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Free CMA Exam Braindumps (page: 109)

Page 109 of 336
PDF with 1336 Questions
View Related Case Study

In a decision analysis situation1 which one of the following costs is generally not relevant to the decision?

  1. Incremental cost.
  2. Differential cost.
  3. Avoidable cost.
  4. Historical cost.

Answer(s): D

Explanation:

Management decision analysis is based on the concept of relevant costs. Relevant costs differ among decision choices. Thus, incremental (differential or avoidable) costs are always relevant. Opportunity cost is also relevant because it is the benefit forgone by selecting one choice instead of another. Historical costs, because they occurred in the past, are sunk costs and not relevant to most management decisions.



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All of the following costs are relevant to a decision to accept or reject an order except

  1. Differential costs.
  2. Out-of-pocket costs.
  3. Replacement costs.
  4. Sunk costs.

Answer(s): D

Explanation:

A sunk cost cannot be avoided because either the expenditure has occurred, or an irrevocable decision to incur the cost has been made. Sunk costs are irrelevant to management decision-making because they cannot vary with the option selected.



View Related Case Study

A cost that can be saved by not adopting a particular option is a(n)

  1. Imputed cost.
  2. Avoidable cost.
  3. Unavoidable cost.
  4. Postponable cost.

Answer(s): B

Explanation:

An avoidable cost is one that can be saved by not adopting a particular alternative.



View Related Case Study

Which one of the following is most relevant to a manufacturing equipment replacement decision?

  1. Original cost of the old equipment.
  2. Disposal price of the old equipment.
  3. Gain or loss on the disposal of the old equipment.
  4. A lump-sum write-off amount from the disposal of the old equipment.

Answer(s): B

Explanation:

Management decision analysis is based on the concept of relevant costs. Relevant costs differ among decision choices. Thus, incremental or differential costs are always relevant. Because they were incurred in the past, historical costs, such as the original cost of the equipment, are not relevant. Similarly, any gain or loss on the old equipment is not relevant because this amount is based on the historical cost. However, the disposal price of the old equipment is relevant because it involves a future cash inflow that will not occur unless the equipment is disposed of.



Page 109 of 336



Post your Comments and Discuss Financial CMA exam with other Community members:

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Still the test is under process
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