1.
In making business decisions, management ordinarily considers only financial information.
A. True
B. False


2.
The process used to identify the financial data that changes under alternative courses of action is called incremental analysis.
A. True
B. False


3.
Opportunity cost is a cost that cannot be changed by any present or future decision.
A. True
B. False


4.
The sell-or-process further decision should be made on the basis of incremental analysis.
A. True
B. False


5.
Sunk costs are not relevant in incremental analysis.
A. True
B. False


6.
The decision to eliminate an unprofitable segment is based solely on the bottom line—net loss.
A. True
B. False


7.
When a company has limited resources, management must decide which products to make and sell in order to maximize sales.
A. True
B. False


8.
The annual rate of return technique indicates the profitability of a capital expenditure.
A. True
B. False


9.
The discounted cash flow technique is generally recognized as the best conceptual approach to making capital budgeting decisions.
A. True
B. False


10.
The internal rate of return method finds the interest yield of the potential investment.
A. True
B. False


11.
Accounting's contribution to the decision-making process occurs in all of the following steps except to:
A.
identify the problem and assign responsibility.
B.
determine and evaluate possible courses of action.
C.
make a decision.
D.
review results of the decision.


12.
Which of the following types of decisions involve incremental analysis?
A.
Make or buy.
B.
Allocate limited resources.
C.
Sell or process further.
D.
All of these options.


13.
Relevant costs in accepting an order at a special price include all of the following except:
A.
direct materials.
B.
direct labor.
C.
fixed manufacturing overhead.
D.
variable manufacturing overhead.


14.
In a make or buy decision, opportunity costs are:
A.
added to the total cost to make.
B.
deducted from the total cost to make.
C.
added to the total cost to buy.
D.
ignored.


15.
The basic rule in a sell or process further decision is to process further as long as the incremental revenue is:
A.
equal to the incremental processing costs.
B.
less than the incremental processing costs.
C.
more than the incremental processing costs.
D.
more than the manufacturing cost per unit.


16.
In a retain or replace equipment decision, all of the following are considered except the:
A.
salvage value of the old asset.
B.
book value of the old asset.
C.
cost of the new asset.
D.
decrease in variable manufacturing costs.


17.
All of the following are relevant in deciding whether to eliminate an unprofitable segment except the segment's:
A.
sales.
B.
variable expenses.
C.
contribution margin.
D.
fixed expenses.


18.
A cost that cannot be changed by any present or future decision is a(n):
A.
fixed cost.
B.
opportunity cost.
C.
sunk cost.
D.
variable cost.


19.
When a company has limited resources, the product to make and sell is the one with the highest:
A.
contribution margin per unit.
B.
contribution margin per unit of limited resource.
C.
contribution margin rate.
D.
markup.


20.
The process of making capital expenditure decisions in business is known as:
A.
incremental analysis.
B.
capital spending.
C.
capital budgeting.
D.
capital analysis.


21.
The rate of return that management expects to pay on all borrowed and equity funds is the:
A.
cost of capital.
B.
cutoff rate.
C.
hurdle rate.
D.
minimum rate.


22.
The cash payback period is computed by dividing the:
A.
average capital investment cost by the net annual cash flow.
B.
average capital investment cost by the net income.
C.
cost of the capital investment by the net annual cash flow.
D.
cost of the capital investment by the net income.


23.
Net present value is the difference between the:
A.
net cash flows and the capital investment.
B.
net cash flows and the present value of the capital investment.
C.
present value of net cash flows and the capital investment.
D.
present value of net income and the capital investment.


24.
The interest rate that will cause the present value of the proposed capital expenditure to equal the present value of the expected net annual cash flows is the:
A.
cost of capital.
B.
internal rate of return.
C.
minimum rate of return.
D.
annual rate of return.


25.
All of the following methods use net cash flows except the:
A.
annual rate of return method.
B.
cash payback method.
C.
net present value method.
D.
internal rate of return method.


26.
If an asset cost $35,000 and is expected to have a $5,000 salvage value at the end of its ten-year life, and generates annual net cash inflows of $7,000 each year, the cash payback period is
A.
8 years.
B.
7 years.
C.
6 years.
D.
5 years.


27.
Blackstone Company manufactures a product with a unit variable cost of $50 and a unit sales price of $88. Fixed manufacturing costs were $240,000 when 10,000 units were produced and sold. The company has a one-time opportunity to sell an additional 3,000 units at $70 per unit in a foreign market which would not affect its current sales. If the company has sufficient capacity to produce the additional units, how would acceptance of the special order affect net income?
A.
Income would decrease by $12,000.
B.
Income would increase by $12,000.
C.
Income would increase by $60,000.
D.
Income would increase by $210,000.


28.
A company has a process that results in 9,000 pounds of Product A that can be sold for $8 per pound. An alternative would be to process Product A further at a cost of $60,000 and then sell it for $14 per pound. Should management sell Product A now, or should Product A be processed further and then sold? (If processed further, what is the effect?)
A.
Process further, the company will be better off by $6,000.
B.
Sell now, the company will be better off by $6,000.
C.
Process further, the company will be better off by $54,000.
D.
Sell now, the company will be better off by $60,000.


29.
A company projects an increase in net income of $120,000 each year for the next five years if it invests $600,000 in new equipment. The equipment has a five-year life and an estimated salvage value of $200,000. What is the annual rate of return on this investment?
A.
20%.
B.
25%.
C.
30%.
D.
50%.



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