Question 1

In a decision to retain or replace old equipment, the salvage value of the old equipment is relevant in incremental analysis.

Accepted Answer

A) True 
 B)False

Question 2

The process of evaluating financial data that change under alternative courses of action is called

Accepted Answer

A)  double entry analysis. 
B)  contribution margin analysis. 
C)  incremental analysis. 
D)  cost-benefit analysis. 
A)  double entry analysis. 
B)  contribution margin analysis. 
C)  incremental analysis. 
D)  cost-benefit analysis.

Question 3

Gregg Company supplies schools with floor mattresses to use in physical education classes. Gregg has received a special order from a large school district to buy 600 mats at $45 each. Acceptance of the special order will not affect fixed costs but will result in $1,200 of shipping costs.
For the first 6 months of 2016, the company reported the following operating results while operating at 80% capacity:   
Cost of goods sold was 75% variable and 25% fixed; operating expenses were 70% variable and 30% fixed.
Instructions
(a) Prepare an incremental analysis for the special order.
(b) Should Gregg Company accept the special order? Justify your answer.

Accepted Answer

(a) @#IMG-DLM& Variable cost of goods sold = $4,20

Question 4

Baden Company manufactures a product with a unit variable cost of $100 and a unit sales price of $176. Fixed manufacturing costs were $480,000 when 10,000 units were produced and sold. The company has a one-time opportunity to sell an additional 1,000 units at $140 each in a foreign market which would not affect its present sales. If the company has sufficient capacity to produce the additional units, acceptance of the special order would affect net income as follows:

Accepted Answer

A)  Income would decrease by $8,000. 
B)  Income would increase by $8,000. 
C)  Income would increase by $140,000. 
D)  Income would increase by $40,000. 
A)  Income would decrease by $8,000. 
B)  Income would increase by $8,000. 
C)  Income would increase by $140,000. 
D)  Income would increase by $40,000.

Question 5

If a company anticipates that other sales will be affected by the acceptance of a special order, then

Accepted Answer

A)  lost sales should be considered in the incremental analysis. 
B)  lost sales should not be considered in the incremental analysis. 
C)  the order should not be accepted. 
D)  the order will only be accepted if the plant is below capacity. 
A)  lost sales should be considered in the incremental analysis. 
B)  lost sales should not be considered in the incremental analysis. 
C)  the order should not be accepted. 
D)  the order will only be accepted if the plant is below capacity.

Question 6

A company should never accept an order for its product at less than its regular sales price.

Accepted Answer

A) True 
 B)False

Question 7

Use the following information for questions.
Truckel, Inc. currently manufactures a wicket as its main product. The costs per unit are as follows:  
-The fixed overhead is an allocated common cost. How much is the relevant cost of the wicket?

Accepted Answer

A)  $36 
B)  $24 
C)  $19 
D)  $16 
A)  $36 
B)  $24 
C)  $19 
D)  $16

Question 8

In incremental analysis,

Accepted Answer

A)  only costs are analyzed. 
B)  only revenues are analyzed. 
C)  both costs and revenues may be analyzed. 
D)  both costs and revenues that stay the same between alternate courses of action will be analyzed. 
A)  only costs are analyzed. 
B)  only revenues are analyzed. 
C)  both costs and revenues may be analyzed. 
D)  both costs and revenues that stay the same between alternate courses of action will be analyzed.

Question 9

Incremental analysis is synonymous with

Accepted Answer

A)  difficult analysis. 
B)  differential analysis. 
C)  gross profit analysis. 
D)  derivative analysis. 
A)  difficult analysis. 
B)  differential analysis. 
C)  gross profit analysis. 
D)  derivative analysis.

Question 10

Max Company uses 20,000 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 not buying Part A from the supplier is

Accepted Answer

A)  $0. 
B)  $20,000. 
C)  $140,000. 
D)  $160,000. 
A)  $0. 
B)  $20,000. 
C)  $140,000. 
D)  $160,000.

Question 11

Sala Co. is contemplating the replacement of an old machine with a new one. The following information has been gathered:   If the old machine is replaced, it can be sold for $24,000.
Which of the following amounts is a sunk cost?

Accepted Answer

A)  $240,000 
B)  $180,600 
C)  $600,000 
D)  $210,000 
A)  $240,000 
B)  $180,600 
C)  $600,000 
D)  $210,000

Question 12

Ruth Company produces 1,000 units of a necessary component with the following costs:   Ruth Company could avoid $6,000 in fixed overhead costs if it acquires the components externally. If cost minimization is the major consideration and the company would prefer to buy the components, what is the maximum external price that Ruth Company would accept to acquire the 1,000 units externally?

Accepted Answer

A)  $58,000 
B)  $64,000 
C)  $59,000 
D)  $62,000 
A)  $58,000 
B)  $64,000 
C)  $59,000 
D)  $62,000

Question 13

The costs incurred prior to the split-off point are referred to as

Accepted Answer

A)  separable costs. 
B)  split-off costs. 
C)  joint product costs. 
D)  joint costs. 
A)  separable costs. 
B)  split-off costs. 
C)  joint product costs. 
D)  joint costs.

