ACC 560 WK 6 Quiz 7
TRUE-FALSE STATEMENTS
An important step in management’s decision-making process is to determine and evaluate possible courses of action.
2. In making decisions, management ordinarily considers both financial and nonfinancial information.
3. In incremental analysis, total variable costs will always change under alternative courses of action, and total fixed costs will always remain constant.
4. Accountants are mainly involved in developing nonfinancial information for management’s consideration in choosing among alternatives.
5. Decision-making involves choosing among alternative courses of action.
6. Financial data are developed for a course of action under an incremental basis and then it is compared to data developed under a differential basis before a decision is made.
7. In incremental analysis, total fixed costs will always remain constant under alternative courses of action.
8. A special one-time order should never be accepted if the unit sales price is less than the unit variable cost.
9. 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.
10. A company should never accept an order for its product at less than its regular sales price.
11. 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.
12. An incremental make-or-buy decision depends solely on which alternative is the lowest cost alternative.
13. A decision whether to continue to make a product or buy it externally depends on the external price and the amount of variable and fixed costs that can be eliminated assuming no alternative uses of resources.
14. An opportunity cost is the potential benefit obtained by using resources in an alternative course of action.
15. If an incremental make or buy analysis indicates that it is cheaper to buy rather than make an item, management should always make the decision to choose the lowest cost alternative.
16. In a sell or process further decision, management should process further as long as the incremental revenues from additional processing exceed the incremental variable costs.
17. It is always better to sell now rather than process further because of the time value of money.
18. The basic decision rule in a sell or process further decision is: process further if the incremental revenue from processing exceeds the incremental processing costs.
19. In a decision concerning replacing old equipment with new equipment, the book value of the old equipment can be considered an opportunity cost.
20. In a decision concerning replacing old equipment with new equipment, the book value of the old equipment can be considered a sunk cost.
21. In a decision to retain or replace old equipment, the salvage value of the old equipment is relevant in incremental analysis.
22. It is better not to replace old equipment if it is not fully depreciated.
23. From a quantitative standpoint, a segment should be eliminated if its contribution margin is less than the fixed costs that can be eliminated.
24. The elimination of an unprofitable product line may adversely affect the remaining product lines.
25. Many of the decisions involving incremental analysis have qualitative features, but since they are not easily measured they should be ignored.
26. Accounting contributes to management’s decision-making process through internal reports that review the actual impact of the decision.
27. The process used to identify the financial data that change under alternative courses of action is called allocation of limited resources.
28. If a company is operating at full capacity, the incremental costs of a special order will likely include fixed manufacturing costs.
29. The basic decision rule in a sell or process further decision is: sell without further processing as long as the incremental revenue from processing exceeds the incremental processing costs.
30. In deciding on the future status of an unprofitable segment, management should recognize that net income could decrease by eliminating the unprofitable segment.
MULTIPLE CHOICE QUESTIONS
31. A major accounting contribution to the managerial decision-making process in evaluating possible courses of action is to
a. assign responsibility for the decision.
b. provide relevant revenue and cost data about each course of action.
c. determine the amount of money that should be spent on a project.
d. decide which actions that management should consider.
32. Which of the following stages of the management decision-making process is improperly sequenced?
a. Evaluate possible courses of action à Make decision.
b. Assign responsibility for the decision à Identify the problem.
c. Identify the problem à Determine possible courses of action.
d. Assign responsibility for decision à Determine possible courses of action.
33. Internal reports that review the actual impact of decisions are prepared by
a. department heads.
b. the controller.
c. management accountants.
d. factory workers.
34. Which of the following steps in the management decision-making process does not generally involve the managerial accountant?
a. Determine possible courses of action
b. Make the appropriate decision based on relevant data
c. Prepare internal reports that review the impact of decisions
d. None of these
35. Which is the first step in the management decision-making process?
a. Determine and evaluate possible courses of action.
b. Review results of the decision.
c. Identify the problem and assign responsibility.
d. Make a decision.
36. Which of the following will always be a relevant cost?
a. Sunk cost
b. Fixed cost
c. Variable cost
d. Opportunitycost
37. Costs that will differ between alternatives and influence the outcome of a decision are
a. sunk costs.
b. unavoidable costs.
c. relevant costs.
d. product costs.
38. A revenue that differs between alternatives and makes a difference in decision-making is called a(n)
a. sales revenue.
b. incremental revenue.
c. unavoidable revenue.
d. irrelevant revenue.
