Question 1

Which of the following is not involved in the sell or process further decision?

Accepted Answer

A) Revenues 
B) Variable costs 
C) Opportunity costs 
D) Fixed costs 
A) Revenues 
B) Variable costs 
C) Opportunity costs 
D) Fixed costs D

Question 2

Use the following information for questions 
Chung Inc. is considering the replacement of a piece of equipment with a newer model. The following data has been collected: $\begin{array}{lrr}&\text { Old Equipment }&\text { New Equipment }\
\text { Purchase price } & \$ 225,000 & \$ 375,000 \
\text { Accumulated depreciation } & 90,000 & -0- \
\text { Annual operating costs } & 300,000 & 240,000
\end{array}$ If the old equipment is replaced now, it can be sold for $60,000. Both the old equipment's remaining useful life and the new equipment's useful life is 5 years.
-What is the net cost of the new equipment?

Accepted Answer

A) $375,000 
B) $315,000 
C) $150,000 
D) $75,000 
A) $375,000 
B) $315,000 
C) $150,000 
D) $75,000 B

Question 3

Fornelli, Inc. can produce 100 units of a component part with the following costs: $$\begin{array} { l r } 
\text { Direct Materials } & \$ 15,000 \
\text { Direct Labor } & 6,500 \
\text { Variable Overhead } & 16,000 \
\text { Fixed Overhead } & 11,000
\end{array}$$ If Fornelli, Inc. can purchase the component part externally for $44,000 and only $4,000 of the fixed costs can be avoided, what is the correct make-or-buy decision?

Accepted Answer

A) Make and save $500 
B) Buy and save $500 
C) Make and save $2,500 
D) Buy and save $6,500 
A) Make and save $500 
B) Buy and save $500 
C) Make and save $2,500 
D) Buy and save $6,500 C

Question 4

In a make-or-buy decision, which costs can be considered relevant?

Accepted Answer

A) Unavoidable variable costs, incremental fixed costs, and sunk costs 
B) Incremental variable costs, unavoidable fixed costs, and opportunity costs 
C) Incremental variable costs, incremental fixed costs, and sunk costs 
D) Incremental variable costs, incremental fixed costs, and opportunity costs 
A) Unavoidable variable costs, incremental fixed costs, and sunk costs 
B) Incremental variable costs, unavoidable fixed costs, and opportunity costs 
C) Incremental variable costs, incremental fixed costs, and sunk costs 
D) Incremental variable costs, incremental fixed costs, and opportunity costs

Question 5

Use the following information for questions 
Chung Inc. is considering the replacement of a piece of equipment with a newer model. The following data has been collected: $\begin{array}{lrr}&\text { Old Equipment }&\text { New Equipment }\
\text { Purchase price } & \$ 225,000 & \$ 375,000 \
\text { Accumulated depreciation } & 90,000 & -0- \
\text { Annual operating costs } & 300,000 & 240,000
\end{array}$ If the old equipment is replaced now, it can be sold for $60,000. Both the old equipment's remaining useful life and the new equipment's useful life is 5 years.
-Which of the following amounts is irrelevant to the replacement decision?

Accepted Answer

A) $375,000 
B) $135,000 
C) $315,000 
D) $60,000 
A) $375,000 
B) $135,000 
C) $315,000 
D) $60,000

Question 6

Janssen Company has old inventory on hand that cost $24,000. Its scrap value is $32,000. The inventory could be sold for $80,000 if manufactured further at an additional cost of $24,000. What should Janssen do?

Accepted Answer

A) Sell the inventory for $32,000 scrap value 
B) Dispose of the inventory to avoid any further decline in value 
C) Hold the inventory at its $24,000 cost 
D) Manufacture further and sell it for $80,000. 
A) Sell the inventory for $32,000 scrap value 
B) Dispose of the inventory to avoid any further decline in value 
C) Hold the inventory at its $24,000 cost 
D) Manufacture further and sell it for $80,000.

Question 7

Pratt Company has old inventory on hand that cost $15,000. Its scrap value is $20,000. The inventory could be sold for $50,000 if manufactured further at an additional cost of $15,000. What should Pratt do?

Accepted Answer

A) Sell the inventory for $20,000 scrap value 
B) Dispose of the inventory to avoid any further decline in value 
C) Hold the inventory at its $15,000 cost 
D) Manufacture further and sell it for $50,000 
A) Sell the inventory for $20,000 scrap value 
B) Dispose of the inventory to avoid any further decline in value 
C) Hold the inventory at its $15,000 cost 
D) Manufacture further and sell it for $50,000

Question 8

A company is considering the following alternatives: $$\begin{array} { l c c c } 
& \text { Alternative 1 } & & \text { Alternative 2 } \
\hline  \text { Revenues } & \$ 120,000 & & \$ 120,000 \
\text { Variable costs } & 60,000 & & 70,000 \
\text { Fixed costs } & 35,000 & & 35,000
\end{array}$$ Which of the following are relevant in choosing between the alternatives?

