Osprey Company Is Trying to Decide Between the Following Two

question 126

Multiple Choice

Osprey Company is trying to decide between the following two alternatives: $\begin{array}{lrc}&\text { Alternative A }&\text { Alternative B }\\\text { Projected revenue } & \$ 50,000 & \$ 60,000 \\\text { Direct material } & 6,000 & 12,000 \\\text { Assembly labor } & 9,000 & 9,000 \\\text { Production supervisor's salary } & 10,000 & 10,000\\\text { Facility-related costs}&\underline{10,000}&\underline{15,000}\\\text { Profit}&\underline{\$15,000}&\underline{\$14,000}\end{array}$ Which of the following conclusions can be drawn from this example?

• A) Variable costs are always relevant for decision making.
• B) Fixed costs are sunk and thus are never relevant for decision making.
• C) Relevant costs may include variable costs and fixed costs.
• D) None of these answers are correct.

Differentiate between explicit and implicit costs and their role in determining economic profit.

Recognize the conditions under which a firm maximizes profit, minimizes loss, or breaks even, including the role of average total cost (ATC), marginal cost (MC), and marginal revenue (MR).

Analyze the implications of operating at a profit, loss, or break-even point for a firm in a perfectly competitive market.

Understand the concept of economic profit versus accounting profit.

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