39. Alvarez Company is considering the following alternatives:
Alternative A Alternative B
Revenues $50,000 $60,000
Variable costs 30,000 30,000
Fixed costs 10,000 16,000
What is the incremental profit?
a. $10,000
b. $0
c. $6,000
d. $4,000
40. Which of the following is an irrelevant cost?
a. An avoidable cost
b. An incremental cost
c. A sunk cost
d. An opportunity cost
41. Relevant costs are always
a. fixed costs.
b. variable costs.
c. avoidable costs.
d. sunk costs.
42. The process of evaluating financial data that change under alternative courses of action is called
a. double entry analysis.
b. contribution margin analysis.
c. incremental analysis.
d. cost-benefit analysis.
43. Nonfinancial information that management might evaluate in making a decision would not include
a. employee turnover.
b. contribution margin.
c. the environment.
d. the corporate profile in the community.
44. Incremental analysis is synonymous with
a. difficult analysis.
b. differential analysis.
c. gross profit analysis.
d. derivative analysis.
45. In incremental analysis,
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.
46. Incremental analysis is most useful
a. in developing relevant information for management decisions.
b. in choosing between capital budgeting methods.
c. in evaluating the master budget.
d. as a replacement technique for variance analysis.
47. The source of data to serve as inputs in incremental analysis is generated by
a. market analysts.
b. engineers.
c. accountants.
d. all of these.
48. Which of the following is not a true statement?
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.
49. Incremental analysis would not be appropriate for
a. a make or buy decision.
b. an allocation of limited resource decision.
c. elimination of an unprofitable segment.
d. analysis of manufacturing variances.
50. Incremental analysis would be appropriate for
a. acceptance of an order at a special price.
b. a retain or replace equipment decision.
c. a sell or process further decision.
d. all of these.
51. Which of the following is a true statement about cost behaviors in incremental analysis?
1. Fixed costs will not change between alternatives.
2. Fixed costs may change between alternatives.
3. Variable costs will always change between alternatives.
a. 1
b. 2
c. 3
d. 2 and 3
52. 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. Variable costs
b. Revenues
c. Fixed costs
d. Variable costs and fixed costs
53. 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?
a. $6,000 increase
b. $6,000 decrease
c. $9,000 decrease
d. $45,000 increase
54. 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:
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.
55. In incremental analysis,
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.
56. 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
a. only variable costs are relevant.
b. fixed costs are not relevant.
c. the order will likely be accepted.
d. the order will likely be rejected.
57. Miley, Inc. has excess capacity. Under what situations should the company accept a special order for less than the current selling price?
a. Never
b. When additional fixed costs must be incurred to accommodate the order
c. When the company thinks it can use the cheaper materials without the customer’s knowledge
d. When incremental revenues exceed incremental costs
58. If a company must expand capacity to accept a special order, it is likely that there will be
a. an increase in unit variable costs.
b. no increase in fixed costs.
c. an increase in variable and fixed costs per unit.
d. an increase in fixed costs.
59. Which of the following is true if a company can accept a special order without affecting its regular sales and is within plant capacity?
a. Net income will not be affected.
b. Net income will increase if the special sales price per unit exceeds the unit variable costs.
c. Net income will decrease.
d. Additional fixed costs will probably be incurred.
60. If a company anticipates that other sales will be affected by the acceptance of a special order, then
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.
61. Martin Company incurred the following costs for 70,000 units:
Variable costs $420,000
Fixed costs 392,000
Martin has received a special order from a foreign company for 3,000 units. There is sufficient capacity to fill the order without jeopardizing regular sales. Filling the order will require spending an additional $6,300 for shipping.
If Martin wants to break even on the order, what should the unit sales price be?
a. $6.00
b. $8.10
c. $11.60
d. $13.70
62. Martin Company incurred the following costs for 70,000 units:
Variable costs $420,000
Fixed costs 392,000
Martin has received a special order from a foreign company for 3,000 units. There is sufficient capacity to fill the order without jeopardizing regular sales. Filling the order will require spending an additional $6,300 for shipping.
If Martin wants to earn $6,000 on the order, what should the unit price be?
a. $9.70
b. $15.70
c. $8.00
d. $10.10
63. Canosta, Inc. determined that it must expand its capacity to accept a special order. Which situation is likely?
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.
64. A company is within plant capacity. It is contemplating whether a special order should be accepted. The order will not impact regular sales. If the company accepts the special order, what will occur?
a. Incremental costs will not be affected.
b. Net income will increase if the special sales price per unit exceeds the unit variable costs.
c. There are no incremental revenues.
d. Both fixed and variable costs will increase.
65. Argus Company anticipates that other sales will be affected by the acceptance of a special order. What should the company do?
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.
More Questions are Included