Question 1

In a decision concerning replacing old equipment with new equipment, the book value of the old equipment can be considered an opportunity cost.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

When a company does NOT have sufficient capacity to fill an order for less than the current selling price, what additional factor must be taken into consideration?

Accepted Answer

A) The decision process is the same whether there is sufficient capacity or not. 
B) How will the lack of capacity affect the quality of the product? 
C) Can resources be transferred from producing product to sell at the current price to producing product at the special price? 
D) opportunity costs 
A) The decision process is the same whether there is sufficient capacity or not. 
B) How will the lack of capacity affect the quality of the product? 
C) Can resources be transferred from producing product to sell at the current price to producing product at the special price? 
D) opportunity costs

Question 4

If a company is operating at less than capacity, the incremental costs of a special order will likely include variable manufacturing costs, but NOT fixed costs.

Accepted Answer

A) True 
 B)False

Question 5

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 6

Which of the following statements is true?

Accepted Answer

A) Common costs should be considered when deciding to drop a product line. 
B) If a segment of a company has been losing money for several years, that segment should be dropped. 
C) If an unprofitable segment is dropped, the company's net income will increase. 
D) If an unprofitable segment is dropped, fixed costs will decrease. 
A) Common costs should be considered when deciding to drop a product line. 
B) If a segment of a company has been losing money for several years, that segment should be dropped. 
C) If an unprofitable segment is dropped, the company's net income will increase. 
D) If an unprofitable segment is dropped, fixed costs will decrease.

Question 7

Use the following information for questions 6
Eminen Music produces 60,000 blank CDs on which to record music.The CDs have the following costs: $$\begin{array} { l r } 
\text { Direct Materials } & \$ 11,000 \
\text { Direct Labour } & 15,000 \
\text { Variable Overhead } & 3,000 \
\text { Fixed Overhead } & 7,000
\end{array}$$
-None of Eminem's fixed overhead costs can be reduced, but another product could be made that would increase profit contribution by $4,000 if the CDs were acquired externally.If cost minimization is the major consideration and the company would prefer to buy the CDs, what is the maximum external price that Eminem would be willing to accept to acquire the 60,000 units externally?

Accepted Answer

A) $36,000 
B) $32,000 
C) $33,000 
D) $40,000 
A) $36,000 
B) $32,000 
C) $33,000 
D) $40,000

Question 8

Meow Cat Toys utilizes Lincoln Fabrics by purchasing the fabric to cover toy mice for its mouse toy division.As it pertains to Lincoln Fabrics, what decision situation does this create?

Accepted Answer

A) make or buy 
B) sell or process further 
C) relevant costing 
D) budgeting 
A) make or buy 
B) sell or process further 
C) relevant costing 
D) budgeting

Question 9

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 10

Which one of the following does NOT affect a make or buy decision?

Accepted Answer

A) variable manufacturing costs 
B) opportunity cost 
C) incremental revenue 
D) direct labour 
A) variable manufacturing costs 
B) opportunity cost 
C) incremental revenue 
D) direct labour

Question 11

In making decisions, management considers only financial information because accounting is presented in financial context.

Accepted Answer

A) True 
 B)False

Question 12

Direct materials, direct labour, and allocated fixed and variable manufacturing overhead are all relevant in a make or buy decision.

Accepted Answer

A) True 
 B)False

Question 13

Costs that are common to one or more products are called

Accepted Answer

A) split-off costs. 
B) sunk costs. 
C) joint costs. 
D) incremental costs. 
A) split-off costs. 
B) sunk costs. 
C) joint costs. 
D) incremental costs.

Question 14

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 15

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 16

Costs that are common to two or more products are considered to be

Accepted Answer

A) joint costs. 
B) split-off costs. 
C) allocated costs. 
D) shared fixed costs. 
A) joint costs. 
B) split-off costs. 
C) allocated costs. 
D) shared fixed costs.

