ACC 560 Week 6 Quiz 7, Chapter 7 – Incremental Analysis True-False Statements

| March 13, 2016

1. 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
32. Which of the following stages of the management decision-making process is improperly sequenced?
33. Internal reports that review the actual impact of decisions are prepared by
34. Which of the following steps in the management decision-making process does not generally involve the managerial accountant?
35. Which is the first step in the management decision-making process?
36. Which of the following will always be a relevant cost?
37. Costs that will differ between alternatives and influence the outcome of a decision are
38. A revenue that differs between alternatives and makes a difference in decision-making is called a(n)
39. Alvarez Company is considering the following alternatives:
40. Which of the following is an irrelevant cost?
41. Relevant costs are always
42. The process of evaluating financial data that change under alternative courses of action is called
43. Nonfinancial information that management might evaluate in making a decision would not include
44. Incremental analysis is synonymous with
45. In incremental analysis,
46. Incremental analysis is most useful
47. The source of data to serve as inputs in incremental analysis is generated by
48. Which of the following is not a true statement?

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