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Financial and Managerial Accounting: The Basis for Business Decisions, 12/e

Jan R. Williams, University of Tennessee
Susan F. Haka, Michigan State University
Mark S. Bettner, Bucknell University
Robert F. Meigs

Incremental Analysis

Multiple Choice Quiz

Please answer all questions


1	Alpha Corporation is considering renting vacant office space to Beta Company. Which of the following is not relevant to this decision?
		A)	The amount of rent to be paid by Beta Company.
		B)	The cost of preparing the office space for occupancy.
		C)	The amount of property taxes paid by Alpha Corporation on the office space.
		D)	Alternative uses for the office space.


2	Opportunity costs:
		A)	Are the incremental costs involved in pursuing an investment alternative.
		B)	Have already been incurred as a result of past actions.
		C)	Are benefits that could have been obtained by following another course of action.
		D)	Do not vary among alternative courses of action.


3	When the availability of a particular production resource is limited, managers often decide to produce those products which:
		A)	Are the least perishable.
		B)	Have the highest unit sales price.
		C)	Have the highest contribution margin per unit of the limited production resource.
		D)	Have the highest per unit contribution margin ratios.


4	Williams Corporation produces a product called Gluepho. Gluepho can be sold upon completion or processed further into a product called Hidepho. Which of the following would be relevant in deciding to sell Gluepho as is or to process it further into Hidepho?
		A)	Total cost of making Gluepho and the revenue from the sale of Gluepho and Hidepho.
		B)	Total cost of making Hidepho and the revenue from the sale of Hidepho.
		C)	Additional cost of making Hidepho, given the cost of Gluepho,and the additional revenue from Hidepho.
		D)	Incremental cost of making Gluepho, given the cost of Hidepho, and the additional revenue from Hidepho.

Use the following data for questions 5 through 7.

Fish Tracker Corporation manufactures and sells 1,000 outboard motors each month. A primary component in each motor is a water pump used to keep the motor from overheating. Fish Tracker has the monthly capacity to produce 1,500 water pumps. The variable costs associated with manufacturing each pump are shown below:

Direct materials	$15
Direct Labor	10
Variable manufacturing overhead	20

Fixed manufacturing overhead per month (for up to 1,500 units of production) averages $18,000. Bass Master, Inc., has offered to purchase 250 water pumps from Fish Tracker per month to be used in its own outboard motors.


5	Refer to the information above. If Bass Master's order is rejected, what will be Fish Tracker's average unit cost of manufacturing each water pump?
		A)	$63.
		B)	$45.
		C)	$57.
		D)	$59.40.


6	Refer to the information above. What is the incremental cost of producing each additional water pump?
		A)	$63.
		B)	$45.
		C)	$57.
		D)	$59.40.


7	Refer to the information above. Assuming Fish Tracker wants to earn a pretax profit of $8,000 on this special order, what price must it charge Bass Master?
		A)	$95.
		B)	$77.
		C)	$89.
		D)	$57.

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