Accepted Answer

A) Variable costs 
B) Revenues 
C) Fixed costs 
D) Variable costs and fixed costs 
A) Variable costs 
B) Revenues 
C) Fixed costs 
D) Variable costs and fixed costs

Question 9

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 10

Which of the following is not a qualitative factor to be considered in a make-or-buy decision?

Accepted Answer

A) Possible lost jobs from buying outside 
B) Supplier's ability to satisfy quality standards 
C) Incremental benefit from buying outside 
D) Supplier's ability to meet production schedule 
A) Possible lost jobs from buying outside 
B) Supplier's ability to satisfy quality standards 
C) Incremental benefit from buying outside 
D) Supplier's ability to meet production schedule

Question 11

A company contemplating the acceptance of a special order has the following unit cost behavior, based on 10,000 units: $$\begin{array} { l r } 
\text { Direct materials } & \$ 4 \
\text { Direct labor } & 10 \
\text { Variable overhead } & 8 \
\text { Fixed overhead } & 6
\end{array}$$ A foreign company wants to purchase 2,000 units at a special unit price of $25. The normal price per unit is $40. In addition, a special stamping machine will have to be purchased for $4,000 in order to stamp the foreign company's name on the product. The incremental income (loss) from accepting the order is

Accepted Answer

A) $6,000. 
B) $2,000. 
C) $(6,000). 
D) $(2,000). 
A) $6,000. 
B) $2,000. 
C) $(6,000). 
D) $(2,000).

Question 12

Ruth Company produces 1,000 units of a necessary component with the following costs: $$\begin{array} { l r } 
\text { Direct Materials } & \$ 27,000 \
\text { Direct Labor } & 16,000 \
\text { Variable Overhead } & 4,000 \
\text { Fixed Overhead } & 7,000
\end{array}$$ None of Ruth Company's fixed overhead costs can be reduced, but another product could be made that would increase profit contribution by $8,000 if the components were acquired 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 be willing to accept to acquire the 1,000 units externally?

Accepted Answer

A) $46,000 
B) $58,000 
C) $51,000 
D) $55,000 
A) $46,000 
B) $58,000 
C) $51,000 
D) $55,000

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

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 15

Which of the following stages of the management decision-making process is improperly sequenced?

Accepted Answer

A) Evaluate possible courses of action $\rightarrow$ Make decision. 
B) Assign responsibility for the decision $\rightarrow$ Identify the problem. 
C) Identify the problem $\rightarrow$ Determine possible courses of action. 
D) Assign responsibility for decision $\rightarrow$ Determine possible courses of action. 
A) Evaluate possible courses of action $\rightarrow$ Make decision. 
B) Assign responsibility for the decision $\rightarrow$ Identify the problem. 
C) Identify the problem $\rightarrow$ Determine possible courses of action. 
D) Assign responsibility for decision $\rightarrow$ Determine possible courses of action.

Question 16

Eddy Company is starting business and is unsure of whether to sell its product assembled or unassembled. The unit cost of the unassembled product is $60 and Eddy Company would sell it for $135. The cost to assemble the product is estimated at $27 per unit and Eddy Company believes the market would support a price of $174 on the assembled unit. What is the correct decision using the sell or process further decision rule?

Accepted Answer

A) Sell before assembly, the company will be better off by $27 per unit. 
B) Sell before assembly, the company will be better off by $39 per unit. 
C) Process further, the company will be better off by $39 per unit. 
D) Process further, the company will be better off by $12 per unit. 
A) Sell before assembly, the company will be better off by $27 per unit. 
B) Sell before assembly, the company will be better off by $39 per unit. 
C) Process further, the company will be better off by $39 per unit. 
D) Process further, the company will be better off by $12 per unit.

Question 17

The source of data to serve as inputs in incremental analysis is generated by

Accepted Answer

A) market analysts. 
B) engineers. 
C) accountants. 
D) All of these answers are correct. 
A) market analysts. 
B) engineers. 
C) accountants. 
D) All of these answers are correct.

Question 18

In incremental analysis, total variable costs will always change under alternative courses of action, and total fixed costs will always remain constant.

Accepted Answer

A) True 
 B)False

Question 19

Opportunity cost is usually

Accepted Answer

A) a standard cost. 
B) a potential benefit. 
C) a sunk cost. 
D) included as part of cost of goods sold. 
A) a standard cost. 
B) a potential benefit. 
C) a sunk cost. 
D) included as part of cost of goods sold.

