Ch12 - Test bank PDF

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CHAPTER 12 INCREMENTAL ANALYSIS SUMMARY OF QUESTIONS BY LEARNING OBJECTIVES AND BLOOM’S TAXONOMY Item

LO

BT

1. 2. 3. 4. 5. 6.

1 1 1 1 1 1

K K C K K C

31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58.

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2

K K K K K K K K AP K K K C K C C K K C C C C AN AN C C C C

Item

LO

BT

7. 8. 9. 10. 11. 12.

1 2 2 2 2 3

C C C C C C

59. 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. 73. 74. 75. 76. 77. 78. 79. 80. 81. 82. 83. 84. 85. 86.

2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 3 3 3 3 3 3 3 3 3 3 3 3 3

Item

LO

BT

Item

LO

BT

Item

LO

BT

5 5 5 5 6 6

C C C C C C

25. 26. 27. 28. 29. 30.

6 1 1 2 4 6

C K K C K C

4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 5 5 5 5 5 5 5 5 5 5 5

C AN AP C AN K K K K K AP K AP K K AP C C K C AP AP C C C C C C

143. 144. 145. 146. 147. 148. 149. 150. 151. 152. 153. 154. 155. 156. 157. 158. 159. 160. 161. 162. 163. 164. 165. 166.

5 5 5 5 5 5 5 6 6 6 6 6 6 6 6 6 6 1 2 3 3 1 6 6

C C C C AP AP AN AN C AN C AN AN AN C C K AN K C K C K

179.

6

AN

True-False Statements 13. 14. 15. 16. 17. 18.

3 3 3 4 4 4

C K C C C K

19. 20. 21. 22. 23. 24.

Multiple Choice Questions C C AP AP C C C AP K C AP AP AP AP C K C AP AP AP AP AP K AP AN C C AN

87. 88. 89. 90. 91. 92. 93. 94. 95. 96. 97. 98. 99. 100. 101. 102. 103. 104. 105. 106. 107. 108. 109. 110. 111. 112. 113. 114.

3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 4 4 4 4 4 4

AN AN AN AN AN AN K K C C C C AN AN AN AN AN AN AN AN AN AP AN AN AN AN AP AN

115. 116. 117. 118. 119. 120. 121. 122. 123. 124. 125. 126. 127. 128. 129. 130. 131. 132. 133. 134. 135. 136. 137. 138. 139. 140. 141. 142.

AP

Brief Exercises

st

167. 1 AP 170. 3 AP 173. 3 AP 176. 6 AP 168. 2 AP 171. 3 AP 174. 4 AN 177. 6 AP 169. 3 AP 172. 3 AP 175. 5 AN 178. 6 AP This question also appears in a self-test at the student companion website.

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Test Bank for Survey of Accounting, First Edition

SUMMARY OF QUESTIONS BY LEARNING OBJECTIVES AND BLOOM’S TAXONOMY Exercises 180. 1, 6 181. 2 182. 2 183. 2

AN AN AN E

184. 2 185. 2, 3 186. 3 187. 3

E AP E AP

188. 189. 190. 191.

3 3 4 4

AN AN AN AN

192. 193. 194. 195.

4 4 5 5

AP E AN E

196. 197. 198. 199.

6 6 6 6

AP E AP E

Completion Statements 200. 201.

1 1

K K

202. 203.

2 3

K K

204. 205.

4 5

K K

Matching 206.

1,3

K

207.

3

K

Short-Answer Essay 208.

3

K

209.

5

K

SUMMARY OF LEARNING OBJECTIVES BY QUESTION TYPE Item

Type

Item

Type

Item

Type

Item

Type

Item

Type

Item

Type

Item

Type

MC MC MC MC MC MC

52. 160. 167. 180. 200. 201.

MC MC BE Ex C C

206. 164.

MA MC

MC MC MC MC MC

73. 161. 168. 181. 182.

MC MC BE Ex Ex

183. 184. 185. 202.

Ex Ex Ex C

MC MC MC MC MC MC MC MC

163. 169. 170. 171. 172. 173. 185. 186.

MC BE BE BE BE BE Ex Ex

187. 188. 189. 203. 207. 208. 206.

Ex Ex Ex C SA SA MA

MC MC MC MC MC

130. 131. 174. 190. 191.

