Chapter 26, Incremental Analysis and Capital Budgeting Video Solutions, Accounting Principles , Tenth Edition

Problem 1

Three of the steps in management's decision process are:
(1) Review results of decision. (2) Identify the problem.
(3) Make the decision. The steps are performed in the following order.
a. (1), (2), (3).
c. (2), (1), (3),
b. (3), (2), (1).
d. (2), (3), (1).

Danielle Fairburn

Numerade Educator

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Problem 2

Incremental analysis is the process of identifying the financial data that:
a. do not change under alternative courses of action.
b. change under alternative courses of action.
c. are mixed under alternative courses of action.
d. No correct answer is given.

James Kiss

Numerade Educator

04:54

Problem 3

It costs a company $$\$ 14$$ of variable costs and $$\$ 6$$ of fixed costs to produce product A that sells for $$\$30$$. A foreign buyer offers to purchase 3,000 units at $$\$ 18$$ each. If the special offer is acceptedand produced with unused capacity. net income will:
a. decrease $$\$ 6,000$$.
c. increase $$\$ 12,000$$.
b. increase $$\$ 6,000$$.
d. increase $$\$ 9,000$$.

Priyanka Sadarangani

Numerade Educator

Problem 4

Jobart Company is currently operating at full capacity. It is considering buying a part from an outside supplicr rather than making it in-house. If Jobart purchases the part, it can use the released productive capacity to generate additional income of $$\$ 30,000$$ from producing a different product. When conducting incremental analysis in this make-or-buy decision, the company should:
a. ignore the $$\$ 30,000$$.
b. add $$\$ 30,000$$ to other costs in the "Make" column.
c. add $$\$ 30,000$$ to other costs in the "Buy" column.
d. subtract $$\$ 30,000$$ from the other costs in the "Make" column.

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Problem 5

In a make-or-buy decision, relevant costs are:
a manufacturing costs that will be saved.
b. the purchase price of the units.
c. opportunity costs.
d. All of the above.

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Problem 6

The decision rule in a sell-or-process-further decision is: Process further as long as the incremental revenue from processing excecds:
a. incremental processing costs.
b. variable processing costs.
c. fixed processing costs.
d. No correct answer is given.

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Problem 7

Walton, Inc. makes an unassembled product that it currently sells for $$\$55$$. Production costs are $$\$20$$. Walton is considering assembling the product and selling it for $$\$ 68$$. The cost to assemble the product is estimated at $$\$ 12$$. What decision should Walton make?
a. Sell before assembly; net income per unit will be $$\$ 12$$ greater.
b. Sell before assembly; net income per unit will be $$\$ 1$$ greater.
c. Process further; net income per unit will be $$\$ 13$$ greater.
d. Process further, net income per unit will be $$\$ 1$$ greater.

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Problem 8

In a decision to retain or replace equipment, the book value of the old equipment is a(n):
a. opportunity cost.
c. incremental cost
b. sunk cost.
d. marginal cost.

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Problem 9

If an unprofitable segment is eliminated:
a. net income will always increase.
b. variable expenses of the eliminated segment will have to be absorbed by other segments.
c. fixed expenses allocated to the eliminated segment will have to be absorbed by other segments.
d. net income will always decrease.

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02:02

Problem 10

A segment of Hazard Inc. has the following data.
$$
\begin{array}{ll}
\text { Sales } & \$ 200,000 \\
\text { Variable costs } & \$ 140,000 \\
\text { Fixed costs } & \$ 100,000
\end{array}
$$
If this segment is eliminated, $$50 \%$$ of the fixed costs will be eliminated, and the rest will be allocated to the remaining segments. What should Hazard do?
a. Eliminate the segment; net income will be $$\$ 50.000$$ greater.
b. Eliminate the segment; net income will be $$\$ 10.000$$ greater.
c. Kecp the segment; net income will be $$\$ 200,000$$ greater. d. Keep the segment; net income will be $\$ 10,000$ greater.

Amany Waheeb

Numerade Educator

01:42

Problem 11

If the contribution margin per unit is $$\$ 15$$ and it takes 3.0 machine hours to produce the unit, the contribution margin per unit of limited resource is:
a. $$\$ 25$$.
c. $$\$ 45$$.
b. 55 .
d. No correct answer is given.

William Mead

Numerade Educator

Problem 12

Which of the following is incorrect about the annual rate of return technique?
a. The calculation is simple.
b. The accounting terms used are familiar to management.
c. The timing of the net cash flows is not considered.
d. The time value of money is considered.

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Problem 13

What is a weakness of the cash payback approach?
a. It uses accrual-based accounting numbers.
b. It ignores the time value of money.
c. It is complicated to compute.
d. It cannot be used if a project has uneven net annual cash flows.

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Problem 14

A project should be accepted if its internal rate of retum exceeds:
a. zero.
b. the rate of return on a government bond.
c. the company's required rate of return.
d. the rate the company pays on borrowed funds.

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Problem 15

A positive net present value means that the:
a. project's rate of return is less than the cutoff rate.
b. project's rate of return exceeds the required rate of return.
c. project's rate of return equals the required nate of return.
d. project is unacceptable.

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