CAPE Accounting -Unit 2 Cost Classification/Incremental Analysis

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

• (1), (2), (3).

• (3), (2), (1).

• (2), (1), (3).

• (2), (3), (1).

Incremental analysis is the process of identifying the financial data that:

• do not change under alternative courses of action.

• change under alternative courses of action.

• are mixed under alternative courses of action.

• No correct answer is given.

In making business decisions, management ordinarily considers:

• quantitative factors but not qualitative factors.

• financial information only.

• both financial and nonfinancial information.

• relevant costs, opportunity cost, and sunk costs.

A company is considering the following alternatives:

Which of the following are relevant when choosing between these alternatives?

• Revenues, variable costs, and fixed costs.

• Variable costs and fixed costs.

• Variable costs only.

• Fixed costs only.

It costs a company $14 of variable costs and $6 of fixed costs to produce product Z200 that sells for $30. A foreign buyer offers to purchase 3,000 units at $18 each. If the special offer is accepted and produced with unused capacity, net income will:

• decrease $6,000.

• increase $6,000.

• increase $12,000.

• increase $9,000.

It costs a company $14 of variable costs and $6 of fixed costs to produce product Z200. Product Z200 sells for $30. A buyer offers to purchase 3,000 units at $18 each. The seller will incur special shipping costs of $5 per unit. If the special offer is accepted and produced with unused capacity, net income will:

• increase $3,000.

• increase $12,000.

• decrease $12,000.

• decrease $3,000.

Jobart Company is currently operating at full capacity. It is considering buying a part from an outside supplier rather than making it in-house. If Jobart purchases the part, it can use the released productive capacity to generate additional income of $30,000 from producing a different product. When conducting incremental analysis in this make-or-buy decision, the company should:

• ignore the $30,000.

• add $30,000 to other costs in the 'Make' column.

• add $30,000 to other costs in the 'Buy' column.

• subtract $30,000 from the other costs in the 'Make' column.

In a make-or-buy decision, relevant costs are:

• manufacturing costs that will be saved.

• the purchase price of the units.

• the opportunity cost.

• All of the above.

Derek is performing incremental analysis in a make-or-buy decision for Item X. If Derek buys Item X, he can use its released productive capacity to produce Item Z. Derek will sell Item Z for $12,000 and incur production costs of $8,000. Derek’s incremental analysis should include an opportunity cost of:

• $12,000.

• $8,000.

• $4,000.

• $0.

The decision rule in a sell-or-process-further decision is: process further as long as the incremental revenue from processing exceeds:

• incremental processing costs.

• variable processing costs.

• fixed processing costs.

• No correct answer is given.