Question 1

What role does a trade-in allowance on old equipment play in a decision to retain or replace equipment?

Accepted Answer

A) It is relevant since it increases the cost of the new equipment. 
B) It is not relevant since it reduces the cost of the old equipment. 
C) It is not relevant to the decision since it does not impact the cost of the new equipment. 
D) It is relevant since it reduces the cost of the new equipment. 
A) It is relevant since it increases the cost of the new equipment. 
B) It is not relevant since it reduces the cost of the old equipment. 
C) It is not relevant to the decision since it does not impact the cost of the new equipment. 
D) It is relevant since it reduces the cost of the new equipment.

Question 2

Which of the following is relevant information in a decision whether old equipment presently being used should be replaced by new equipment?

Accepted Answer

A) the cost of the old equipment 
B) the salvage value of the old equipment 
C) the book value of the old equipment 
D) the accumulated depreciation of the old equipment 
A) the cost of the old equipment 
B) the salvage value of the old equipment 
C) the book value of the old equipment 
D) the accumulated depreciation of the old equipment

Question 3

Which of the following statements is true?

Accepted Answer

A) All variable costs are relevant costs. 
B) Only those variable costs that differ between alternatives are relevant costs. 
C) Fixed costs are never relevant costs. 
D) All fixed costs are relevant costs as they impact on overall unit costs. 
A) All variable costs are relevant costs. 
B) Only those variable costs that differ between alternatives are relevant costs. 
C) Fixed costs are never relevant costs. 
D) All fixed costs are relevant costs as they impact on overall unit costs.

Question 4

Which of the following statements about making decisions is correct?

Accepted Answer

A) Only relevant financial information should be considered. 
B) All information should be considered in the final decision. 
C) Management should consider both relevant financial and non-financial information. 
D) Management accountants should provide the information, but they should not make recommendations.It is up to the managers to make decisions. 
A) Only relevant financial information should be considered. 
B) All information should be considered in the final decision. 
C) Management should consider both relevant financial and non-financial information. 
D) Management accountants should provide the information, but they should not make recommendations.It is up to the managers to make decisions.

Question 5

The most important thing to consider when deciding to replace or keep equipment is

Accepted Answer

A) salvage value of the current equipment. 
B) the estimated number of years remaining on the books. 
C) the expected variable costs of the new equipment. 
D) whether book value is higher than replacement value. 
A) salvage value of the current equipment. 
B) the estimated number of years remaining on the books. 
C) the expected variable costs of the new equipment. 
D) whether book value is higher than replacement value.

Question 6

Which one of the following is non-financial information that management might evaluate in making a decision?

Accepted Answer

A) opportunity costs of a decision 
B) contribution margin 
C) the effect on profit of a decision 
D) the corporate profile in the community 
A) opportunity costs of a decision 
B) contribution margin 
C) the effect on profit of a decision 
D) the corporate profile in the community

Question 7

Which decision will involve no incremental revenues?

Accepted Answer

A) make-or-buy decision 
B) Drop a product line. 
C) Accept a special order. 
D) additional processing decision 
A) make-or-buy decision 
B) Drop a product line. 
C) Accept a special order. 
D) additional processing decision

Question 8

Which of the following is false?

Accepted Answer

A) Incremental analysis identifies the probable effects of management decisions on future earnings. 
B) In incremental analysis, total fixed costs will always remain constant under alternative courses of action. 
C) The process used to identify the financial data that change under alternative courses of action is called incremental analysis. 
D) Incremental costs are always relevant. 
A) Incremental analysis identifies the probable effects of management decisions on future earnings. 
B) In incremental analysis, total fixed costs will always remain constant under alternative courses of action. 
C) The process used to identify the financial data that change under alternative courses of action is called incremental analysis. 
D) Incremental costs are always relevant.

Question 9

In which situations should opportunity costs be considered?

Accepted Answer

A) decision making that involves alternative uses 
B) forecasting sales 
C) financial accounting 
D) break-even analysis 
A) decision making that involves alternative uses 
B) forecasting sales 
C) financial accounting 
D) break-even analysis

Question 10

What is a sunk cost?

