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Week 6 – Chapter 7 Pre- Quiz Study 15 QUESTIONS
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Question 1 |
Which of the following stages of the management decision-making process is improperly sequenced?
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Evaluate possible courses of action → Make decision. |
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Assign responsibility for the decision → Identify the problem. |
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Identify the problem → Determine possible courses of action. |
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Assign responsibility for decision → Determine possible courses of action. |
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Question 2 |
A segment has the following data:
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Sales |
$700,000 |
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Variable expenses |
300,000 |
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Fixed expenses |
550,000 |
What will be the incremental effect on net income if this segment is eliminated, assuming the fixed expenses will be allocated to profitable segments?
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$400,000 decrease |
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cannot be determined from the data provided |
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$5,000 decrease |
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$400,000 increase |
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Question 3 |
New Age Makeup produces face cream. Each bottle of face cream costs $10 to produce and can be sold for $13. The bottles can be sold as is, or processed further into sunscreen at a cost of $14 each. New Age Makeup could sell the sunscreen bottles for $23 each.
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Face cream must be processed further because its profit is $9 each. |
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Face cream must not be processed further because costs increase more than revenue. |
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Face cream must not be processed further because it decreases profit by $1 each. |
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Face cream must be processed further because it increases profit by $3 each. |
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Question 4 |
A company decided to replace an old machine with a new machine. Which of the following is considered a relevant cost?
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The book value of the old equipment |
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Depreciation expense of the old equipment |
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The current disposal price of the old equipment |
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The loss on disposal of the old equipment |
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Question 5 |
Incremental analysis would not be appropriate for:
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analysis of manufacturing variances. |
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elimination of an unprofitable segment. |
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an allocation of limited resource decision. |
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a make or buy decision. |
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Question 6 |
Sandusky Inc. has the following costs when producing 100,000 units:
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Variable costs |
$600,000 |
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Fixed costs |
900,000 |
An outside supplier is interested in producing the item for Sandusky. If the item is produced outside, Sandusky could use the released production facilities to make another item that would generate $150,000 of net income. At what unit price would Sandusky accept the outside supplier’s offer if Sandusky wanted to increase net income by $120,000?
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$5.70 |
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$6.30 |
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$8.70 |
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$7.50 |
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Question 7 |
Book value of old equipment is considered to be a
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cost that can be changed by a present or future decision. |
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sunk cost. |
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relevant cost. |
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semi-relevant cost. |
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Question 8 |
Paul Bunyon Lumber Co. produces several products that can be sold at the split-off point or processed further and then sold. The following results are from a recent period:
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Sales Value |
Additional |
Sales Value After |
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Product |
at Split-off |
Variable Costs |
Further Processing |
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Green lumber |
$159,600 |
$24,000 |
$178,000 |
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Rough lumber |
124,000 |
28,200 |
173,600 |
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Sawdust |
102,000 |
19,600 |
130,000 |
What is the increase in profit if the appropriate products are processed further?
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$29,800 |
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$24,200 |
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$96,000 |
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$255,800 |
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Question 9 |
All of the following are relevant to the sell or process further decision except:
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revenues at the split-off point. |
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costs incurred before the split-off point. |
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revenues beyond the split-off point. |
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costs incurred beyond the split-off point. |
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Question 10 |
A company is considering replacing old equipment with new equipment. Which of the following is a relevant cost for incremental analysis?
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Cost of the new equipment |
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Annual depreciation charge on the old equipment |
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Book value of the old equipment |
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Estimated annual depreciation of the new equipment |
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Question 11 |
A company is contemplating the acceptance of a special order. The order would not affect regular sales and could be filled without exceeding plant capacity. However, a new stamping machine would have to be purchased in order to stamp the customer’s name on the product. Which of the following is likely?
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Only variable costs will be relevant. |
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Both variable and fixed costs will be relevant. |
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Only fixed costs will be relevant. |
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Total variable costs will be irrelevant. |
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Question 12 |
A company is deciding whether or not to replace some old equipment with new equipment. Which of the following is not considered in the incremental analysis?
Book value of the old equipment
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Annual operating cost of the new equipment |
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Annual operating cost of the old equipment |
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Net cost of the new equipment |
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Question 13 |
In the analysis concerning the acceptance or rejection of a special order, which items are relevant?
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Variable costs only |
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Fixed costs only |
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Variable costs and fixed costs |
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Variable costs and unavoidable costs |
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Question 14 |
In incremental analysis:
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only costs are analyzed. |
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both costs and revenues may be analyzed. |
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only revenues are analyzed. |
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both costs and revenues that stay the same between alternate courses of action will be analyzed. |
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Question 15 |
If a company anticipates that other sales will be affected by the acceptance of a special order, then:
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lost sales should not be considered in the incremental analysis. |
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lost sales should be considered in the incremental analysis. |
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the order should not be accepted. |
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the order will only be accepted if the plant is below capacity. |
