1. The purpose of incremental analysis is to find the alternative (Points :1)

with the fewest relevant costs.

that brings in the most revenue.

that contributes the most to profits.

with the lowest fixed costs.

2. Which of the following typically would be considered an incremental cost? (Points :1)

Conversion cost

Direct product cost

Period cost

Factory overhead cost

3. Products Green, Red, and White have unit contribution margins of $6.50, $12, and $10, respectively, and require 2, 4, and 3 direct labor hours per unit, respectively. If demand currently is far exceeding supply, on which product should the company concentrate its efforts? (Points :1)

Green

Red

White

Either Green or Red

4. Depreciation is a unique expense because it (Points :1)

does not require a cash outlay.

does not affect income taxes.

is the same amount every accounting period.

has to be calculated.

5. A project is accepted under the net present value method when (Points :1)

the percentage return is greater than a predetermined minimum percentage.

total net cash inflows exceed the purchase price of the asset.

the purchase price of the asset is less than the present value of net cash inflows.

the present value of net cash inflows exceeds a predetermined minimum amount.

6. When using the net present value method to compare keeping an old building or disposing of it and acquiring a new building, the current cash residual value of the old building should be (Points :1)

a subtraction from the price paid for the new building.

viewed as a cash flow.

an addition to the price paid for the new building.

irrelevant to the decision.

7. Chicago Co. is interested in purchasing a machine that would improve its operational efficiency. The cost is $200,000 with an estimated residual value of $20,000 and a useful life of eight years. Cash inflows are expected to increase by $40,000 a year. The company's minimum rate of return is 10 percent. The present value of $1 for eight years at 10 percent is 0.467, and the present value of an annuity of $1 at 10 percent and eight years is 5.335. The net present value of the project is (Points :1)

$74,520.

$120,100.

$93,400.

$22,740.

8. Memphis Co. is going to purchase a machine for $83,200 that will increase cash flows by $40,000 in the first year, $30,000 the second year, and $25,000 the third year. The machine will have no residual value. The minimum rate of return is 10 percent. The present value factors for the three years are 0.909, 0.826, and 0.751, respectively. The machine's actual rate of return is (Points :1)

Unable to determine from the data given

greater than 10 percent.

less than 10 percent.

10 percent.

9. The method of project selection that brings the time value of money into capital investment analysis is the (Points :1)

rate of return on initial investment.

net present value method.

payback method.

accounting rate-of-return method.

10. An internal issue to be considered when setting a price is (Points :1)

whether there is a sole source or heavy competition.

total demand for the product or service.

the quality of material and labor.

the number of competing products or services.

11. Which of the following is not a step in the target costing approach to pricing? (Points :1)

Define the desired profit to be made on that product.

Dictate which products should not be produced.

Compute a target cost for the product by subtracting the desired profit from the competitive market price.

Identify the price at which a product will be competitive in the marketplace.

12. A common problem associated with transfer pricing occurs when (Points :1)

a division purchases inputs for processing from an outside source at a price higher than the internal transfer price.

the gross margin pricing method is used to compute the price.

a division sells its excess output to an external customer.

managers do not agree with the transfer prices of the inputs provided to them or of the outputs of their own division.

13. Division Alpha can purchase a required part from an outside supplier at $35. Division Beta will supply the part at a transfer price of $38.50. Division Alpha's manager should (Points :1)

pay the $38.50 price to Division Beta.

tell his immediate supervisor that Division Beta is being unreasonable.

negotiate an appropriate transfer price with the manager of Division Beta.

buy from the outside supplier.

14. Development of a transfer price involves (Points :1)

the use of the highest external market price so that the transferring division is very profitable.

determination of an appropriate profit markup.

computation of the selling and delivery costs of the item being transferred.

the use of a team of lawyers representing the outside interests of the company.

15. When a buying division elects to purchase from an outside supplier, (Points :1)

the impact on overall company profits is usually not considered in the decision.

only fixed costs should be included in the decision analysis.

the price from the outside supplier is likely to be more than the incremental cost to the supplying division.

overall company profits should be enhanced.

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