Question 17

Serene Dairy has 4 product lines: sour cream, ice cream, yogurt, and butter.The total costs of producing the milk base for the products is $53,000 which has been allocated based on litres of milk base used by each product.Results of July follow: $\begin{array}{lccccc}&\text { Sour Cream } & \text {Ice Cream } & \text { Yogurt } & \text { Butter } & \text { Total }\
\hline\text { Units sold } & 1,700 & 750 & 500 & 5,000 & 7,950 \
\text { Revenue } & \$ 7,000 & \$ 15,000 & \$ 12,000 & \$ 25,000 & \$ 59,000 \
\text { Variable departmental costs } & 4,000 & 10,000 & 7,000 & 12,000 & 33,0000 \
\text { Fixed costs } & 4,500 & 1,000 & 2,000 & 6,000 & 13,500 \
\text { Net income (loss) } & \$ 1,500) & \$ 4,000 & \$ 3,000 & \$ 7,000 & \$ 12,500
\end{array}$ How much are total joint costs of the products?

Accepted Answer

A) $33,000 
B) $13,500 
C) $53,000 
D) $12,500 
A) $33,000 
B) $13,500 
C) $53,000 
D) $12,500

Question 18

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 19

A company is considering replacing old equipment with new equipment.Which of the following is a relevant cost for incremental analysis?

Accepted Answer

A) total accumulated depreciation of the old equipment 
B) cost of the old equipment 
C) annual operating cost of the new equipment 
D) book value of the old equipment 
A) total accumulated depreciation of the old equipment 
B) cost of the old equipment 
C) annual operating cost of the new equipment 
D) book value of the old equipment

Question 20

Incremental analysis is also known as differential analysis.

Accepted Answer

A) True 
 B)False

In a decision concerning replacing old equipment with new equipment, the book value of the old equipment can be considered an opportunity cost.

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

When a company does NOT have sufficient capacity to fill an order for less than the current selling price, what additional factor must be taken into consideration?

If a company is operating at less than capacity, the incremental costs of a special order will likely include variable manufacturing costs, but NOT fixed costs.

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

Which of the following statements is true?

Meow Cat Toys utilizes Lincoln Fabrics by purchasing the fabric to cover toy mice for its mouse toy division.As it pertains to Lincoln Fabrics, what decision situation does this create?

What is a sunk cost?

Which one of the following does NOT affect a make or buy decision?

In making decisions, management considers only financial information because accounting is presented in financial context.

Direct materials, direct labour, and allocated fixed and variable manufacturing overhead are all relevant in a make or buy decision.

Costs that are common to one or more products are called

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?

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

Costs that are common to two or more products are considered to be

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 is considering replacing old equipment with new equipment.Which of the following is a relevant cost for incremental analysis?

Incremental analysis is also known as differential analysis.

Managerial Accounting

Managerial Cost Concepts and Cost Behaviour Analysis

Job-Order Cost Accounting

Process Cost Accounting

Activity-Based Costing

Decision-Making: Costvolumeprofit

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

In a decision concerning replacing old equipment with new equipment, the book value of the old equipment can be considered an opportunity cost.

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

When a company does NOT have sufficient capacity to fill an order for less than the current selling price, what additional factor must be taken into consideration?

If a company is operating at less than capacity, the incremental costs of a special order will likely include variable manufacturing costs, but NOT fixed costs.

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

Which of the following statements is true?

Meow Cat Toys utilizes Lincoln Fabrics by purchasing the fabric to cover toy mice for its mouse toy division.As it pertains to Lincoln Fabrics, what decision situation does this create?

What is a sunk cost?

Which one of the following does NOT affect a make or buy decision?

In making decisions, management considers only financial information because accounting is presented in financial context.

Direct materials, direct labour, and allocated fixed and variable manufacturing overhead are all relevant in a make or buy decision.

Costs that are common to one or more products are called

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?

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

Costs that are common to two or more products are considered to be

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 is considering replacing old equipment with new equipment.Which of the following is a relevant cost for incremental analysis?

Incremental analysis is also known as differential analysis.

Managerial Accounting

Managerial Cost Concepts and Cost Behaviour Analysis

Job-Order Cost Accounting

Process Cost Accounting

Activity-Based Costing

Decision-Making: Costvolumeprofit

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