Question 1

A company is deciding on whether to replace some old equipment with new equipment. Which of the following is not a relevant cost for 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) Accumulated depreciation on 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) Accumulated depreciation on the old equipment

Question 2

If a company is operating at full capacity, the incremental costs of a special order will likely include fixed manufacturing costs.

Accepted Answer

A) True 
 B)False

Question 3

What of the following would not be relevant in a make-or-buy decision?

Accepted Answer

A) Unavoidable variable costs 
B) Incremental fixed costs 
C) Opportunity costs 
D) Avoidable fixed cost 
A) Unavoidable variable costs 
B) Incremental fixed costs 
C) Opportunity costs 
D) Avoidable fixed cost

Question 4

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 5

NF Toy Company is unsure of whether to sell its product assembled or unassembled. The unit cost of the unassembled product is $24 and NF Toy would sell it for $52. The cost to assemble the product is estimated at $17 per unit and the company believes the market would support a price of $68 on the assembled unit. What decision should NF Toy make?

Accepted Answer

A) Sell before assembly, the company will be better off by $1 per unit. 
B) Sell before assembly, the company will be better off by $16 per unit. 
C) Process further, the company will be better off by $23 per unit. 
D) Process further, the company will be better off by $11 per unit. 
A) Sell before assembly, the company will be better off by $1 per unit. 
B) Sell before assembly, the company will be better off by $16 per unit. 
C) Process further, the company will be better off by $23 per unit. 
D) Process further, the company will be better off by $11 per unit.

Question 6

Use the following information for questions 
Clemente Inc. incurs the following costs to produce 10,000 units of a subcomponent: $$\begin{array} { l l } 
\text { Direct materials } & \$ 8,400 \
\text { Direct labor } & 11,250 \
\text { Variable overhead } & 12,600 \
\text { Fixed overhead } & 16,200
\end{array}$$ An outside supplier has offered to sell Clemente the subcomponent for $2.85 a unit.
-If Clemente accepts the offer, by how much will net income increase (decrease)?

Accepted Answer

A) $3,750 
B) $19,950 
C) $(8,850) 
D) $(2,850) 
A) $3,750 
B) $19,950 
C) $(8,850) 
D) $(2,850)

Question 7

Opportunity cost must be considered in decisions involving

Accepted Answer

A) budgeting. 
B) financial accounting. 
C) CVP analysis. 
D) resources that have alternative uses. 
A) budgeting. 
B) financial accounting. 
C) CVP analysis. 
D) resources that have alternative uses.

Question 8

Tex's Manufacturing Company can make 100 units of a necessary component part with the following costs: $$\begin{array} { l r } 
\text { Direct Materials } & \$ 120,000 \
\text { Direct Labor } & 25,000 \
\text { Variable Overhead } & 45,000 \
\text { Fixed Overhead } & 30,000
\end{array}$$ If Tex's Manufacturing Company purchases the component externally, $20,000 of the fixed costs can be avoided. At what external price for the 100 units is the company indifferent between making or buying?

Accepted Answer

A) $190,000 
B) $200,000 
C) $210,000 
D) $220,000 
A) $190,000 
B) $200,000 
C) $210,000 
D) $220,000

Question 9

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 10

Use the following information for questions 
Ortiz Co. produces 5,000 units of part A12E. The following costs were incurred for that level of production: $$\begin{array} { l r } 
\text { Direct materials } & \$ 55,000 \
\text { Direct labor } & 160,000 \
\text { Variable overhead } & 75,000 \
\text { Fixed overhead } & 175,000
\end{array}$$ If Ortiz buys the part from an outside supplier, $40,000 of the fixed overhead is avoidable.
-If the outside supplier offers a unit price of $68, net income will increase (decrease) by

Accepted Answer

A) $(10,000). 
B) $125,000. 
C) $(50,000). 
D) $85,000. 
A) $(10,000). 
B) $125,000. 
C) $(50,000). 
D) $85,000.