Question 14

Ecker, Inc. produces milk at a total cost of $66,000. The production generates 60,000 gallons of milk which can be sold for $1 per gallon to a pasteurization company, or the milk can be processed further into ice cream and then sold for $3 per gallon. It costs $75,000 more to turn the annual milk supply into ice cream.
Instructions
If Ecker processes the milk into ice cream, how much is the incremental profit or loss? Should Ecker process the milk into ice cream or sell it as is?

Accepted Answer

Incremental revenues: ($3 - $1

Question 15

Sala Co. is contemplating the replacement of an old machine with a new one. The following information has been gathered:   If the old machine is replaced, it can be sold for $24,000.
Which of the following amounts is relevant to the replacement decision?

Accepted Answer

A)  $210,000 
B)  $300,000 
C)  $59,400 
D)  $90,000 
A)  $210,000 
B)  $300,000 
C)  $59,400 
D)  $90,000

Question 16

A company is contemplating the acceptance of a special order. The order would not affect regular sales and could be filled without exceeding plant capacity. However, a new stamping machine would have to be purchased in order to stamp the customer's name on the product. Which of the following is likely?

Accepted Answer

A)  Total variable costs will be irrelevant. 
B)  Only variable costs will be relevant. 
C)  Only fixed costs will be relevant. 
D)  Both variable and fixed costs will be relevant. 
A)  Total variable costs will be irrelevant. 
B)  Only variable costs will be relevant. 
C)  Only fixed costs will be relevant. 
D)  Both variable and fixed costs will be relevant.

Question 17

The point in the production process when joint products are readily identifiable is the

Accepted Answer

A)  separation point. 
B)  split-off point. 
C)  common point. 
D)  break-even point. 
A)  separation point. 
B)  split-off point. 
C)  common point. 
D)  break-even point.

Question 18

Which of the following is an irrelevant cost?

Accepted Answer

A)  An avoidable cost 
B)  An incremental cost 
C)  A sunk cost 
D)  An opportunity cost 
A)  An avoidable cost 
B)  An incremental cost 
C)  A sunk cost 
D)  An opportunity cost

Question 19

Kinder Enterprises relies heavily on a copier machine to process its paperwork. Recently the copy clerk has not been able to process all the necessary copies within the regular work week. Management is considering updating the copier machine with a faster model.   
If sold now, the current copier would have a salvage value of $1,000. If operated for the remainder of its useful life, the current machine would have zero salvage value. The new machine is expected to have zero salvage value after five years.
Instructions
Prepare an analysis to show whether the company should retain or replace the machine.

Accepted Answer

@#IMG-DLM& The current copier should be

Question 20

From a quantitative standpoint, a segment should be eliminated if its contribution margin is less than the fixed costs that can be eliminated.

Accepted Answer

A) True 
 B)False

Exam 20: Incremental Analysis

In a decision to retain or replace old equipment, the salvage value of the old equipment is relevant in incremental analysis.

The process of evaluating financial data that change under alternative courses of action is called

If a company anticipates that other sales will be affected by the acceptance of a special order, then

A company should never accept an order for its product at less than its regular sales price.

Use the following information for questions. Truckel, Inc. currently manufactures a wicket as its main product. The costs per unit are as follows: -The fixed overhead is an allocated common cost. How much is the relevant cost of the wicket?

In incremental analysis,

Incremental analysis is synonymous with

Max Company uses 20,000 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 not buying Part A from the supplier is

Sala Co. is contemplating the replacement of an old machine with a new one. The following information has been gathered: If the old machine is replaced, it can be sold for $24,000. Which of the following amounts is a sunk cost?

The costs incurred prior to the split-off point are referred to as

Sala Co. is contemplating the replacement of an old machine with a new one. The following information has been gathered: If the old machine is replaced, it can be sold for $24,000. Which of the following amounts is relevant to the replacement decision?

The point in the production process when joint products are readily identifiable is the

Which of the following is an irrelevant cost?

From a quantitative standpoint, a segment should be eliminated if its contribution margin is less than the fixed costs that can be eliminated.

Accounting in Action

The Recording Process

Adjusting the Accounts

Completing the Accounting Cycle

Accounting for Merchandising Operations Perpetual Approach

Inventories Periodic Approach

Fraud, Internal Control, and Cash

Accounting for Receivables

Plant Assets, Natural Resources, and Intangible Assets

Liabilities

Corporations: Organization, Stock Transactions, and Stockholders Equity

Statement of Cash Flows

Financial Statement Analysis

Managerial Accounting

Job Order Costing

Process Costing

Activity-Based Costing

Cost-Volume-Profit

Cost-Volume-Profit Analysis: Additional Issues

Pricing

Budgetary Planning

Budgetary Control and Responsibility Accounting

Standard Costs and Balanced Scorecard

Planning for Capital Investments

Time Value of Money

Investments

Payroll Accounting

Subsidiary Ledgers and Special Journals

Other Significant Liabilities

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