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MBA 620 Final Exam Questions and Correct
Answers
Future costs that differ among competing decision alternatives
(a.k.a., differential or incremental costs) Ans: — relevant costs
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. Ans: — 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 Ans:
— 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 Ans: —
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. Ans: — make-or-buy decision
A cost that can be avoided, or eliminated, if one alternative is
chosen over another (also differential costs) Ans: — avoidable cost
How is differential analysis used in deciding whether to keep or
drop product lines?
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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 ___________ Ans: — 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 Ans: — 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 Ans: — allocated fixed costs
Managers often use ________ as a determining factor for deciding
whether to keep or drop customers and products Ans: — profit
For product line decisions, _______ and _______ are assigned to
individual product lines. For customer decisions, both are assigned
to individual customers. Ans: — revenues and costs
Is used for both product line and customer decisions to asses the
profitability of various alternatives Ans: — contribution margin
income statement
What two assumptions must be considered when evaluating
special order scenarios? Ans: — capacity and pricing
Acquiring or maintaining fixed assets that will be used for more
than a year such as buildings and equipment Ans: — capital
expenditures
Deciding which long-term investments to make Ans: — capital
budgeting
Decisions involve using company funds to invest in long-term
assets such as production facilities and equipment; these decisions
typically involve projects that affect cash flows of the company for
many years Ans: — capital budgeting decisions
© 2025 All rights reserved
MBA 620 Final Exam Questions and Correct
Answers
Future costs that differ among competing decision alternatives
(a.k.a., differential or incremental costs) Ans: — relevant costs
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. Ans: — 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 Ans:
— 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 Ans: —
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. Ans: — make-or-buy decision
A cost that can be avoided, or eliminated, if one alternative is
chosen over another (also differential costs) Ans: — avoidable cost
How is differential analysis used in deciding whether to keep or
drop product lines?
© 2025 All rights reserved
, 2 | Page
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 ___________ Ans: — 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 Ans: — 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 Ans: — allocated fixed costs
Managers often use ________ as a determining factor for deciding
whether to keep or drop customers and products Ans: — profit
For product line decisions, _______ and _______ are assigned to
individual product lines. For customer decisions, both are assigned
to individual customers. Ans: — revenues and costs
Is used for both product line and customer decisions to asses the
profitability of various alternatives Ans: — contribution margin
income statement
What two assumptions must be considered when evaluating
special order scenarios? Ans: — capacity and pricing
Acquiring or maintaining fixed assets that will be used for more
than a year such as buildings and equipment Ans: — capital
expenditures
Deciding which long-term investments to make Ans: — capital
budgeting
Decisions involve using company funds to invest in long-term
assets such as production facilities and equipment; these decisions
typically involve projects that affect cash flows of the company for
many years Ans: — capital budgeting decisions
© 2025 All rights reserved