Question 11

If an unprofitable segment is eliminated

Accepted Answer

A) it is impossible for net income to decrease. 
B) fixed expenses allocated to the eliminated segment will be eliminated. 
C) variable expenses of the eliminated segment will be eliminated. 
D) it is impossible for net income to increase. 
A) it is impossible for net income to decrease. 
B) fixed expenses allocated to the eliminated segment will be eliminated. 
C) variable expenses of the eliminated segment will be eliminated. 
D) it is impossible for net income to increase.

Question 12

Use the following information for questions 
Paul Bunyon Lumber Co. produces several products that can be sold at the split-off point or processed further and then sold. The following results are from a recent period:  
-What is the increase in profit if the appropriate products are processed further?

Accepted Answer

A) $24,200 
B) $29,800 
C) $96,000 
D) $255,800 
A) $24,200 
B) $29,800 
C) $96,000 
D) $255,800

Question 13

The elimination of an unprofitable product line may adversely affect the remaining product lines.

Accepted Answer

A) True 
 B)False

Question 14

Use the following information for questions 
Paul Bunyon Lumber Co. produces several products that can be sold at the split-off point or processed further and then sold. The following results are from a recent period:  
-Which products should be processed further?

Accepted Answer

A) Green lumber and rough lumber 
B) Green lumber and sawdust 
C) Rough lumber and sawdust 
D) All three products 
A) Green lumber and rough lumber 
B) Green lumber and sawdust 
C) Rough lumber and sawdust 
D) All three products

Question 15

A segment has the following data: $\begin{array}{lr}
\text { Sales } & \$ 700,000 \
\text { Variable expenses } & 300,000 \
\text { Fixed expenses } & 550,000
\end{array}$ What will be the incremental effect on net income if this segment is eliminated, assuming the fixed expenses will be allocated to profitable segments?

Accepted Answer

A) $400,000 increase 
B) $400,000 decrease 
C) $5,000 decrease 
D) Cannot be determined from the data provided. 
A) $400,000 increase 
B) $400,000 decrease 
C) $5,000 decrease 
D) Cannot be determined from the data provided.

Question 16

Abel Company produces three versions of baseball bats: wood, aluminum, and hard rubber. A condensed segmented income statement for a recent period follows: $\begin{array}{lrrrr}&\text { Wood } & \text { Aluminum } &\text { Hard Rubber }& \text { Total }\
\hline\text { Sales } & \$ 500,000 & \$ 200,000 & \$ 65,000 & \$ 765,000 \
\text { Variable expenses } & 325,000 & 140,000 & 58,000 & 523,000 \
\text { Contribution margin } & 175,000 & 60,000 & 7,000 & 242,000 \
\text { Fixed expenses } & 75,000 & 35,000 & 22,000 & 132,000 \\text { Net income (loss) }&\$100,000&\$25,000&\$15,000&\$110,000
\end{array}$ Assume all of the fixed expenses for the hard rubber line are avoidable. What will be total net income if the line is dropped?

Accepted Answer

A) $125,000 
B) $103,000 
C) $105,000 
D) $140,000 
A) $125,000 
B) $103,000 
C) $105,000 
D) $140,000

Question 17

Costs that will differ between alternatives and influence the outcome of a decision are

Accepted Answer

A) sunk costs. 
B) unavoidable costs. 
C) relevant costs. 
D) product costs. 
A) sunk costs. 
B) unavoidable costs. 
C) relevant costs. 
D) product costs.

Question 18

A revenue that differs between alternatives and makes a difference in decision-making is called a(n)

Accepted Answer

A) sales revenue. 
B) incremental revenue. 
C) unavoidable revenue. 
D) irrelevant revenue. 
A) sales revenue. 
B) incremental revenue. 
C) unavoidable revenue. 
D) irrelevant revenue.

Question 19

What role does a trade-in allowance on old equipment play in a decision to retain or replace equipment?

