MBA 620 ACTUAL TEST PAPER 2026
QUESTIONS WITH SOLUTIONS GRADED A+
◉ Revenues that differ when one alternative is selected over
another. For example, if a company is deciding whether to keep all
customers (Alternative 1) or drop certain less profitable customers
(Alternative 2), difference between total revenue for Alternative 1
and total revenue for Alternative 2. Answer: differential revenues
◉ Costs that differ when one alternative is selected over another. For
example, if a company is deciding whether to make a product
internally (Alternative 1) or outsource production (Alternative 2),
difference between costs for Alternative 1 and Alternative 2 Answer:
differential costs
◉ Reviewing the differential revenues and costs for alternative
courses of action; this is used by management to evaluate different
alternatives and to select the best course of action Answer:
differential analysis
◉ Means a company is deciding whether to make a product
internally or buy the product from an outside firm. Differential
analysis helps managers focus solely on the costs that are relevant to
the make-or-buy decision. Variable production costs are typically
differential costs. Fixed production costs must be reviewed on a
,case-by-case basis to determine which costs are differential and
which are not. Managers typically select the alternative with the
lowest cost. Answer: make-or-buy decision
◉ A cost that can be avoided, or eliminated, if one alternative is
chosen over another (also differential costs) Answer: avoidable cost
◉ How is differential analysis used in deciding whether to keep or
drop product lines?
A ____________ __________ _________ ___________ is prepared, which includes
information for each product line and a total column for all product
limes. Another _____________ _____________ is prepared in the same
format, which excludes the product line the company would like to
drop. Decision makers select the alternative with the highest
___________ Answer: contribution margin income statement, income
statement, profit
◉ Can be traced directly to a product line, and are typically
avoidable if the product line is eliminated Answer: direct fixed costs
◉ Cannot be traced directly to a product line, and are assigned to
product lines using an allocation process. These costs are typically
not differential costs since they are allocated to remaining products
if a product line is dropped Answer: allocated fixed costs
, ◉ Managers often use ________ as a determining factor for deciding
whether to keep or drop customers and products Answer: profit
◉ For product line decisions, _______ and _______ are assigned to
individual product lines. For customer decisions, both are assigned
to individual customers. Answer: revenues and costs
◉ Is used for both product line and customer decisions to asses the
profitability of various alternatives Answer: contribution margin
income statement
◉ What two assumptions must be considered when evaluating
special order scenarios? Answer: capacity and pricing
◉ Acquiring or maintaining fixed assets that will be used for more
than a year such as buildings and equipment Answer: capital
expenditures
◉ Deciding which long-term investments to make Answer: capital
budgeting
◉ Decisions involve using company funds to invest in long-term
assets such as production facilities and equipment; these decisions
QUESTIONS WITH SOLUTIONS GRADED A+
◉ Revenues that differ when one alternative is selected over
another. For example, if a company is deciding whether to keep all
customers (Alternative 1) or drop certain less profitable customers
(Alternative 2), difference between total revenue for Alternative 1
and total revenue for Alternative 2. Answer: differential revenues
◉ Costs that differ when one alternative is selected over another. For
example, if a company is deciding whether to make a product
internally (Alternative 1) or outsource production (Alternative 2),
difference between costs for Alternative 1 and Alternative 2 Answer:
differential costs
◉ Reviewing the differential revenues and costs for alternative
courses of action; this is used by management to evaluate different
alternatives and to select the best course of action Answer:
differential analysis
◉ Means a company is deciding whether to make a product
internally or buy the product from an outside firm. Differential
analysis helps managers focus solely on the costs that are relevant to
the make-or-buy decision. Variable production costs are typically
differential costs. Fixed production costs must be reviewed on a
,case-by-case basis to determine which costs are differential and
which are not. Managers typically select the alternative with the
lowest cost. Answer: make-or-buy decision
◉ A cost that can be avoided, or eliminated, if one alternative is
chosen over another (also differential costs) Answer: avoidable cost
◉ How is differential analysis used in deciding whether to keep or
drop product lines?
A ____________ __________ _________ ___________ is prepared, which includes
information for each product line and a total column for all product
limes. Another _____________ _____________ is prepared in the same
format, which excludes the product line the company would like to
drop. Decision makers select the alternative with the highest
___________ Answer: contribution margin income statement, income
statement, profit
◉ Can be traced directly to a product line, and are typically
avoidable if the product line is eliminated Answer: direct fixed costs
◉ Cannot be traced directly to a product line, and are assigned to
product lines using an allocation process. These costs are typically
not differential costs since they are allocated to remaining products
if a product line is dropped Answer: allocated fixed costs
, ◉ Managers often use ________ as a determining factor for deciding
whether to keep or drop customers and products Answer: profit
◉ For product line decisions, _______ and _______ are assigned to
individual product lines. For customer decisions, both are assigned
to individual customers. Answer: revenues and costs
◉ Is used for both product line and customer decisions to asses the
profitability of various alternatives Answer: contribution margin
income statement
◉ What two assumptions must be considered when evaluating
special order scenarios? Answer: capacity and pricing
◉ Acquiring or maintaining fixed assets that will be used for more
than a year such as buildings and equipment Answer: capital
expenditures
◉ Deciding which long-term investments to make Answer: capital
budgeting
◉ Decisions involve using company funds to invest in long-term
assets such as production facilities and equipment; these decisions
