Management Accounting: Questions and Problems on Incremental Analysis
INCREMENTAL ANALYSIS
TRUE-FALSE STATEMENTS
1. An important step in management 's decision-making process is to determine and evaluate possible courses of action.
2. In making decisions, management ordinarily considers both financial and nonfinancial information. 3. In incremental analysis, total variable costs will always change under alternative courses of action, and total fixed costs will always remain constant.
4. Accountants are mainly involved in developing nonfinancial information for management 's consideration in choosing among alternatives.
5. Decision-making involves choosing among alternative courses of action.
6. Financial data are developed for a course of action under an incremental basis and then it is compared to data developed under a differential basis before a decision is made.
7. A special one-time order should never be accepted if the unit sales price is less than the unit variable cost.
8. If a company has excess capacity and present markets will not be affected, it would be profitable to accept an order at a special unit price even though the price is less than the unit variable cost to manufacture the item.
9. A company should never accept an order for its product at less than its regular sales price. 10. A decision whether to continue to make a product or buy it externally, depends on the external price and the amount of variable and fixed costs that can be eliminated assuming no alternative uses of resources.
11. An opportunity cost is the potential benefit obtained by using resources in an alternative course of action.
12. If an incremental make or buy analysis indicates that it is cheaper to buy rather than make an item, management should always make the decision to choose the lowest cost alternative. 13. In a sell or process further decision, management should process further as long as the incremental revenues from additional processing exceed the incremental variable costs.
14. It is always better to
TRUE-FALSE STATEMENTS
1. An important step in management 's decision-making process is to determine and evaluate possible courses of action.
2. In making decisions, management ordinarily considers both financial and nonfinancial information. 3. In incremental analysis, total variable costs will always change under alternative courses of action, and total fixed costs will always remain constant.
4. Accountants are mainly involved in developing nonfinancial information for management 's consideration in choosing among alternatives.
5. Decision-making involves choosing among alternative courses of action.
6. Financial data are developed for a course of action under an incremental basis and then it is compared to data developed under a differential basis before a decision is made.
7. A special one-time order should never be accepted if the unit sales price is less than the unit variable cost.
8. If a company has excess capacity and present markets will not be affected, it would be profitable to accept an order at a special unit price even though the price is less than the unit variable cost to manufacture the item.
9. A company should never accept an order for its product at less than its regular sales price. 10. A decision whether to continue to make a product or buy it externally, depends on the external price and the amount of variable and fixed costs that can be eliminated assuming no alternative uses of resources.
11. An opportunity cost is the potential benefit obtained by using resources in an alternative course of action.
12. If an incremental make or buy analysis indicates that it is cheaper to buy rather than make an item, management should always make the decision to choose the lowest cost alternative. 13. In a sell or process further decision, management should process further as long as the incremental revenues from additional processing exceed the incremental variable costs.
14. It is always better to