CHAPTER 25: DIFFERENTIAL ANALYSIS, PRODUCT PRICING, AND
ACTIVITY-BASED COSTING
1. Differential revenue is the amount of income that would result from the best available alternative proposed use
of cash.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.25-01 - 25-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.33 - Incremental analysis
ACCT.IMA.14 - Decision Analysis
BUSPROG: Analytic
2. Differential revenue is the amount of increase or decrease in revenue expected from a particular course of action
as compared with an alternative.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.25-01 - 25-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.33 - Incremental analysis
ACCT.IMA.14 - Decision Analysis
BUSPROG: Analytic
3. If the total unit cost of manufacturing Product Y is currently $36 and the total unit cost after modifying the style
is estimated to be $48, the differential cost for this situation is $48.
a. True
b. False
ANSWER: False
DIFFICULTY: Moderate
Bloom’s: Applying
LEARNING OBJECTIVES: ACCT.WARD.16.25-01 - 25-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.33 - Incremental analysis
ACCT.IMA.14 - Decision Analysis
BUSPROG: Analytic
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
,Chapter 25: Differential Analysis, Product Pricing, and Activity-Based Costing
4. If the total unit cost of manufacturing Product Y is currently $36 and the total unit cost after modifying the style
is estimated to be $48, the differential cost for this situation is $12.
a. True
b. False
ANSWER: True
DIFFICULTY: Moderate
Bloom’s: Applying
LEARNING OBJECTIVES: ACCT.WARD.16.25-01 - 25-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.33 - Incremental analysis
ACCT.IMA.14 - Decision Analysis
BUSPROG: Analytic
Hill Co. can further process Product O to produce Product P. Product O is currently selling for $60 per pound and
costs $42 per pound to produce. Product P would sell for $82 per pound and would require an additional cost of
$13 per pound to produce.
5. The differential revenue of producing Product P is $82 per pound.
a. True
b. False
ANSWER: False
DIFFICULTY: Challenging
Bloom’s: Applying
LEARNING OBJECTIVES: ACCT.WARD.16.25-01 - 25-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.33 - Incremental analysis
ACCT.IMA.14 - Decision Analysis
BUSPROG: Analytic
6. The differential revenue of producing Product P is $22 per pound.
a. True
b. False
ANSWER: True
DIFFICULTY: Moderate
Bloom’s: Applying
LEARNING OBJECTIVES: ACCT.WARD.16.25-01 - 25-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.33 - Incremental analysis
ACCT.IMA.14 - Decision Analysis
BUSPROG: Analytic
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
,Chapter 25: Differential Analysis, Product Pricing, and Activity-Based Costing
7. The differential cost of producing Product P is $13 per pound.
a. True
b. False
ANSWER: True
DIFFICULTY: Moderate
Bloom’s: Applying
LEARNING OBJECTIVES: ACCT.WARD.16.25-01 - 25-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.33 - Incremental analysis
ACCT.IMA.14 - Decision Analysis
BUSPROG: Analytic
8. The differential cost of producing Product P is $55 per pound.
a. True
b. False
ANSWER: False
DIFFICULTY: Moderate
Bloom’s: Applying
LEARNING OBJECTIVES: ACCT.WARD.16.25-01 - 25-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.33 - Incremental analysis
ACCT.IMA.14 - Decision Analysis
BUSPROG: Analytic
9. Opportunity cost is the amount of increase or decrease in cost that would result from the best available
alternative to the proposed use of cash or its equivalent.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.25-01 - 25-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.33 - Incremental analysis
ACCT.IMA.14 - Decision Analysis
BUSPROG: Analytic
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, Chapter 25: Differential Analysis, Product Pricing, and Activity-Based Costing
10. Differential analysis can aid management in making decisions on a variety of alternatives, including
whether to discontinue an unprofitable segment and whether to replace usable plant assets.
