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Free CMA Exam Braindumps (page: 113)

Page 113 of 336
PDF with 1336 Questions
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Incremental cost is

  1. The difference in total costs that results from selecting one choice instead of another.
  2. The profit forgone by selecting one choice instead of another.
  3. A cost that continues to be incurred in the absence of activity.
  4. A cost common to all choices in question and not clearly or feasibly allocable to any of them.

Answer(s): A

Explanation:

Incremental cost is the difference in total cost between two courses of action. "Decremental cost" is the term used when the difference is noted as a decline although "incremental" is the more common term. Incremental cost is also referred to as differential cost.



View Related Case Study

A company will produce 20000 units of product A at a unit variable cost of $7 and a unit selling price of $13. Fixed costs are $40,000. However, the company will still have 40% idle capacity. The company can use this idle capacity to produce 6,000 units of a different product B, which it can sell for $7 per unit. The incremental variable cost of producing a unit of B is $6. Present fixed costs that will be allocated to B amount to $10,000. To decide whether to produce B, the company should use

  1. Differential cost analysis.
  2. Information economics.
  3. Regression analysis.
  4. Markov chain analysis.

Answer(s): A

Explanation:

Nonroutine decisions involve such questions as whether to make or buy or accept a special order. These decisions should be made in part on the basis of relevant costs. Analysis of differential costs is therefore 1essentiaI). The difference between the relevant costs of two decision choices is differential (incremental) cost.



View Related Case Study

Which one of the following costs would be relevant in short-term decision making?

  1. Incremental fixed costs.
  2. All costs of inventory.
  3. Total variable costs that are the same in the considered alternatives.
  4. Costs of fixed assets to be used in the alternatives.

Answer(s): A

Explanation:

Relevant costs are those future costs that differ among the options. Incremental or differential cost is the difference in total cost between two decisions. Consequently, incremental fixed cost is a relevant cost.



View Related Case Study

When a decision is made in an organization, it is selected from a group of alternative courses of action. The loss associated with choosing the alternative that does not maximize the benefit is the

  1. Net realizable value.
  2. Expected value.
  3. Opportunity cost.
  4. Incremental cost.

Answer(s): C

Explanation:

Opportunity' cost is the maximum benefit obtainable from the next best alternative use of a resource. It is the benefit given up by not selecting that option.



Page 113 of 336



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