Question 1

In a decision to keep or replace old equipment, the salvage value of the old equipment is a sunk cost in incremental analysis.

Accepted Answer

A) True 
 B)False

Question 2

Namov Company has old inventory on hand that cost $12,000.Its scrap value is $16,000.The inventory could be sold for $38,000 if manufactured further at an additional cost of $12,000.What should Narst do?

Accepted Answer

A) Sell the inventory for $16,000 scrap value. 
B) Dispose of the inventory to avoid any further decline in value. 
C) Hold the inventory at its $12,000 cost. 
D) Manufacture further and sell it for $38,000. 
A) Sell the inventory for $16,000 scrap value. 
B) Dispose of the inventory to avoid any further decline in value. 
C) Hold the inventory at its $12,000 cost. 
D) Manufacture further and sell it for $38,000.

Question 3

Decisions made using incremental analysis focus on the amounts which differ among the alternatives.

Accepted Answer

A) True 
 B)False

Question 4

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 5

When a company has limited resources to manufacture products, it should manufacture those products which have the highest contribution margin per unit.

Accepted Answer

A) True 
 B)False

Question 6

Canosta, Inc.determined it must expand its capacity to accept a special order.Which situation is likely?

Accepted Answer

A) Unit variable costs will increase. 
B) Fixed costs will not be relevant. 
C) Both variable and fixed costs will be relevant. 
D) The company should accept the order. 
A) Unit variable costs will increase. 
B) Fixed costs will not be relevant. 
C) Both variable and fixed costs will be relevant. 
D) The company should accept the order.

Question 7

A company has a process that results in 1,000 kilograms of Product X that can be sold for $10 per kilogram.An alternative would be to process Product X further at a cost of $2,000 and then sell it for $13 per kilogram.Should management sell Product X now or should Product X be processed further and then sold?

Accepted Answer

A) Process further, the company will be better off by $1,000. 
B) Sell now, the company will be better off by $1,000. 
C) Process further, the company will be better off by $3,000. 
D) Sell now, the company will be better off by $10,000. 
A) Process further, the company will be better off by $1,000. 
B) Sell now, the company will be better off by $1,000. 
C) Process further, the company will be better off by $3,000. 
D) Sell now, the company will be better off by $10,000.

Question 8

For which of the following decisions is incremental analysis not appropriate?

Accepted Answer

A) Elimination of an unprofitable segment 
B) Determining cost behaviour 
C) A make or buy decision 
D) An allocation of limited resource decision 
A) Elimination of an unprofitable segment 
B) Determining cost behaviour 
C) A make or buy decision 
D) An allocation of limited resource decision

Question 9

It costs Fortune Company $12 of variable and $5 of fixed costs to produce one bathroom scale which normally sells for $35.A foreign wholesaler offers to purchase 1,000 scales at $16 each.Fortune would incur special shipping costs of $2 per scale if the order were accepted.Fortune has sufficient unused capacity to produce the 1,000 scales.If the special order is accepted, what will be the effect on net income?

Accepted Answer

A) $2,000 increase 
B) $2,000 decrease 
C) $3,000 decrease 
D) $15,000 increase 
A) $2,000 increase 
B) $2,000 decrease 
C) $3,000 decrease 
D) $15,000 increase

Question 10

Max Company uses 10,000 units of Part A in producing its products.A supplier offers to make Part A for $7.Max Company has relevant costs of $8 a unit to manufacture Part A.If there is excess capacity, the opportunity cost of buying Part A from the supplier is

Accepted Answer

A) $0. 
B) $10,000. 
C) $70,000. 
D) $80,000. 
A) $0. 
B) $10,000. 
C) $70,000. 
D) $80,000.

Question 11

A company should accept an order for its product at less than its regular sales price if the incremental revenue exceeds the incremental costs.

Accepted Answer

A) True 
 B)False

Question 12

Who prepares relevant revenue and cost data for the decision making process?

Accepted Answer

A) Department heads 
B) The controller 
C) Management accountants 
D) Factory supervisors 
A) Department heads 
B) The controller 
C) Management accountants 
D) Factory supervisors

Question 13

The elimination of an unprofitable product line will always increase the total profits of a company.

Accepted Answer

A) True 
 B)False

Question 14

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 15

An incremental make or buy decision depends solely on which alternative is the lowest cost alternative.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following statements about incremental analysis is true?

Accepted Answer

A) It cannot be used if more than two alternatives are available. 
B) It considers only cost factors, not revenue. 
C) Its focus is on the past activities. 
D) It only considers factors that are different for each alternative, and only those factors that will occur in the future. 
A) It cannot be used if more than two alternatives are available. 
B) It considers only cost factors, not revenue. 
C) Its focus is on the past activities. 
D) It only considers factors that are different for each alternative, and only those factors that will occur in the future.

