39.

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?
a. $10,000
b. $0
c. $6,000
d. $4,000

40. Which of the following is an irrelevant cost?

a. An avoidable cost
b. An incremental cost
c. A sunk cost
d. An opportunity cost

41. Relevant costs are always

a. fixed costs.
b. variable costs.
c. avoidable costs.
d. sunk costs.
42. The process of evaluating financial data that change under alternative courses of
action is called
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 include
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 capital budgeting methods.
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 answers are correct.

48. 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.

50. 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 answers are correct.

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 Garner 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
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?
a. $6,000 increase
b. $6,000 decrease
c. $9,000 decrease
d. $45,000 increase
54. Baden Company manufactures a product with a unit variable cost of $100 and a unit
sales price of $176. Fixed manufacturing costs were $480,000 when 10,000 units
were produced and sold. The company has a one-time opportunity to sell an
additional 1,000 units at $140 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 $8,000.
b. Income would increase by $8,000.
c. Income would increase by $140,000.
d. Income would increase by $40,000.

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.
56. If a plant is operating at full capacity and receives a one-time opportunity to accept
an order at a special price below its usual price, then
a. only variable costs are relevant.
b. fixed costs are not relevant.
c. the order will likely be accepted.
d. the order will likely be rejected.
57. Miley, Inc. has excess capacity. Under what situations should the company accept a
special order for less than the current selling price?
a. Never
b. When additional fixed costs must be incurred to accommodate the order
c. When the company thinks it can use the cheaper materials without the
customer’s knowledge
d. When incremental revenues exceed incremental costs
58. If a company must expand capacity to accept a special order, it is likely that there will
be
a. an increase in unit variable costs.
b. no increase in fixed costs.
c. an increase in variable and fixed costs per unit.
d. an increase in fixed costs.
59. Which of the following is true if a company can accept a special order without
affecting its regular sales and is within plant capacity?
a. Net income will not be affected.
b. Net income will increase if the special sales price per unit exceeds the unit
variable costs.
c. Net income will decrease.
d. Additional fixed costs will probably be incurred.

60. If a company anticipates that other sales will be affected by the acceptance of a
special order, then
a. lost sales should be considered in the incremental analysis.
b. lost sales should not be considered in the incremental analysis.
c. the order should not be accepted.
d. the order will only be accepted if the plant is below capacity.