Question 20

A company has three product lines, one of which reflects the following results: $\begin{array}{lr}
\text { Sales } & \$ 215,000 \
\text { Variable expenses } & 125,000 \
\text { Contribution margin } & 90,000 \
\text { Fixed expenses } & 130,000 \
\text { Net loss } & \$(40,000)
\end{array}$ If this product line is eliminated, 60% of the fixed expenses can be eliminated and the other 40% will be allocated to other product lines. If management decides to eliminate this product line, the company's net income will

Accepted Answer

A) increase by $40,000. 
B) decrease by $90,000. 
C) decrease by $12,000. 
D) increase by $12,000. 
A) increase by $40,000. 
B) decrease by $90,000. 
C) decrease by $12,000. 
D) increase by $12,000.

Which of the following is not involved in the sell or process further decision?

In a make-or-buy decision, which costs can be considered relevant?

Janssen Company has old inventory on hand that cost $24,000. Its scrap value is $32,000. The inventory could be sold for $80,000 if manufactured further at an additional cost of $24,000. What should Janssen do?

Pratt Company has old inventory on hand that cost $15,000. Its scrap value is $20,000. The inventory could be sold for $50,000 if manufactured further at an additional cost of $15,000. What should Pratt do?

A company is considering the following alternatives: Alternative 1 Alternative 2 Revenues \ 120,000 \ 120,000 Variable costs 60,000 70,000 Fixed costs 35,000 35,000 Which of the following are relevant in choosing between the alternatives?

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?

Which of the following is not a qualitative factor to be considered in a make-or-buy decision?

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

Which of the following is an irrelevant cost?

Which of the following stages of the management decision-making process is improperly sequenced?

The source of data to serve as inputs in incremental analysis is generated by

In incremental analysis, total variable costs will always change under alternative courses of action, and total fixed costs will always remain constant.

Opportunity cost is usually

Introduction to Financial Statements

A Further Look at Financial Statements

The Accounting Information System

Merchandising Operations and the Multiple-Step Income Statement

Reporting and Analyzing Inventory

Fraud, Internal Control, and Cash

Reporting and Analyzing Receivables

Reporting and Analyzing Long-Lived Assets

Reporting and Analyzing Liabilities

Reporting and Analyzing Stockholders Equity

Statement of Cash Flows

Financial Analysis: The Big Picture

Managerial Accounting

Job Order Costing

Process Costing

Activity-Based Costing

Cost-Volume-Profit

Cost-Volume-Profit Analysis: Additional Issues

Budgetary Planning

Budgetary Control and Responsibility Accounting

Standard Costs and Balanced Scorecard

Planning for Capital Investments

Filters

Exam 19: Incremental Analysis

Which of the following is not involved in the sell or process further decision?

In a make-or-buy decision, which costs can be considered relevant?

Janssen Company has old inventory on hand that cost $24,000. Its scrap value is $32,000. The inventory could be sold for $80,000 if manufactured further at an additional cost of $24,000. What should Janssen do?

Pratt Company has old inventory on hand that cost $15,000. Its scrap value is $20,000. The inventory could be sold for $50,000 if manufactured further at an additional cost of $15,000. What should Pratt do?

A company is considering the following alternatives: Alternative 1 Alternative 2 Revenues \ 120,000 \ 120,000 Variable costs 60,000 70,000 Fixed costs 35,000 35,000 Which of the following are relevant in choosing between the alternatives?

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?

Which of the following is not a qualitative factor to be considered in a make-or-buy decision?

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

Which of the following is an irrelevant cost?

Which of the following stages of the management decision-making process is improperly sequenced?

The source of data to serve as inputs in incremental analysis is generated by

In incremental analysis, total variable costs will always change under alternative courses of action, and total fixed costs will always remain constant.

Opportunity cost is usually

Introduction to Financial Statements

A Further Look at Financial Statements

The Accounting Information System

Merchandising Operations and the Multiple-Step Income Statement

Reporting and Analyzing Inventory

Fraud, Internal Control, and Cash

Reporting and Analyzing Receivables

Reporting and Analyzing Long-Lived Assets

Reporting and Analyzing Liabilities

Reporting and Analyzing Stockholders Equity

Statement of Cash Flows

Financial Analysis: The Big Picture

Managerial Accounting

Job Order Costing

Process Costing

Activity-Based Costing

Cost-Volume-Profit

Cost-Volume-Profit Analysis: Additional Issues

Budgetary Planning

Budgetary Control and Responsibility Accounting

Standard Costs and Balanced Scorecard

Planning for Capital Investments

Filters