the following list of statements about decision making and incremental analysis.

Identify each statement as true or false.

1. The first step in management's decision-making process is, "Determine and evaluate possible courses of action."
2. The final step in management's decision-making process is to actually make the decision.
3. Accounting's contribution to management's decision-making process occurs primarily in evaluating possible courses of action and in reviewing the results.
4. In making business decisions, management ordinarily considers only financial information because it is objectively determined.
5. Decisions involve a choice among alternative courses of action.
6. The process used to identify the financial data that change under alternative courses of action is called incremental analysis.
7. Costs that are the same under all alternative courses of action sometimes affect the decision.
8. When using incremental analysis, some costs will always change under alternative courses of action, but revenues will not.

For every false statement identified above indicate how to correct the statement.

Explanation / Answer

1. False. The first step in management’s decision-making process is “identify

the problem and assign responsibility”.

2. False. The final step in management’s decision-making process is to review the results of the decision.

3. True.

4. False. In making business decisions, management ordinarily considers both financial and nonfinancial information.

5. True.

6. True.

7. False. Costs that are the same under all alternative courses of action do not affect the decision.

8. False. When using incremental analysis, either costs or revenues or both will change under alternative courses of action.

9. False. Sometimes variable costs will not change under alternative courses of action, but fixed costs will.

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