A method for analyzing the differences between alternatives
A method for calculating historical costs
A method for analyzing qualitative data
What is a sunk cost?
A future cost
A cost that has already been incurred and cannot be changed
A cost that is variable
An opportunity cost
In incremental analysis, which costs are most relevant?
Sunk costs
Variable costs
Fixed costs
Incremental costs
What is the primary goal of incremental analysis?
To determine total costs
To make informed decisions based on cost differences
To analyze historical data
To identify all possible costs
In a make-or-buy decision, what costs are considered relevant in incremental analysis?
All fixed costs
All variable costs
Only incremental variable costs
Only incremental fixed and variable costs
Which of the following is an example of a decision that would benefit from incremental analysis?
Choosing between two different accounting methods
Deciding whether to accept a new order
Deciding how to allocate fixed overhead costs
Determining the optimal depreciation method
What is the main focus of incremental analysis in a capital budgeting decision?
To determine the total cost of the project
To analyze the impact of the project on fixed assets
To determine the incremental cash flows of the project
To determine the impact of the project on the company's balance sheet
Which of the following is an example of an incremental cost?
Rent on a building.
Advertising expense.
The cost of materials used in production.
Depreciation on a machine.
Incremental analysis is also known as...
Total cost analysis
Differential analysis.
Break-even analysis.
Cost-volume-profit analysis.
When a company has excess capacity, it may be profitable to accept a special order even if the unit sales price is less than the regular sales price .
True
False
The contribution margin income statement clearly separates fixed and variable costs,
True
False
Horizontal analysis helps with projecting future financial trends, while vertical analysis provides insights into the proportional relationships of different line items.
True
False
Operating Budgets: These budgets detail the income-generating activities of the company.
True
False
Differential analysis is normally used for long term decisions and incremental analysis for long term decisions.
True
False
The Net Present Value (NPV) method does not consider the time value of money.
True
False
A company's sales mix can be used to calculate its break-even point.
True
False
The contribution margin is calculated by subtracting fixed costs from sales revenue.
True
False
At the break-even point, total revenue is exactly equal to total costs (both fixed and variable).
True
False
The margin of safety is the difference between actual sales and break-even sales and is a measure of risk.
True
False
The present value of a future benefit is higher with a higher discount rate.
True
False
The cost of capital represents the minimum return that an investment must generate to be considered worthwhile.
True
False
To make an informed decision about whether to lease or buy an asset, a discounted cash flow (DCF) analysis is crucial. This involves calculating the net present value (NPV) of both leasing and buying options.
True
False
A longer cash operating cycle is generally preferable, as it indicates more efficient use of working capital.
True
False
What is the first step in the budgeting process?
Preparation of the production budget
Preparation of the sales forecast
Preparation of the cash budget
Preparation of the capital budget
What is the primary purpose of a cash budget?
To manage accounts payable
To manage accounts receivable
To forecast cash inflows and outflows
To determine production levels
The cash budget is the first budget constructed in the budgeting process.