Accepted Answer

A) A significant cost that has the potential to "sink" the organization. 
B) A cost that has already occurred, but still must be considered in the decision process. 
C) A cost that has already occurred and therefore is not relevant in the decision process. 
D) A cost that cannot be changed. 
A) A significant cost that has the potential to "sink" the organization. 
B) A cost that has already occurred, but still must be considered in the decision process. 
C) A cost that has already occurred and therefore is not relevant in the decision process. 
D) A cost that cannot be changed.

Question 11

Which statement is true of an opportunity cost?

Accepted Answer

A) It is the cost of a special order option. 
B) It reduces the possibility of accepting a particular course of action. 
C) It is the potential benefit as a result of following an alternative course of action. 
D) It is a variable cost. 
A) It is the cost of a special order option. 
B) It reduces the possibility of accepting a particular course of action. 
C) It is the potential benefit as a result of following an alternative course of action. 
D) It is a variable cost.

Question 12

$$\text { Use the following information for questions } 37 - 38 \text {. }$$
Eminen Music produces 60,000 blank CDs on which to record music.The CDs have the following costs:
$$\begin{array} { l l } 
\text { Direct Materials } & \$ 11,000 \
\text { Direct Labour } & 15,000 \
\text { Variable Overhead } & \mathbf { 3 } , 000 \
\text { Fixed Overhead } & 7,000
\end{array}$$
-Eminem could avoid $4,000 in fixed overhead costs if it acquires the CDs externally.If cost minimization is the major consideration and the company would prefer to buy the 60,000 units externally, what is the maximum external price that Eminem would expect to pay for the units?

Accepted Answer

A) $32,000 
B) $29,000 
C) $36,000 
D) $33,000 
A) $32,000 
B) $29,000 
C) $36,000 
D) $33,000

Question 13

Rosen, Inc.has 10,000 obsolete calculators, which are carried in inventory at a cost of $20,000.If the calculators are scrapped, they can be sold for $1.10 each (for parts).If they are repackaged, at a cost of $15,000, they could be sold to toy stores for $2.50 per unit.What alternative should be chosen, and why?

Accepted Answer

A) Scrap; profit is $1,000 greater. 
B) Repackage; revenue is $5,000 greater than cost. 
C) Scrap; incremental loss is $9,000. 
D) Repackage; receive profit of $10,000. 
A) Scrap; profit is $1,000 greater. 
B) Repackage; revenue is $5,000 greater than cost. 
C) Scrap; incremental loss is $9,000. 
D) Repackage; receive profit of $10,000.

Question 14

A company decided to replace an old machine with a new machine.Which of the following is considered a relevant cost?

Accepted Answer

A) the book value of the old equipment 
B) depreciation expense on the old equipment 
C) the loss on the disposal of the old equipment 
D) the current disposal price of the old equipment 
A) the book value of the old equipment 
B) depreciation expense on the old equipment 
C) the loss on the disposal of the old equipment 
D) the current disposal price of the old equipment

Question 15

Which of the following describes one aspect of incremental analysis?

Accepted Answer

A) Both costs and revenues that stay the same between alternate courses of action will be analyzed. 
B) Both costs and revenues that differ between alternate courses of action will be analyzed. 
C) All costs and revenues, regardless if they stay the same or differ between alternate courses of action, will be analyzed. 
D) Only costs relating to the decisions at hand are analyzed. 
A) Both costs and revenues that stay the same between alternate courses of action will be analyzed. 
B) Both costs and revenues that differ between alternate courses of action will be analyzed. 
C) All costs and revenues, regardless if they stay the same or differ between alternate courses of action, will be analyzed. 
D) Only costs relating to the decisions at hand are analyzed.

Question 16

What is the salvage value of old equipment considered to be?

Accepted Answer

A) a relevant cost 
B) a non-incremental cost 
C) an opportunity cost 
D) a cost that is not differential 
A) a relevant cost 
B) a non-incremental cost 
C) an opportunity cost 
D) a cost that is not differential

Question 17

Seville Company manufactures a product with a unit variable cost of $42 and a unit sales price of $75.Fixed manufacturing costs were $80,000 when 10,000 units were produced and sold, equating to $8 per unit.The company has a one-time opportunity to sell an additional 1,500 units at $55 each in an international market which would not affect its present sales.The company has sufficient capacity to produce the additional units.How much is the relevant income effect of accepting the special order?

