Question 1

Which decision will involve no incremental revenues?

Accepted Answer

A) Make or buy decision 
B) Drop a product line 
C) Accept a special order 
D) Additional processing decision 
A) Make or buy decision 
B) Drop a product line 
C) Accept a special order 
D) Additional processing decision

Question 2

In making decisions, management ordinarily considers both financial and nonfinancial information.

Accepted Answer

A) True 
 B)False

Question 3

In incremental analysis,

Accepted Answer

A) costs are not relevant if they change between alternatives. 
B) all costs are relevant if they change between alternatives. 
C) only fixed costs are relevant. 
D) only variable costs are relevant. 
A) costs are not relevant if they change between alternatives. 
B) all costs are relevant if they change between alternatives. 
C) only fixed costs are relevant. 
D) only variable costs are relevant.

Question 4

A factory is operating at less than 100% capacity. Potential additional business will not use up the remainder of the plant capacity. Given the following list of costs, which one should be ignored in a decision to produce additional units of product?

Accepted Answer

A) Variable selling expenses 
B) Fixed factory overhead 
C) Direct labor 
D) Contribution margin of additional units 
A) Variable selling expenses 
B) Fixed factory overhead 
C) Direct labor 
D) Contribution margin of additional units

Question 5

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:  
-The additional profit that would result from processing rough lumber further is

Accepted Answer

A) $21,400. 
B) $49,600. 
C) $145,400. 
D) $95,800. 
A) $21,400. 
B) $49,600. 
C) $145,400. 
D) $95,800.

Question 6

The cost to produce Part A was $20 per unit in 2016. During 2017, it has increased to $23 per unit. In 2017, Supplier Company has offered to supply Part A for $18 per unit. For the make-or-buy decision,

Accepted Answer

A) incremental revenues are $5 per unit. 
B) incremental costs are $3 per unit. 
C) net relevant costs are $3 per unit. 
D) differential costs are $5 per unit. 
A) incremental revenues are $5 per unit. 
B) incremental costs are $3 per unit. 
C) net relevant costs are $3 per unit. 
D) differential costs are $5 per unit.

Question 7

Which of the following is not a true statement?

Accepted Answer

A) Incremental analysis might also be referred to as differential analysis. 
B) Incremental analysis is the same as CVP analysis. 
C) Incremental analysis is useful in making decisions. 
D) Incremental analysis focuses on decisions that involve a choice among alternative courses of action. 
A) Incremental analysis might also be referred to as differential analysis. 
B) Incremental analysis is the same as CVP analysis. 
C) Incremental analysis is useful in making decisions. 
D) Incremental analysis focuses on decisions that involve a choice among alternative courses of action.

Question 8

An opportunity cost

Accepted Answer

A) should be initially recorded as an asset. 
B) is the cost of a new product proposal. 
C) is the potential benefit that may be obtained by following an alternative course of action. 
D) is classified as manufacturing overhead. 
A) should be initially recorded as an asset. 
B) is the cost of a new product proposal. 
C) is the potential benefit that may be obtained by following an alternative course of action. 
D) is classified as manufacturing overhead.

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

Use the following information for questions 
Truckel, Inc. currently manufactures a wicket as its main product. The costs per unit are as follows: $\begin{array}{lr}
\text { Direct materials and direct labor } & \$ 11 \
\text { Variable overhead } & 5 \
\text { Fixed overhead } & 8 \
\quad \text { Total } & \$ 24
\end{array}$
-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 11

During 2016, it cost Westa, Inc. $18 per unit to produce part T5. During 2017, it has increased to $21 per unit. In 2017, Southside Company has offered to provide Part T5 for $16 per unit to Westa. As it pertains to the make-or-buy decision, which statement is true?

Accepted Answer

A) Differential costs are $5 per unit. 
B) Incremental costs are $2 per unit. 
C) Net relevant costs are $2 per unit. 
D) Incremental revenues are $3 per unit. 
A) Differential costs are $5 per unit. 
B) Incremental costs are $2 per unit. 
C) Net relevant costs are $2 per unit. 
D) Incremental revenues are $3 per unit.

Question 12

In an equipment replacement decision, the cost of the old equipment is a(n)

Accepted Answer

A) incremental cost. 
B) sunk cost. 
C) relevant cost. 
D) opportunity cost. 
A) incremental cost. 
B) sunk cost. 
C) relevant cost. 
D) opportunity cost.

Question 13

It costs Lannon Fields $28 of variable costs and $12 of allocated fixed costs to produce an industrial trash can that sells for $60. A buyer in Mexico offers to purchase 3,000 units at $36 each. Lannon Fields has excess capacity and can handle the additional production. What effect will acceptance of the offer have on net income?

Accepted Answer

A) Decrease $12,000 
B) Increase $12,000 
C) Increase $108,000 
D) Increase $24,000 
A) Decrease $12,000 
B) Increase $12,000 
C) Increase $108,000 
D) Increase $24,000

Question 14

Canosta, Inc. determined that it must expand its capacity to accept a special order. Which situation is likely?

Accepted Answer

A) Unit variable costs will increase. 
B) Fixed costs will not be relevant. 
C) Both variable and fixed costs will be relevant. 
D) The company should accept the order. 
A) Unit variable costs will increase. 
B) Fixed costs will not be relevant. 
C) Both variable and fixed costs will be relevant. 
D) The company should accept the order.

