2. Which of the following is an irrelevant cost in deciding whether or not to el
ID: 2482491 • Letter: 2
Question
2. Which of the following is an irrelevant cost in deciding whether or not to eliminate a producing department?
a. The salary of a supervisor who would be laid off
b. The carrying value of the department’s equipment
c. Revenue that could be generated by renting out the department’s space
d. The current residual value of the department’s equipment
5. The purpose of incremental analysis is to find the alternative
a. with a few relevant costs.
b. with the lowest fixed costs.
c. that brings in the highest revenue.
d. that contributes the most to profits.
6. Which of the following typically would be considered an incremental cost?
a. Sunk cost
b. Direct product cost
c. Fixed cost
d. Administrative overhead cost
Depreciation expense influences cash flows because it directly affects
a. the carrying value of the asset.
b. revenues earned by the equipment.
c. the amount of income taxes paid by the company.
d. cash received from revenues during the current period.
43. Contribution margin information is not relevant for
a. pricing decisions for special orders.
b. the elimination of unprofitable segment decisions.
c. estimating the sales revenue for next period.
d. sales mix with resource constraint decisions.
47. When faced with a make-or-buy decision, managers need which item of information about making?
a. Need for additional machinery
b. Variable costs of making the item
c. Incremental fixed costs
d. All of these choices
a. The salary of a supervisor who would be laid off
b. The carrying value of the department’s equipment
c. Revenue that could be generated by renting out the department’s space
d. The current residual value of the department’s equipment
Explanation / Answer
2) b, since the carrying value of an equipment is historical cost and hence, irrelevant.
5) d, since it only considers the additional costs and revenue.
6) b, since it is a variable cost
7) d
43) c, since it is not required to estimate the sales revenue. Only number of units and selling price is required to estimate sales revenue.
47) d, since all the three costs are the incremental costs if making
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