Question 1

Costs that are relevant for future decision making in a manufacturing environment include
A)only variable manufacturing costs.
B)only fixed manufacturing costs.
C)all manufacturing costs.
D)only future costs that impact on the alternatives presented.

Accepted Answer

Only future costs that impact the alternatives presented are relevant for decision making in a manufacturing environment. Fixed and variable costs that are not affected by the decision being made are not relevant. All costs, including historical costs, may provide useful information but are not relevant for future decision making. Only the costs that are incremental to each alternative under consideration and will be affected by the decision being made should be considered.

Question 2

Which of the following statements about making decisions is correct?
A)Only relevant financial information should be considered.
B)All information should be considered in the final decision.
C)Management should consider both relevant financial and non-financial information.
D)Management accountants should provide the information, but they should not make recommendations.It is up to the managers to make decisions.

Accepted Answer

Management should consider both relevant financial and non-financial information in making decisions. Financial information provides important quantitative data, but non-financial information, such as opinions and market trends, can also be valuable in decision-making. This holistic approach ensures that decisions are well-rounded and take into account all necessary factors.

Question 3

What is a sunk cost?
A)A significant cost that has the potential to "sink" the organization.
B)A cost that has already occurred, but still must be considered in the decision process.
C)A cost that has already occurred and therefore is not relevant in the decision process.
D)A cost that cannot be changed.

Accepted Answer

A sunk cost refers to a cost that has already occurred and cannot be changed. It is not relevant in the decision-making process because it cannot be recovered or avoided. Therefore, option C is the correct choice.

Question 4

Which of the following statements about incremental analysis is true?
A)It cannot be used if more than two alternatives are available.
B)It considers only cost factors, not revenue.
C)Its focus is on the past activities.
D)It only considers factors that are different for each alternative, and only those factors that will occur in the future.

Accepted Answer

Incremental analysis only considers the factors that are different for each alternative and those that will occur in the future. It does not focus on past activities. Additionally, it can be used with more than two alternatives and considers both cost and revenue factors.

Question 5

Which one of the following is a true statement about incremental analysis?
A)It is another name for capital budgeting.
B)It is the same as CVP analysis.
C)It is used primarily for long-term planning.
D)It focuses on decisions that involve a choice among alternative courses of action.

Accepted Answer

Incremental analysis focuses on decisions that involve a choice among alternative courses of action. It is not the same as capital budgeting or CVP analysis and can be used for both short-term and long-term planning.

Question 6

What is the process of evaluating financial data that changes under alternative courses of action called?
A)incremental analysis
B)decision-making analysis
C)contribution margin analysis
D)cost-benefit analysis

Accepted Answer

Incremental analysis is the process of evaluating financial data that changes under alternative courses of action. It involves analyzing the expected revenues, costs, and profits of each alternative to determine which alternative will have the best financial outcome. Decision-making analysis, contribution margin analysis, and cost-benefit analysis are related concepts but are not synonymous with incremental analysis.

Question 7

For which of the following decisions is incremental analysis not appropriate?
A)elimination of an unprofitable segment
B)determining cost behaviour
C)a make-or-buy decision
D)an allocation of limited resource decision

Accepted Answer

Incremental analysis is not appropriate for determining cost behavior as it requires an understanding of the underlying cost structure and the relationships between cost and output levels. It is a broader analysis that requires a more comprehensive approach than just looking at incremental costs and revenues. The other options listed can all benefit from incremental analysis to help determine the best course of action.

Question 8

Decision making
A)involves reviewing the results of a decision once the decision has been made.
B)using incremental analysis focuses on the amounts which are the same among alternatives.
C)involves management considering only financial information because accounting is presented in a financial context.
D)always follows the same pattern, because decisions vary significantly in their scope, urgency, and importance.

Accepted Answer

Decision making involves reviewing the results of a decision once it has been made to assess its effectiveness and learn from the outcome. This is part of a feedback loop that helps improve future decision-making processes.

Question 9

Which of the following is a true statement about costs in incremental analysis?
A)Variable costs are always relevant.
B)Fixed costs are never relevant.
C)Fixed costs are always relevant.
D)Both variable and fixed costs can be relevant.

Accepted Answer

Both variable and fixed costs can be relevant in incremental analysis. Relevant costs are costs that will be affected by a specific decision, and both variable and fixed costs can be impacted by various decisions. Therefore, it is important to consider both types of costs when conducting incremental analysis.

Question 10

Specik, Inc.is considering the following alternatives: $\begin{array}{lll}
 &\underline{\text {Alternative1}}&
 \underline{\text {Alternative2}}\
\text { Revenues } & \$ 120,000 & \$ 120,000 \
\text { Variable costs } & 60,000 & 65,000 \
\text { Fixed costs } & 35,000 & 39,000
\end{array}$ 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

Accepted Answer

Variable costs and fixed costs are both relevant in choosing between alternatives because they both affect the overall cost structure of the company. Revenues are also important, but without considering the associated costs, it is difficult to determine the profitability of each alternative.

Question 11

Which steps do accountants mostly contribute to in the decision-making process?
A)Identifying the problem and then assigning responsibility.
B)Determining and evaluating possible courses of action and then reviewing the results of the decision.
C)Determining and evaluating possible courses of action, and then making a decision.
D)Making a decision and then reviewing the results of that decision.

Accepted Answer

Accountants contribute mostly to determining and evaluating possible courses of action and then reviewing the results of the decision. They provide financial analysis and data that can be used to evaluate the viability and potential outcomes of each option. They also help track and measure the success or failure of the decision after it has been made.