MC MC BE Ex Ex

192. 193. 204.

Ex Ex C

Learning Objective 1 1. 2. 3. 4. 5. 6.

TF TF TF TF TF TF

7. 26. 27. 31. 32. 33.

TF TF TF MC MC MC

34. 35. 36. 37. 38. 39.

8. 9. 10. 11. 28.

TF TF TF TF TF

53. 54. 55. 56. 57.

MC MC MC MC MC

58. 59. 60. 61. 62.

12. 13. 14. 15. 74. 75. 76. 77.

TF TF TF TF MC MC MC MC

78. 79. 80. 81. 82. 83. 84. 85.

MC MC MC MC MC MC MC MC

86. 87. 88. 89. 90. 91. 92. 93.

16. 17. 18. 29. 109.

TF TF TF TF MC

110. 111. 112. 113. 114.

MC MC MC MC MC

115. 116. 117. 118. 119.

MC 40. MC 46. MC 41. MC 47. MC 42. MC 48. MC 43. MC 49. MC 44. MC 50. MC 45. MC 51. Learning Objective 2 MC 63. MC 68. MC 64. MC 69. MC 65. MC 70. MC 66. MC 71. MC 67. MC 72. Learning Objective 3 MC 94. MC 102. MC 95. MC 103. MC 96. MC 104. MC 97. MC 105. MC 98. MC 106. MC 99. MC 107. MC 100. MC 108. MC 101. MC 162. Learning Objective 4 MC MC MC MC MC

120. 121. 122. 123. 124.

MC MC MC MC MC

125. 126. 127. 128. 129.

Incremental Analysis

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Learning Objective 5 19. 20. 21. 22. 132.

TF TF TF TF MC

133. 134. 135. 136. 137.

MC MC MC MC MC

138. 139. 140. 141. 142.

MC 143. MC 148. MC 144. MC 149. MC 145. MC 164. MC 146. MC 175. MC 147. MC 194. Learning Objective 6

MC MC MC BE Ex

195. 205. 209.

Ex C SA

23. 24. 25. 30.

TF TF TF TF

150. 151. 152. 153.

MC MC MC MC

154. 155. 156. 157.

MC MC MC MC

BE BE BE BE

196. 197. 198. 199.

Ex Ex Ex Ex

Note: TF = True-False MC = Multiple Choice MA = Matching

158. 159. 165. 166.

MC MC MC MC

176. 177. 178. 179.

BE = Brief Exercise Ex = Exercise

C = Completion SA = Short-Answer

CHAPTER LEARNING OBJECTIVES 1. Describe management’s decision-making process, and incremental analysis. Management’s decision-making process consists of (a) identifying the problem and assigning responsibility for the decision, (b) determining and evaluating possible courses of action, (c) making the decision, and (d) reviewing the results of the decision. Incremental analysis identifies financial data that change under alternative courses of action. These data are relevant to the decision because they will vary in the future among the possible alternatives. 2. Analyze the relevant costs in accepting an order at a special price. The relevant costs are those that change if the order is accepted. The relevant information in accepting an order at a special price is the difference between the variable manufacturing costs to produce the special order and expected revenues. Any changes in fixed costs, opportunity costs, or other incremental costs or savings (such as additional shipping) should be considered. 3. Analyze the relevant costs in a make-or-buy decision. In a make-or-buy decision, the relevant costs are (a) the variable manufacturing costs that will be saved as well as changes to fixed manufacturing costs, (b) the purchase price, and (c) opportunity costs. 4. Analyze the relevant costs in determining whether to sell or process materials further. The decision rule for whether to sell or process materials further is: Process further as long as the incremental revenue from processing exceeds the incremental processing costs. 5. Analyze the relevant costs to be considered in repairing, retaining, or replacing equipment. The relevant costs to be considered in determining whether equipment should be retained, or replaced are the effects on variable costs and the cost of the new equipment. Also, any disposal value of the existing asset must be considered. 6. Analyze the relevant costs in deciding whether to eliminate an unprofitable segment or product. In deciding whether to eliminate an unprofitable segment or product, the relevant costs are the variable costs that drive the contribution margin, if any, produced by the segment or product. Disposition of the segment’s or product’s fixed expenses and opportunity costs must also be considered.

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Test Bank for Survey of Accounting, First Edition

TRUE-FALSE STATEMENTS 1.

