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ACCT 472.21 Ch 21

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
the order will likely be rejected.
The process of evaluating financial data that change under alternative courses of action is called
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?
Fixed factory overhead
Which of the following is not a true statement?
Incremental analysis is the same as CVP analysis.
Which of the following is not involved in the sell or process further decision?
Fixed costs
Which of the following would generally not affect a make-or-buy decision?
Selling expenses
Canosta, Inc. determined that it must expand its capacity to accept a special order. Which situation is likely?
Both variable and fixed costs will be relevant.
Each of the following is a disadvantage of buying rather than making a component of a company’s product except that
profitable product lines may be dropped.
Book value of old equipment is considered to be a
sunk cost.
Which of the following is true if a company can accept a special order without affecting its regular sales and is within plant capacity?
Net income will increase if the special sales price per unit exceeds the unit variable costs.
Miley, Inc. has excess capacity. Under what situations should the company accept a special order for less than the current selling price?
When incremental revenues exceed incremental costs
Incremental analysis would not be appropriate for
analysis of manufacturing variances.
In an equipment replacement decision, the cost of the old equipment is a(n)
sunk cost.
In a make-or-buy decision, opportunity costs are
added to the make total cost.
In incremental analysis,
all costs are relevant if they change between alternatives.
Incremental analysis would be appropriate for
all of these
The decision rule on whether to sell or process further
is process further if incremental revenue from such processing exceeds the incremental processing costs.
Which of the following stages of the management decision-making process is improperly sequenced?
Assign responsibility for the decision à Identify the problem.
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?
Accumulated depreciation on the old equipment
When will the elimination of a product line have no effect on the company’s overall profit?
When the avoidable fixed costs equal the product line’s contribution margin
Which one of the following does not affect a make-or-buy decision?
Incremental revenue
Which of the following will always be a relevant cost?
Opportunity cost
A major accounting contribution to the managerial decision-making process in evaluating possible courses of action is to
provide relevant revenue and cost data about each course of action.
Opportunity cost must be considered in decisions involving
resources that have alternative uses.
In a make-or-buy decision, which costs can be considered relevant?
Incremental variable costs, incremental fixed costs, and sunk costs
Which is the first step in the management decision-making process?
Identify the problem and assign responsibility.
A company is considering replacing old equipment with new equipment. Which of the following is a relevant cost for incremental analysis?
Cost of the new equipment
If an unprofitable segment is eliminated
variable expenses of the eliminated segment will be eliminated.
Which of the following is not relevant information in a decision whether old equipment presently being used should be replaced by new equipment?
The book value of the old equipment
Which of the following is relevant information in a decision whether old equipment presently being used should be replaced by new equipment?
The salvage value of the old equipment
Argus Company anticipates that other sales will be affected by the acceptance of a special order. What should the company do?
Consider the opportunity cost of lost sales in the incremental analysis.
Which decision will involve no incremental revenues?
Make or buy decision
Costs that will differ between alternatives and influence the outcome of a decision are
relevant costs.
What role does a trade-in allowance on old equipment play in a decision to retain or replace equipment?
It is relevant since it reduces the cost of the new equipment.
An opportunity cost
is the potential benefit that may be obtained by following an alternative course of action.
Incremental analysis is most useful
in developing relevant information for management decisions.
The focus of a sell or process further decision is
both incremental revenue and incremental cost.
What will most likely occur if a company eliminates an unprofitable segment when a portion of fixed costs are unavoidable?
Net income will decrease.
Internal reports that review the actual impact of decisions are prepared by
management accountants.
Which statement is true concerning the decision rule on whether to make or buy?
The company should buy if the cost of buying is less than the cost of producing.
Which of the following is not a qualitative factor to be considered in a make-or-buy decision?
Incremental benefit from buying outside
When will the elimination of a product line have no effect on the company’s overall profit?
When the avoidable fixed costs equal the product line’s contribution margin
The cash disposal value of old equipment is considered to be a (an)
relevant cost.
The source of data to serve as inputs in incremental analysis is generated by
all of these.
What of the following would not be relevant in a make-or-buy decision?
Unavoidable variable costs
In incremental analysis,
both costs and revenues may be analyzed.

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