incremental analysis

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

• 1,2,3

• 3,2,1

• 2,1,3

• 2,3,1

A major accounting contribution to the managerial decision-making process in evaluating alternative courses of action is to

• assign responsibility for the decision

• provide relevant revenue and cost data about each course of action

• determine the amount of money that should be spent on a project

• decide which actions that management should consider

Alvarez Company is considering the following alternatives:

                                    Alternative A                Alternative B

Revenues                  $50,000         $60,000

Variable costs              30,000           30,000

Fixed costs      10,000 16,000

What is the incremental profit?

• $10,000

• $0

• $6,000

• $4,000

Nonfinancial information that management might evaluate in decision-making would not include

• employee turnover

• contribution margin

• the environment

• the corporate profile in the community

Which of the following is not a true statement?

• Incremental analysis might also be referred to as differential analysis

• Incremental analysis is the same as CVP analysis

• Incremental analysis is useful in making decisions

• Incremental analysis focuses on decisions that involve a choice among alternative courses of action

It costs Garner Company $12 of variable and $5 of fixed costs to produce one scale which normally sells for $35. A foreign wholesaler offers to purchase 3,000 scales at $15 each. Garner would incur special shipping costs of $1 per scale if the order were accepted. Garner has sufficient unused capacity to produce the 3,000 scales. If the special order is accepted, what will be the effect on net income?

• $6,000 increase

• $6,000 decrease

• $9,000 decrease

• $9,000 decrease

If a plant is operating at full capacity and receives a one-time opportunity to accept an order at a special price that is below its usual selling price, then

• only variable costs are relevant

• fixed costs are not relevant

• the order will likely be accepted

• the order will likely be rejected

In a make-or-buy decision, which costs are considered relevant?

• Unavoidable variable costs, incremental fixed costs, and sunk costs

• Incremental variable costs, unavoidable fixed costs, and opportunity costs

• Incremental variable costs, incremental fixed costs, and opportunity costs

• Incremental variable costs, incremental fixed costs, and sunk costs

Opportunity cost is usually

• a standard cost.

• a potential benefit.

• a sunk cost.

• included as part of cost of goods sold.

Moreland Clean Company spent $8,000 to produce Product 89, which can be sold as is for $10,000, or processed further incurring additional costs of $3,000 and then be sold for $14,000. Which amounts are relevant to the decision about Product 89?

• $8,000, $10,000, and $14,000

• $8,000, $3,000, and $14,000

• $10,000, $3,000, and $14,000

• $8,000, $10,000, $3,000 and $14,000