An important step in management’s decision-making process is to determine and evaluate possible courses of action.

Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Strategic Planning

2.

In making decisions, management ordinarily considers both financial and nonfinancial information.

Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Strategic Planning

3.

In incremental analysis, total variable costs will always change under alternative courses of action, and total fixed costs will always remain constant.

Ans: F, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Strategic/Critical Thinking, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

4.

Accountants are mainly involved in developing nonfinancial information for management’s consideration in choosing among alternatives.

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Decision Modeling, AICPA PC: Interaction, IMA: Decision Analysis

5.

Decision-making involves choosing among alternative courses of action.

Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Decision Analysis

6.

Financial data are developed for a course of action under an incremental basis and then compared to data developed under a differential basis before a decision is made.

Ans: F, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Decision Analysis

7.

In incremental analysis, total fixed costs will always remain constant under alternative courses of action.

Ans: F, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Decision Analysis

8.

A special one-time order should never be accepted if the unit sales price is less than the unit variable cost.

Ans: T, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

9.

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.

Ans: F, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

10.

A company should never accept an order for its product at less than its regular sales price.

Ans: F, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

11.

If a company is operating at less than capacity, the incremental costs of a special order will likely include variable manufacturing costs, but not fixed costs.

Ans: T, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

12.

An incremental make-or-buy decision depends solely on which alternative is the lowest cost alternative.

Ans: F, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

Incremental Analysis 13.

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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.

Ans: T, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Quantitative Methods

14.

An opportunity cost is the potential benefit obtained by using resources in an alternative course of action.

Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Business Economics

15.

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.

Ans: F, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Business Economics

16.

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.

Ans: F, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Business Economics

17.

It is always better to sell now rather than process further because of the time value of money.

Ans: F, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Business Economics

18.

The basic decision rule in a sell or process further decision is: process further if the incremental revenue from processing exceeds the incremental processing costs.

Ans: T, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Business Economics

19.

In a decision concerning replacing old equipment with new equipment, the book value of the old equipment can be considered an opportunity cost.

Ans: F, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Business Economics

20.

In a decision concerning replacing old equipment with new equipment, the book value of the old equipment can be considered a sunk cost.

Ans: T, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

21.

In a decision to retain or replace old equipment, the salvage value of the old equipment is relevant in incremental analysis.

Ans: T, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

22.

It is better not to replace old equipment if it is not fully depreciated.

Ans: F, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

23.

From a quantitative standpoint, a segment should be eliminated if its contribution margin is less than the fixed costs that can be eliminated.

Ans: T, LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Business Economics

12 - 6 24.

Test Bank for Survey of Accounting, First Edition The elimination of an unprofitable product line may adversely affect the remaining product lines.

Ans: T, LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Risk Analysis, AICPA PC: Problem Solving, IMA: Business Economics

25.

Many of the decisions involving incremental analysis have qualitative features, but since they are not easily measured they should be ignored.

Ans: F, LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Risk Analysis, AICPA PC: Problem Solving, IMA: Business Economics

26.

Accounting contributes to management’s decision-making process through internal reports that review the actual impact of the decision.

Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Decision Analysis

27.

The process used to identify the financial data that change under alternative courses of action is called allocation of limited resources.

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: Problem Solving, IMA: Decision Analysis

28.

If a company is operating at full capacity, the incremental costs of a special order will likely include fixed manufacturing costs.

Ans: T, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: Problem Solving, IMA: Business Economics

29.

The basic decision rule in a sell or process further decision is: sell without further processing as long as the incremental revenue from processing exceeds the incremental processing costs.

Ans: F, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Business Economics

30.

In deciding on the future status of an unprofitable segment, management should recognize that net income could decrease by eliminating the unprofitable segment.

Ans: T, LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Business Economics

Answers to True-False Statements Item

1. 2. 3. 4. 5.

Ans.

T T F F T

Item

6. 7. 8. 9. 10.

Ans.

F F T F F

Item

11. 12. 13. 14. 15.

Ans.

T F T T F

Item

16. 17. 18. 19. 20.

Ans.

F F T F T

Item

21. 22. 23. 24. 25.

Ans.

T F T T F

Item

26. 27. 28. 29. 30.

Ans.

T F T F T

Item

Ans.

Incremental Analysis

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