(TCO 9) Which one of the following is a true statement about incremental analysis?
It is another name for capital budgeting.
It is the same as CVP analysis.
It is used primarily for long-term planning.
It focuses on decisions that involve a choice among alternative courses of action.
(TCO 9) Which statement is true about relevant costs in incremental analysis?
All costs are relevant if they change between alternatives.
Only fixed costs are relevant.
Only variable costs are relevant.
Relevant costs should be ignored.
(TCO 9) What role does a trade-in allowance on old equipment play in a decision to retain or replace equipment?
It is relevant because it increases the cost of the new equipment.
It is not relevant because it reduces the cost of the old equipment.
It is not relevant to the decision because it does not impact the cost of the new equipment.
It is relevant because it reduces the cost of the new equipment.
(TCO 8) Most of the capital budgeting methods use __________
accrual accounting numbers.
cash flow numbers.
accrual accounting revenues.
(TCO 8) Capital budgeting is the process __________
used in sell or process-further decisions.
of determining how much capital stock to issue.
of making capital-expenditure decisions.
of eliminating unprofitable product lines.
(TCO 8) If a payback period for a project is greater than its expected useful life, the __________
project will always be profitable.
entire initial investment will not be recovered.
project would only be acceptable if the company’s cost of capital was low.
project’s return will always exceed the company’s cost of capital.
(TCO 8) Intangible benefits in capital budgeting __________
should be ignored because they are difficult to determine.
include increased quality or employee loyalty.
are not considered because they are usually not relevant to the decision.
have a rate of return in excess of the company’s cost of capital.
(TCO 8) The capital-budgeting method that allows comparison of the relative desirability of projects that require differing initial investments is the __________
internal rate of return method.
net present value method.
(TCO 8) Post audits of capital projects __________
are usually foolproof.
are done using different evaluation techniques than were used in making the original capital budgeting decision.
provide a formal mechanism by which the company can determine whether existing projects should be supported or terminated.
all of the above
(TCO 8) A company has a minimum required rate of return of 9% and is considering investing in a project that costs $140,000 and is expected to generate cash inflows of $56,000 at the end of each year for 3 years. The net present value of this project is __________
(TCO 8) Disadvantages of the annual rate of return method include all of the following, except that __________
it relies on accrual accounting numbers instead of actual cash flows.
it does not consider the time value of money.
no consideration is given as to when the cash inflows occur.
management is unfamiliar with the information used in the computation.
(TCO 9) It costs Fortune Company $12 of variable costs and $5 of fixed costs to produce one bathroom scale, which normally sells for $35. A foreign wholesaler offers to purchase 1,000 scales at $15 each. Fortune would incur special shipping costs of $1 per scale if the order were accepted. Fortune has sufficient unused capacity to produce the 1,000 scales. If the special order is accepted, what will be the effect on net income?
(TCO 9) Harrison Company determines that an opportunity cost of an alternate course of action is relevant to a make-or-buy decision. Which statement is true of the opportunity cost?
Should be added to the buy costs
Should be subtracted from the make costs
Should be added to the make costs
Should be ignored if it does not involve a cash outlay
(TCO 9) Whisker Clean Company spent $8,000 to produce product 89, which can be sold as is for $10,000 or processed further, incurring additional costs of $3,000, and then sold for $14,000. Which amounts are relevant to the decision about product 89?
$8,000, $10,000, and $14,000
$8,000, $3,000, and $14,000
$10,000, $3,000, and $14,000
$8,000, $10,000, $3,000, and $14,000