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Name: __________________________ Date: _____________

1. A major accounting contribution to the managerial decision-making process in

evaluating possible courses of action is to
A) assign responsibility for the decision.
B) provide relevant revenue and cost data about each course of action.
C) determine the amount of money that should be spent on a project.
D) decide which actions that management should consider.

2. Which of the following stages of the management decision-making process is

improperly sequenced?
A) Evaluate possible courses of action → Make decision.
B) Assign responsibility for the decision → Identify the problem.

C) Identify the problem → Determine possible courses of action.

D) Assign responsibility for decision → Determine possible courses of action.

3. Internal reports that review the actual impact of decisions are prepared by
A) department heads.
B) the controller.
C) management accountants.
D) factory workers.

4. The process of evaluating financial data that change under alternative courses of action
is called
A) double entry analysis.
B) contribution margin analysis.
C) incremental analysis.
D) cost-benefit analysis.

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5. In incremental analysis,
A) only costs are analyzed.
B) only revenues are analyzed.
C) both costs and revenues may be analyzed.
D) both costs and revenues that stay the same between alternate courses of action will
be analyzed.

Use the following to answer questions 6-7:

Hermantic, Inc. can produce 100 units of a component part with the following costs:

Direct Materials $30,000

Direct Labor 13,000
Variable 32,000
Fixed Overhead 22,000

6. If Hermantic, Inc. can purchase the units externally for $80,000, by what amount will its
total costs change?
A) An increase of $80,000
B) An increase of $5,000
C) An increase of $17,000
D) A decrease of $22,000

7. If Hermantic, Inc. can purchase the component part externally for $88,000 and only
$8,000 of the fixed costs can be avoided, what is the correct make-or-buy decision?
A) Make and save $1,000
B) Buy and save $1,000
C) Make and save $5,000
D) Buy and save $13,000
8. Hungry Bites produces corn chips. The cost of one batch is below:

Direct materials

Direct labor

Variable overhead

Fixed overhead

An outside supplier has offered to produce the corn chips for $25 per batch. How much
will Hungry Bites save if it accepts the offer?
A) $2.00 per batch
B) $17.00 per batch
C) $31.00 per batch
D) $6.00 per batch

9. The focus of a sell or process further decision is

A) incremental revenue.
B) incremental cost.
C) both incremental revenue and incremental cost.
D) neither incremental revenue nor incremental cost.

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10. A company decided to replace an old machine with a new machine. Which of the
following is considered a relevant cost?
A) The book value of the old equipment
B) Depreciation expense on the old equipment
C) The loss on the disposal of the old equipment
D) The current disposal price of the old equipment

11. Book value of old equipment is considered to be a

A) relevant cost.
B) semi-relevant cost.
C) sunk cost.
D) cost that can be changed by a present or future decision.

12. A company is deciding on whether to replace some old equipment with new equipment.
Which of the following is not a relevant cost for incremental analysis?
A) Annual operating cost of the new equipment
B) Annual operating cost of the old equipment
C) Net cost of the new equipment
D) Accumulated depreciation on the old equipment

13. In a retain or replace equipment decision, trade-in allowance available on old equipment
A) increases the cost of the new equipment.
B) is relevant because it will not be realized if the old equipment is retained.
C) is not relevant to the decision.
D) reduces the cost of the old equipment.
14. A company is considering eliminating a product line. The fixed costs currently allocated
to the product line will be allocated to other product lines upon discontinuance. If the
product line is discontinued,
A) total net income will increase by the amount of the product line's fixed costs.
B) total net income will decrease by the amount of the product line's fixed costs.
C) the contribution margin of the product line will indicate the net income increase or
D) the company's total fixed costs will decrease.

15. A company has three product lines, one of which reflects the following results:


Variable expenses

Contribution margin

Fixed expenses

Net loss

If this product line is eliminated, 60% of the fixed expenses can be eliminated and the
other 40% will be allocated to other product lines. If management decides to eliminate
this product line, the company's net income will
A) increase by $50,000.
B) decrease by $90,000.
C) decrease by $6,000.
D) increase by $6,000.

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