Accepted Answer

A) $63,000 
B) $7,500 
C) $50,000 
D) $19,500 
A) $63,000 
B) $7,500 
C) $50,000 
D) $19,500

Question 18

Which one of the following is an alternative name for incremental analysis?

Accepted Answer

A) managerial analysis 
B) cost analysis 
C) contribution margin analysis 
D) differential analysis 
A) managerial analysis 
B) cost analysis 
C) contribution margin analysis 
D) differential analysis

Question 19

Wishnell Toys can make 5,000 toy robots with the following costs: $$\begin{array} { l c } 
\text { Direct Materials } & \$ 74,000 \
\text { Direct Labour } & 30,000 \
\text { Variable Overhead } & 23,000 \
\text { Fixed Overhead } & 15,000
\end{array}$$ The company can purchase the 5,000 robots externally for $145,000.The avoidable fixed costs are $15,000 if the units are purchased externally.What is the cost savings if the company makes the robots?

Accepted Answer

A) $18,000 
B) $15,000 
C) $5,000 
D) $3,000 
A) $18,000 
B) $15,000 
C) $5,000 
D) $3,000

Question 20

In a sell or process further decision,

Accepted Answer

A) management should process further as long as the incremental revenues from additional processing are greater than the incremental costs. 
B) the basic decision rule is: process further if the total processing costs exceeds the incremental revenue. 
C) it is better to process further rather than sell now if the sales price increases. 
D) the allocation of joint product costs is important and relevant. 
A) management should process further as long as the incremental revenues from additional processing are greater than the incremental costs. 
B) the basic decision rule is: process further if the total processing costs exceeds the incremental revenue. 
C) it is better to process further rather than sell now if the sales price increases. 
D) the allocation of joint product costs is important and relevant.

What role does a trade-in allowance on old equipment play in a decision to retain or replace equipment?

Which of the following is relevant information in a decision whether old equipment presently being used should be replaced by new equipment?

Which of the following statements is true?

Which of the following statements about making decisions is correct?

The most important thing to consider when deciding to replace or keep equipment is

Which one of the following is non-financial information that management might evaluate in making a decision?

Which decision will involve no incremental revenues?

Which of the following is false?

In which situations should opportunity costs be considered?

What is a sunk cost?

Which statement is true of an opportunity cost?

A company decided to replace an old machine with a new machine.Which of the following is considered a relevant cost?

Which of the following describes one aspect of incremental analysis?

What is the salvage value of old equipment considered to be?

Which one of the following is an alternative name for incremental analysis?

In a sell or process further decision,

Managerial Accounting

Managerial Cost Concepts and Cost Behaviour Analysis

Job Order Costing

Process Costing

Activity-Based-Costing

Cost-Volume-Profit

Alternative Inventory Costing Methods: a Decision-Making Perspective

Pricing

Budgetary Planning

Budgetary Control and Responsibility Accounting

Standard Costs and Balanced Scorecard

Planning for Capital Investments

Filters

Exam 7: Incremental Analysis

What role does a trade-in allowance on old equipment play in a decision to retain or replace equipment?

Which of the following is relevant information in a decision whether old equipment presently being used should be replaced by new equipment?

Which of the following statements is true?

Which of the following statements about making decisions is correct?

The most important thing to consider when deciding to replace or keep equipment is

Which one of the following is non-financial information that management might evaluate in making a decision?

Which decision will involve no incremental revenues?

Which of the following is false?

In which situations should opportunity costs be considered?

What is a sunk cost?

Which statement is true of an opportunity cost?

A company decided to replace an old machine with a new machine.Which of the following is considered a relevant cost?

Which of the following describes one aspect of incremental analysis?

What is the salvage value of old equipment considered to be?

Which one of the following is an alternative name for incremental analysis?

In a sell or process further decision,

Managerial Accounting

Managerial Cost Concepts and Cost Behaviour Analysis

Job Order Costing

Process Costing

Activity-Based-Costing

Cost-Volume-Profit

Alternative Inventory Costing Methods: a Decision-Making Perspective

Pricing

Budgetary Planning

Budgetary Control and Responsibility Accounting

Standard Costs and Balanced Scorecard

Planning for Capital Investments

Filters