Question 17

In which situations should opportunity costs be considered?

Accepted Answer

A) Decision making that involves alternative uses 
B) Forecasting sales 
C) Financial accounting 
D) Breakeven analysis 
A) Decision making that involves alternative uses 
B) Forecasting sales 
C) Financial accounting 
D) Breakeven analysis

Question 18

Incremental analysis is also known as differential analysis.

Accepted Answer

A) True 
 B)False

Question 19

A company is deciding whether or not to replace some old equipment with new equipment.Which of the following is not considered in the incremental analysis?

Accepted Answer

A) Annual operating cost of the new equipment 
B) Annual operating cost of the old equipment 
C) Net cost of the new equipment 
D) Book value of the old equipment 
A) Annual operating cost of the new equipment 
B) Annual operating cost of the old equipment 
C) Net cost of the new equipment 
D) Book value of the old equipment

Question 20

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

In a decision to keep or replace old equipment, the salvage value of the old equipment is a sunk cost in incremental analysis.

Namov Company has old inventory on hand that cost $12,000.Its scrap value is $16,000.The inventory could be sold for $38,000 if manufactured further at an additional cost of $12,000.What should Narst do?

Decisions made using incremental analysis focus on the amounts which differ among the alternatives.

Which decision will involve no incremental revenues?

When a company has limited resources to manufacture products, it should manufacture those products which have the highest contribution margin per unit.

Canosta, Inc.determined it must expand its capacity to accept a special order.Which situation is likely?

For which of the following decisions is incremental analysis not appropriate?

Max Company uses 10,000 units of Part A in producing its products.A supplier offers to make Part A for $7.Max Company has relevant costs of $8 a unit to manufacture Part A.If there is excess capacity, the opportunity cost of buying Part A from the supplier is

A company should accept an order for its product at less than its regular sales price if the incremental revenue exceeds the incremental costs.

Who prepares relevant revenue and cost data for the decision making process?

The elimination of an unprofitable product line will always increase the total profits of a company.

What is a sunk cost?

An incremental make or buy decision depends solely on which alternative is the lowest cost alternative.

Which of the following statements about incremental analysis is true?

In which situations should opportunity costs be considered?

Incremental analysis is also known as differential analysis.

A company is deciding whether or not to replace some old equipment with new equipment.Which of the following is not considered in the incremental analysis?

Managerial Accounting

Managerial Cost Concepts and Cost Behaviour Analysis

Job Order Costing

Process Costing

Activity-Based-Costing

Cost-Volume-Profit

Variable Costing: 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

In a decision to keep or replace old equipment, the salvage value of the old equipment is a sunk cost in incremental analysis.

Namov Company has old inventory on hand that cost $12,000.Its scrap value is $16,000.The inventory could be sold for $38,000 if manufactured further at an additional cost of $12,000.What should Narst do?

Decisions made using incremental analysis focus on the amounts which differ among the alternatives.

Which decision will involve no incremental revenues?

When a company has limited resources to manufacture products, it should manufacture those products which have the highest contribution margin per unit.

Canosta, Inc.determined it must expand its capacity to accept a special order.Which situation is likely?

For which of the following decisions is incremental analysis not appropriate?

Max Company uses 10,000 units of Part A in producing its products.A supplier offers to make Part A for $7.Max Company has relevant costs of $8 a unit to manufacture Part A.If there is excess capacity, the opportunity cost of buying Part A from the supplier is

A company should accept an order for its product at less than its regular sales price if the incremental revenue exceeds the incremental costs.

Who prepares relevant revenue and cost data for the decision making process?

The elimination of an unprofitable product line will always increase the total profits of a company.

What is a sunk cost?

An incremental make or buy decision depends solely on which alternative is the lowest cost alternative.

Which of the following statements about incremental analysis is true?

In which situations should opportunity costs be considered?

Incremental analysis is also known as differential analysis.

A company is deciding whether or not to replace some old equipment with new equipment.Which of the following is not considered in the incremental analysis?

Managerial Accounting

Managerial Cost Concepts and Cost Behaviour Analysis

Job Order Costing

Process Costing

Activity-Based-Costing

Cost-Volume-Profit

Variable Costing: a Decision-Making Perspective

Pricing

Budgetary Planning

Budgetary Control and Responsibility Accounting

Standard Costs and Balanced Scorecard

Planning for Capital Investments

Filters