Accepted Answer

A) It is relevant since it increases the cost of the new equipment. 
B) It is not relevant since it reduces the cost of the old equipment. 
C) It is not relevant to the decision since it does not impact the cost of the new equipment. 
D) It is relevant since it reduces the cost of the new equipment. 
A) It is relevant since it increases the cost of the new equipment. 
B) It is not relevant since it reduces the cost of the old equipment. 
C) It is not relevant to the decision since it does not impact the cost of the new equipment. 
D) It is relevant since it reduces the cost of the new equipment.

Question 20

A company is considering eliminating a product line. The fixed costs currently allocated to the product line will be allocated to other product lines upon discontinuance. If the product line is discontinued,

Accepted Answer

A) total net income will increase by the amount of the product line's fixed costs. 
B) total net income will decrease by the amount of the product line's fixed costs. 
C) the contribution margin of the product line will indicate the net income increase or decrease. 
D) the company's total fixed costs will decrease. 
A) total net income will increase by the amount of the product line's fixed costs. 
B) total net income will decrease by the amount of the product line's fixed costs. 
C) the contribution margin of the product line will indicate the net income increase or decrease. 
D) the company's total fixed costs will decrease.

A company is deciding on whether to replace some old equipment with new equipment. Which of the following is not a relevant cost for incremental analysis?

If a company is operating at full capacity, the incremental costs of a special order will likely include fixed manufacturing costs.

What of the following would not be relevant in a make-or-buy decision?

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

Opportunity cost must be considered in decisions involving

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.

If an unprofitable segment is eliminated

Use the following information for questions Paul Bunyon Lumber Co. produces several products that can be sold at the split-off point or processed further and then sold. The following results are from a recent period: -What is the increase in profit if the appropriate products are processed further?

The elimination of an unprofitable product line may adversely affect the remaining product lines.

Use the following information for questions Paul Bunyon Lumber Co. produces several products that can be sold at the split-off point or processed further and then sold. The following results are from a recent period: -Which products should be processed further?

A segment has the following data: Sales \ 700,000 Variable expenses 300,000 Fixed expenses 550,000 What will be the incremental effect on net income if this segment is eliminated, assuming the fixed expenses will be allocated to profitable segments?

Costs that will differ between alternatives and influence the outcome of a decision are

A revenue that differs between alternatives and makes a difference in decision-making is called a(n)

What role does a trade-in allowance on old equipment play in a decision to retain or replace equipment?

A company is considering eliminating a product line. The fixed costs currently allocated to the product line will be allocated to other product lines upon discontinuance. If the product line is discontinued,

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

A company is deciding on whether to replace some old equipment with new equipment. Which of the following is not a relevant cost for incremental analysis?

If a company is operating at full capacity, the incremental costs of a special order will likely include fixed manufacturing costs.

What of the following would not be relevant in a make-or-buy decision?

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

Opportunity cost must be considered in decisions involving

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.

If an unprofitable segment is eliminated

Use the following information for questions Paul Bunyon Lumber Co. produces several products that can be sold at the split-off point or processed further and then sold. The following results are from a recent period: -What is the increase in profit if the appropriate products are processed further?

The elimination of an unprofitable product line may adversely affect the remaining product lines.

Use the following information for questions Paul Bunyon Lumber Co. produces several products that can be sold at the split-off point or processed further and then sold. The following results are from a recent period: -Which products should be processed further?

A segment has the following data: Sales \ 700,000 Variable expenses 300,000 Fixed expenses 550,000 What will be the incremental effect on net income if this segment is eliminated, assuming the fixed expenses will be allocated to profitable segments?

Costs that will differ between alternatives and influence the outcome of a decision are

A revenue that differs between alternatives and makes a difference in decision-making is called a(n)

What role does a trade-in allowance on old equipment play in a decision to retain or replace equipment?

A company is considering eliminating a product line. The fixed costs currently allocated to the product line will be allocated to other product lines upon discontinuance. If the product line is discontinued,

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