Question 12

Which statement is true about relevant costs in incremental analysis?
A)All costs are relevant if they change between alternatives.
B)Only fixed costs are relevant.
C)Only variable costs are relevant.
D)Relevant costs should be ignored.

Accepted Answer

Relevant costs in incremental analysis are costs that differ between the various alternatives being considered. It includes both variable and fixed costs. Therefore, option A is the true statement. Option B and C are incorrect because only considering fixed or variable costs can result in an incomplete analysis. Option D is also incorrect because relevant costs are the foundation of incremental analysis, and they should not be ignored.

Question 13

Which one of the following is an alternative name for incremental analysis?
A)managerial analysis
B)cost analysis
C)contribution margin analysis
D)differential analysis

Accepted Answer

Incremental analysis is also known as differential analysis, as it involves examining the differences between alternative options or scenarios. The other options listed may be components of incremental analysis, but they do not serve as alternative names for it.

Question 14

For which of the following is incremental analysis appropriate?
A)acceptance of a special order and a make-or-buy decision
B)a retain or replace equipment decision and CVP analysis
C)a sell or process further decision and allocation of indirect costs
D)elimination of an unprofitable segment and allocation of indirect costs

Accepted Answer

Incremental analysis involves comparing the additional revenues and costs associated with a specific decision and evaluating whether it will benefit the company. Acceptance of a special order and make-or-buy decisions both involve incremental analysis as they require a comparison of the incremental costs and revenues that will be generated by the decision. The other options involve different types of analysis, such as retention or replacement decisions requiring a capital budgeting approach, and sell or process further decisions requiring analysis of joint costs and relevant costing.

Question 15

Who prepares relevant revenue and cost data for the decision-making process?
A)department heads
B)the controller
C)management accountants
D)factory supervisors

Accepted Answer

Management accountants are responsible for preparing and analyzing financial information to provide relevant data for decision-making processes. Department heads and factory supervisors may have input into the decision-making process, but they are not typically responsible for preparing the financial data. The controller may oversee the management accountants, but they may not necessarily be the ones preparing the data themselves.

Question 16

Which of the following statements is true?
A)All variable costs are relevant costs.
B)Only those variable costs that differ between alternatives are relevant costs.
C)Fixed costs are never relevant costs.
D)All fixed costs are relevant costs as they impact on overall unit costs.

Accepted Answer

Only those variable costs that differ between alternatives are relevant costs because they are the costs that change as a result of choosing one alternative over another. Fixed costs are not relevant as they do not change with different alternatives.

Question 17

Which one of the following is non-financial information that management might evaluate in making a decision?
A)opportunity costs of a decision
B)contribution margin
C)the effect on profit of a decision
D)the corporate profile in the community

Accepted Answer

The corporate profile in the community is a non-financial information that management might evaluate in making a decision. Opportunity costs, contribution margin, and the effect on profit are all financial information that are considered when making a decision.

Question 18

Which one of the following stages of the management decision-making process is properly sequenced?
A)Evaluate possible courses of action; make decision.
B)Review the actual impact of the decision; determine possible courses of action.
C)Assign responsibility for the decision; identify the problem.
D)Make a decision; assign responsibility.

Accepted Answer

The proper sequence for the management decision-making process is to first identify the problem, then evaluate possible courses of action, and finally, make a decision. Option A follows this sequence. Option B reverses the order by reviewing the actual impact of the decision before determining possible courses of action. Option C assigns responsibility before identifying the problem, which is not effective. Option D assigns responsibility before making a decision, which is also not effective.

Question 19

Which of the following is false?
A)Incremental analysis identifies the probable effects of management decisions on future earnings.
B)In incremental analysis, total fixed costs will always remain constant under alternative courses of action.
C)The process used to identify the financial data that change under alternative courses of action is called incremental analysis.
D)Incremental costs are always relevant.

Accepted Answer

In incremental analysis, total fixed costs may change under alternative courses of action. Incremental analysis focuses on identifying the relevant costs and revenues that will change if a particular decision is made. This includes both variable and fixed costs that will be affected by the decision. Therefore, it is possible that total fixed costs may change under alternative courses of action.

Question 20

Which of the following describes one aspect of incremental analysis?
A)Both costs and revenues that stay the same between alternate courses of action will be analyzed.
B)Both costs and revenues that differ between alternate courses of action will be analyzed.
C)All costs and revenues, regardless if they stay the same or differ between alternate courses of action, will be analyzed.
D)Only costs relating to the decisions at hand are analyzed.

Accepted Answer

Incremental analysis involves analyzing only the costs and revenues that differ between alternate courses of action. This allows decision-makers to focus on the relevant information needed to make a decision and avoid being overwhelmed by extraneous details that do not impact the decision.

Quiz 7: Incremental Analysis

Costs that are relevant for future decision making in a manufacturing environment include

Which of the following statements about making decisions is correct?

What is a sunk cost?

Which of the following statements about incremental analysis is true?

Which one of the following is a true statement about incremental analysis?

What is the process of evaluating financial data that changes under alternative courses of action called?

For which of the following decisions is incremental analysis not appropriate?

Decision making

Which of the following is a true statement about costs in incremental analysis?

Which steps do accountants mostly contribute to in the decision-making process?

Which statement is true about relevant costs in incremental analysis?

Which one of the following is an alternative name for incremental analysis?

For which of the following is incremental analysis appropriate?

Who prepares relevant revenue and cost data for the decision-making process?

Which of the following statements is true?

Which one of the following is non-financial information that management might evaluate in making a decision?

Which one of the following stages of the management decision-making process is properly sequenced?

Which of the following is false?

Which of the following describes one aspect of incremental analysis?