Incremental Analysis And Capital Budgeting

38. 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.


39. Which of the following stages of the management decision-making process is improperly


a. Evaluate possible courses of action Æ Make decision.

b. Assign responsibility for the decision Æ Identify the problem.

c. Identify the problem Æ Determine possible courses of action.

d. Assign responsibility for decision Æ Determine possible courses of action.


40. Internal reports that review the actual impact of decisions are prepared by

a. department heads.

b. the controller.

c. management accountants.

d. factory workers.


41. 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


The process of evaluating financial data that change under alternative courses of action is


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


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 the net present value method and the internal rate of return


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.


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.


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 Harmon 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 2,000 scales at

$15 each. Harmon would incur special shipping costs of $1 per scale if the order were

accepted. Harmon has sufficient unused capacity to produce the 2,000 scales. If the

special order is accepted, what will be the effect on net income?

a. $4,000 increase

b. $4,000 decrease

c. $6,000 decrease

d. $30,000 increase


Adler Company manufactures a product with a unit variable cost of $50 and a unit sales

price of $88. Fixed manufacturing costs were $240,000 when 10,000 units were produced

and sold. The company has a one-time opportunity to sell an additional 1,000 units at $70

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 $4,000.

b. Income would increase by $4,000.

c. Income would increase by $70,000.

d. Income would increase by $20,000.


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