Incremental - True or False

True

An important step in management’s decision-making process is to determine and evaluate possible courses of action

True

In making decisions, management ordinarily considers both financial and nonfinancial information

False

In incremental analysis, total variable costs will always change under alternative courses of action, and total fixed costs will always remain constant.

False

Accountants are mainly involved in developing nonfinancial information for management’s consideration in choosing among alternatives.

Decision-making involves choosing among alternative courses of action

Financial data are developed for a course of action under an incremental basis and then compared to data developed under a differential basis before a decision is made

In incremental analysis, total fixed costs will always remain constant under alternative courses of action.

A special one-time order should never be accepted if the unit sales price is less than the unit variable cost

If a company has excess capacity and present markets will not be affected, it would be profitable to accept an order at a special unit price even though the price is less than the unit variable cost to manufacture the item

A company should never accept an order for its product at less than its regular sales price

If a company is operating at less than capacity, the incremental costs of a special order will likely include variable manufacturing costs, but not fixed costs

An incremental make-or-buy decision depends solely on which alternative is the lowest cost alternative

A decision whether to continue to make a product or buy it externally depends on the external price and the amount of variable and fixed costs that can be eliminated assuming no alternative uses of resources

An opportunity cost is the potential benefit obtained by using resources in an alternative course of action

If an incremental make or buy analysis indicates that it is cheaper to buy rather than make an item, management should always make the decision to choose the lowest cost alternative.

In a sell or process further decision, management should process further as long as the incremental revenues from additional processing exceed the incremental variable costs

It is always better to sell now rather than process further because of the time value of money.