Differential Cost Analysis

It is the process of evaluating financial data that changes under alternative courses of action.

• Decision-Making Analysis

• Differential Cost Analysis

• Cost-benefit Analysis

• Contribution Margin Analysis

In a decision-making case, which of the following is generally NOT relevant to the decision?

• Avoidable Cost

• Opportunity Cost

• Historical Cost

• Differential Cost

Which of the following must be considered in determining the relevance of a particular cost to a decision?

• Potential effect of the cost on the decision

• Amount of cost

• Riskiness of the decision

• Verifiability and accuracy of cost

Under what situations should the company accept a special order for less than the current selling price?

• When additional fixed cost must be incurred to accommodate the order

• When the company thinks it can use cheaper materials without the customer's knowledge

• When incremental revenues exceed incremental costs

• None of the above

In which situation should the opportunity cost be considered?

• Decision making that involves alternative uses

• Forecasting Sales

• Break-even analysis

• Financial accounting

Which of the following is TRUE about relevant costs in differential cost analysis?

• All cost are relevant if the change between alternatives

• Only fixed cost are relevant

• Only variable cost are relevant

• Relevant costs should be ignored

A company is deciding whether or not to replace an old equipment with a new one. Which is NOT considered in the decision-making?

• Annual operating cost of the new equipment

• Annual operating cost of the old equipment

• Book value of the old equipment

• Disposal value of the old equipment

What will likely occur if a company eliminates an unprofitable segment when a portion of fixed costs is unavoidable?

• All expenses of the eliminated segment will be eliminated

• Net income will decrease

• Net income will increase

• Variable cost will increase

What is the key factor in performing incremental analysis if a company has limited resources?

• Fixed cost per unit

• Contribution margin per limited resources

• Cost of limited resources

• Total Contribution Margin

Which of the following is a non-financial information that management evaluate in making a decision?

• Opportunity cost of a decision

• Corporate profile in the community

• Effect of decision on profit

• Contribution margin