Question 15

If a company has excess capacity and present markets will not be affected, it would be profitable to accept an order at a special unit price even though the price is less than the unit variable cost to manufacture the item.

Accepted Answer

A) True 
 B)False

Question 16

A company decided to replace an old machine with a new machine. Which of the following is considered a relevant cost?

Accepted Answer

A) The book value of the old equipment 
B) Depreciation expense of the old equipment 
C) The loss on disposal of the old equipment 
D) The current disposal price of the old equipment 
A) The book value of the old equipment 
B) Depreciation expense of the old equipment 
C) The loss on disposal of the old equipment 
D) The current disposal price of the old equipment

Question 17

Which of the following is relevant information in a decision whether old equipment presently being used should be replaced by new equipment?

Accepted Answer

A) The cost of the old equipment 
B) The salvage value of the old equipment 
C) The book value of the old equipment 
D) The accumulated depreciation of the old equipment 
A) The cost of the old equipment 
B) The salvage value of the old equipment 
C) The book value of the old equipment 
D) The accumulated depreciation of the old equipment

Question 18

The cash disposal value of old equipment is considered to be a (an)

Accepted Answer

A) irrelevant cost. 
B) avoidable cost. 
C) sunk cost. 
D) relevant cost. 
A) irrelevant cost. 
B) avoidable cost. 
C) sunk cost. 
D) relevant cost.

Question 19

Argus Company anticipates that other sales will be affected by the acceptance of a special order. What should the company do?

Accepted Answer

A) Reject the order. 
B) Consider the opportunity cost of lost sales in the incremental analysis. 
C) Accept the order. 
D) Accept the order if the plant is below capacity. 
A) Reject the order. 
B) Consider the opportunity cost of lost sales in the incremental analysis. 
C) Accept the order. 
D) Accept the order if the plant is below capacity.

Question 20

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, it could use the production capacity to produce another product that would generate additional income of $3,600. The increase (decrease) in net income from accepting the offer would be

Accepted Answer

A) $150. 
B) $7,350. 
C) $(150). 
D) $(3,600). 
A) $150. 
B) $7,350. 
C) $(150). 
D) $(3,600).

Which decision will involve no incremental revenues?

In making decisions, management ordinarily considers both financial and nonfinancial information.

In incremental analysis,

A factory is operating at less than 100% capacity. Potential additional business will not use up the remainder of the plant capacity. Given the following list of costs, which one should be ignored in a decision to produce additional units of product?

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: -The additional profit that would result from processing rough lumber further is

The cost to produce Part A was $20 per unit in 2016. During 2017, it has increased to $23 per unit. In 2017, Supplier Company has offered to supply Part A for $18 per unit. For the make-or-buy decision,

Which of the following is not a true statement?

An opportunity cost

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

During 2016, it cost Westa, Inc. $18 per unit to produce part T5. During 2017, it has increased to $21 per unit. In 2017, Southside Company has offered to provide Part T5 for $16 per unit to Westa. As it pertains to the make-or-buy decision, which statement is true?

In an equipment replacement decision, the cost of the old equipment is a(n)

Canosta, Inc. determined that it must expand its capacity to accept a special order. Which situation is likely?

If a company has excess capacity and present markets will not be affected, it would be profitable to accept an order at a special unit price even though the price is less than the unit variable cost to manufacture the item.

A company decided to replace an old machine with a new machine. Which of the following is considered a relevant cost?

Which of the following is relevant information in a decision whether old equipment presently being used should be replaced by new equipment?

The cash disposal value of old equipment is considered to be a (an)

Argus Company anticipates that other sales will be affected by the acceptance of a special order. What should the company do?

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 decision will involve no incremental revenues?

In making decisions, management ordinarily considers both financial and nonfinancial information.

In incremental analysis,

A factory is operating at less than 100% capacity. Potential additional business will not use up the remainder of the plant capacity. Given the following list of costs, which one should be ignored in a decision to produce additional units of product?

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: -The additional profit that would result from processing rough lumber further is

The cost to produce Part A was $20 per unit in 2016. During 2017, it has increased to $23 per unit. In 2017, Supplier Company has offered to supply Part A for $18 per unit. For the make-or-buy decision,

Which of the following is not a true statement?

An opportunity cost

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

During 2016, it cost Westa, Inc. $18 per unit to produce part T5. During 2017, it has increased to $21 per unit. In 2017, Southside Company has offered to provide Part T5 for $16 per unit to Westa. As it pertains to the make-or-buy decision, which statement is true?

In an equipment replacement decision, the cost of the old equipment is a(n)

Canosta, Inc. determined that it must expand its capacity to accept a special order. Which situation is likely?

If a company has excess capacity and present markets will not be affected, it would be profitable to accept an order at a special unit price even though the price is less than the unit variable cost to manufacture the item.

A company decided to replace an old machine with a new machine. Which of the following is considered a relevant cost?

Which of the following is relevant information in a decision whether old equipment presently being used should be replaced by new equipment?

The cash disposal value of old equipment is considered to be a (an)

Argus Company anticipates that other sales will be affected by the acceptance of a special order. What should the company do?

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