a. True
b. False
ANSWER: True
DIFFICULTY: Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.25-01 - 25-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.33 - Incremental analysis
ACCT.IMA.14 - Decision Analysis
BUSPROG: Analytic
11. A cost that will not be affected by later decisions is termed a sunk cost.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.25-01 - 25-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.33 - Incremental analysis
ACCT.IMA.14 - Decision Analysis
BUSPROG: Analytic
12. A cost that will not be affected by later decisions is termed an opportunity cost.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.25-01 - 25-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.33 - Incremental analysis
ACCT.IMA.14 - Decision Analysis
BUSPROG: Analytic
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
ACTIVITY-BASED COSTING
1. Differential revenue is the amount of income that would result from the best available alternative proposed use
of cash.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.25-01 - 25-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.33 - Incremental analysis
ACCT.IMA.14 - Decision Analysis
BUSPROG: Analytic
2. Differential revenue is the amount of increase or decrease in revenue expected from a particular course of action
as compared with an alternative.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.25-01 - 25-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.33 - Incremental analysis
ACCT.IMA.14 - Decision Analysis
BUSPROG: Analytic
3. If the total unit cost of manufacturing Product Y is currently $36 and the total unit cost after modifying the style
is estimated to be $48, the differential cost for this situation is $48.
a. True
b. False
ANSWER: False
DIFFICULTY: Moderate
Bloom’s: Applying
LEARNING OBJECTIVES: ACCT.WARD.16.25-01 - 25-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.33 - Incremental analysis
ACCT.IMA.14 - Decision Analysis
BUSPROG: Analytic
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
,Chapter 25: Differential Analysis, Product Pricing, and Activity-Based Costing
4. If the total unit cost of manufacturing Product Y is currently $36 and the total unit cost after modifying the style
is estimated to be $48, the differential cost for this situation is $12.
a. True
b. False
ANSWER: True
DIFFICULTY: Moderate
Bloom’s: Applying
LEARNING OBJECTIVES: ACCT.WARD.16.25-01 - 25-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.33 - Incremental analysis
ACCT.IMA.14 - Decision Analysis
BUSPROG: Analytic
Hill Co. can further process Product O to produce Product P. Product O is currently selling for $60 per pound and
costs $42 per pound to produce. Product P would sell for $82 per pound and would require an additional cost of
$13 per pound to produce.
5. The differential revenue of producing Product P is $82 per pound.
a. True
b. False
ANSWER: False
DIFFICULTY: Challenging
Bloom’s: Applying
LEARNING OBJECTIVES: ACCT.WARD.16.25-01 - 25-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.33 - Incremental analysis
ACCT.IMA.14 - Decision Analysis
BUSPROG: Analytic
6. The differential revenue of producing Product P is $22 per pound.
a. True
b. False
ANSWER: True
DIFFICULTY: Moderate
Bloom’s: Applying
LEARNING OBJECTIVES: ACCT.WARD.16.25-01 - 25-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.33 - Incremental analysis
ACCT.IMA.14 - Decision Analysis
BUSPROG: Analytic
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
,Chapter 25: Differential Analysis, Product Pricing, and Activity-Based Costing
7. The differential cost of producing Product P is $13 per pound.
a. True
b. False
ANSWER: True
DIFFICULTY: Moderate
Bloom’s: Applying
LEARNING OBJECTIVES: ACCT.WARD.16.25-01 - 25-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.33 - Incremental analysis
ACCT.IMA.14 - Decision Analysis
BUSPROG: Analytic
8. The differential cost of producing Product P is $55 per pound.
a. True
b. False
ANSWER: False
DIFFICULTY: Moderate
Bloom’s: Applying
LEARNING OBJECTIVES: ACCT.WARD.16.25-01 - 25-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.33 - Incremental analysis
ACCT.IMA.14 - Decision Analysis
BUSPROG: Analytic
9. Opportunity cost is the amount of increase or decrease in cost that would result from the best available
alternative to the proposed use of cash or its equivalent.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.25-01 - 25-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.33 - Incremental analysis
ACCT.IMA.14 - Decision Analysis
BUSPROG: Analytic
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, Chapter 25: Differential Analysis, Product Pricing, and Activity-Based Costing
10. Differential analysis can aid management in making decisions on a variety of alternatives, including
whether to discontinue an unprofitable segment and whether to replace usable plant assets.
a. True
b. False
ANSWER: True
DIFFICULTY: Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.25-01 - 25-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.33 - Incremental analysis
ACCT.IMA.14 - Decision Analysis
BUSPROG: Analytic
11. A cost that will not be affected by later decisions is termed a sunk cost.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.25-01 - 25-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.33 - Incremental analysis
ACCT.IMA.14 - Decision Analysis
BUSPROG: Analytic
12. A cost that will not be affected by later decisions is termed an opportunity cost.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.25-01 - 25-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.33 - Incremental analysis
ACCT.IMA.14 - Decision Analysis
BUSPROG: Analytic
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
