Exam 19: Incremental Analysis

Able Company's unit manufacturing cost is: Variable Costs \ 50 Fixed Costs 25 A special order for 2,000 units has been received from a foreign company. The unit price requested is $55. The normal unit price is $80. If the order is accepted, unit variable costs will increase by $2 for additional freight costs. If the order is accepted, incremental profit (loss) will be

Sala Co. is contemplating the replacement of an old machine with a new one. The following information has been gathered: Old Machine New Machine Price \ 300,000 \ 600,000 Accumulated Depreciation 90,000 -0- Remaining useful life 10 years -0 - Useful life -0 - 10 years Annual operating costs \ 240,000 \ 180,600 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 costs incurred prior to the split-off point are referred to as

Book value of old equipment is considered to be a

Accounting contributes to management's decision-making process through internal reports that review the actual impact of the decision.

An important step in management's decision-making process is to determine and evaluate possible courses of action.

It is always better to sell now rather than process further because of the time value of money.

New Age Makeup produces face cream. Each bottle of face cream costs $10 to produce and can be sold for $13. The bottles can be sold as is, or processed further into sunscreen at a cost of $14 each. New Age Makeup could sell the sunscreen bottles for $23 each.

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

If a plant is operating at full capacity and receives a one-time opportunity to accept an order at a special price below its usual price, then

Variable costs will always change between alternatives.

Which of the following will always be a relevant cost?

It costs Garner 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 3,000 scales at $15 each. Garner would incur special shipping costs of $1 per scale if the order were accepted. Garner has sufficient unused capacity to produce the 3,000 scales. If the special order is accepted, what will be the effect on net income?

In the analysis concerning the acceptance or rejection of a special order, which items are relevant?

Which is the first step in the management decision-making process?

Sandusky Inc. has the following costs when producing 100,000 units: Variable costs $\quad \$ 600,000$ Fixed costs $\quad 900,000$ An outside supplier is interested in producing the item for Sandusky. If the item is produced outside, Sandusky could use the released production facilities to make another item that would generate $150,000 of net income. At what unit price would Sandusky accept the outside supplier's offer if Sandusky wanted to increase net income by $120,000?

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

Costs incurred before the split-off point are

Accounting's contribution to the decision-making process occurs in all of the following steps except to

In a retain or replace equipment decision, trade-in allowance available on old equipment