ACCT 3 Chapter 20

In which steps of the management decision-making process does accounting make its primary contribution?
A. Making a decision and reviewing the results of the decision.
B. Identifying the problem and evaluating possible courses of action.
C. Evaluating possible courses of action and reviewing the results of the decision.
D. Identifying the problem and making a decision.

C. Evaluating possible courses of action and reviewing the results of the decision.

Accounting’s contribution to the decision-making process occurs in all of the following steps except to:
A. identify the problem and assign responsibility.
B. determine possible courses of action.
C. make a decision.
D. review results of the decision.

A. identify the problem and assign responsibility.

Three of the steps in management’s decision process are:
(1) review results of decision,
(2) determine and evaluate possible courses of action, and
(3) make the decision. The steps are prepared in the following order.
A. (1), (2), (3).
B. (3), (2), (1).
C. (2), (1), (3).
D. (2), (3), (1).

D. (2), (3), (1).

The process used to identify the financial data that changes under alternative courses of action is called incremental analysis.
A. True
B. False

A. True

Incremental analysis is the process of identifying the financial data that:
A. do not change under alternative courses of action.
B. change under alternative courses of action.
C. are mixed under alternative courses of action.
D. None of these answer choices are correct.

B. change under alternative courses of action.

All of the following types of decisions involve incremental analysis except:
A. make or buy.
B. allocate limited resources.
C. sell or process further.
D. All of these answer choices are correct.

D. All of these answer choices are correct.

In incremental analysis, the only costs to be considered are:
A. variable costs.
B. sunk costs.
C. manufacturing costs.
D. relevant costs.

D. relevant costs.

When deciding to accept an order at a special price, variable manufacturing overhead costs are not relevant.
A. True
B. False

B. False

Relevant costs in accepting an order at a special price include all of the following except:
A. direct materials.
B. direct labor.
C. fixed manufacturing overhead.
D. variable manufacturing overhead.

C. fixed manufacturing overhead.

When the units required to fill a special order can be produced within existing plant capacity, which of the following will not increase?
A. Variable costs.
B. Fixed costs.
C. Revenues.
D. Contribution margin.

B. Fixed costs.

Which one of the following is an important assumption that is made when considering the decision to accept an order at a special price?
A. There are no mixed costs.
B. The firm is not currently operating at full capacity.
C. Overall economic growth will continue at historical rates.
D. The firm will continue to receive similar orders in the future.

B. The firm is not currently operating at full capacity.

Opportunity cost is a cost that cannot be changed by any present or future decision.
A. True
B. False

B. False

In a make-or-buy decision, relevant costs are:
A. manufacturing costs that will be saved.
B. the purchase price of the units.
C. opportunity costs.
D. All of these answer choices are correct.

D. All of these answer choices are correct.

Another name for the option to buy a component from a supplier is
A. vertical integration.
B. supply chain management.
C. outsourcing.
D. insourcing.

C. outsourcing.

Which of the following will not affect a make-or-buy decision?
A. Incremental revenue.
B. Incremental variable costs.
C. Differential fixed costs.
D. Opportunity costs.

A. Incremental revenue.

In a make or buy decision, opportunity costs are:
A. added to the make total cost.
B. deducted from the make total cost.
C. added to the buy total cost.
D. ignored.

A. added to the make total cost.

Incremental costs are the costs that differ between the alternatives being considered.
A. True
B. False

A. True

The basic rule in a sell or process further decision is to process further as long as the incremental revenue is:
A. equal to the incremental processing costs.
B. less than the incremental processing costs.
C. more than the incremental processing costs.
D. more than the manufacturing cost per unit.

C. more than the incremental processing costs.

In a sell or process further decision, joint costs are:
A. incremental costs.
B. opportunity costs.
C. sunk costs.
D. relevant costs.

C. sunk costs

Sunk costs are not relevant in incremental analysis.
A. True
B. False

A. True

When a company is deciding to retain or replace equipment, trade-in value of the existing equipment is irrelevant.
A. True
B. False

B. False

The cash disposal value of existing equipment is considered a sunk cost and is therefore irrelevant in a decision to retain or replace the equipment.
A. True
B. False

B. False

The decision rule in a sell-or-process-further decision is: process further as long as the incremental revenue from processing exceeds:
A. incremental processing costs.
B. variable processing costs.
C. fixed processing costs.
D. None of these answer choices are correct.

A. incremental processing costs.

Costs incurred prior to the split-off are
A. fixed costs.
B. joint costs.
C. opportunity costs.
D. relevant costs.

B. joint costs.

Bergeron Company is considering replacing equipment with a cost of $30,000, accumulated depreciation of $20,000, and a 2 year remaining useful life. The new equipment has a cost of $42,000 and a useful life of 6 years. The seller has offered a trade-in allowance of $7,500. The new equipment is much more efficient. Bergeron projects cost savings of $10,000 per year if the new equipment is purchased. Which of the following is not relevant in deciding whether to retain or replace equipment?
A. Cost savings.
B. Trade-in allowance of existing equipment.
C. Cost of new equipment.
D. Book value of existing equipment.

D. Book value of existing equipment.

In a retain or replace equipment decision, all of the following are considered except the:
A. salvage value of the old asset.
B. book value of the old asset.
C. cost of the new asset.
D. decrease in variable manufacturing costs.

B. book value of the old asset.

If a company decides to eliminate an unprofitable segment, its net income will always increase.
A. True
B. False

B. False

The key to making the best decision concerning eliminating an unprofitable segment is to focus on relevant costs.
A. True
B. False

A. True

If a company decides to eliminate an unprofitable segment, its net income will increase if the segment’s contribution margin is less than the fixed costs which are eliminated.
A. True
B. False

A. True

Vegas Company is considering eliminating an unprofitable segment. The segment’s fixed costs are avoidable and are less than its contribution margin. Which of the following is a true consequence of eliminating this unprofitable segment?
A. Overall net income will decrease.
B. Overall fixed costs will increase.
C. Overall contribution margin will increase.
D. Overall variable costs will increase.

A. Overall net income will decrease.

When a firm operates in a multiple-product environment, joint costs should be treated as ________ and ignored in the decision to sell or process further.
A. opportunity costs
B. variable costs
C. incremental costs
D. sunk costs

D. sunk costs

If an unprofitable segment is eliminated:
A. net income will always increase.
B. variable expenses of the eliminated segment will have to be absorbed by other segments.
C. fixed expenses allocated to the eliminated segment will have to be absorbed by other segments.
D. net income will always decrease.

C. fixed expenses allocated to the eliminated segment will have to be absorbed by other segments.

Qualitative factors should be ignored in incremental analysis decisions.
A. True
B. False

B. False

Which of the following would be considered a qualitative factor in a make-or-buy decision?
A. Direct materials cost
B. Incremental fixed costs
C. Opportunity cost
D. Cost of lost morale

D. Cost of lost morale