1.

 Accounting contributes to management’s decision making process through internal reports that review the actual impact of the decision.

2.

 In making business decisions, management ordinarily considers both financial and nonfinancial information.

3.

 The process used to identify the financial data that change under alternative courses of action is called allocation of limited resources.

4.

 Incremental analysis involves only identifying relevant revenues and costs.

5.

 Costs and revenues that differ across alternatives are called relevant costs.

6.

 Variable costs may not change under alternative courses of action, while fixed costs may change.

7.

 When deciding whether to accept an order at a special price, management should make its decision on the basis of the total cost per unit and the expected revenue.

8.

 If a company is operating at full capacity, the incremental costs of a special order will likely include fixed manufacturing costs.

9.

 An example of an incremental analysis decision is make or buy.

11.

 The basic decision rule in a sell or process further decision is: sell without further processing as long as the incremental revenue from processing exceeds the incremental processing costs.

12.

 Sell or process further decisions are particularly applicable to production processes that produce multiple products simultaneously.

13.

 An important factor to be considered in a retain or replace equipment decision is the book value of the old equipment.

14.

 A trade-in allowance or cash disposal value of an existing asset in a retain or replace equipment decision is irrelevant.

15.

 In deciding on the future status of an unprofitable segment, management should recognize that net income could decrease by eliminating the unprofitable segment.

16.

 When deciding how to allocate limited resources, the contribution margin per unit of limited resource must be determined.

17.

 The process of making capital expenditure decisions in business is known as capital budgeting.

18.

 The annual rate of return is computed by dividing expected annual net income by average investment.

19.

 The cost of capital is the cost of funding a specific project.

20.

 The cash payback technique identifies the time period required to recover the cost of the capital investment from the net annual cash inflow produced by the investment.

21.

 The most informative and best conceptual approach to capital budgeting is the discounted cash flow technique.

22.

 The discounted cash flow technique considers estimated total cash inflows from the investment but not the time value of money.

23.

 Under the net present value method, a proposal is acceptable only when there is a positive net present value.

24.

 The lower the positive net present value, the more attractive the investment.

25.

 Under the internal rate of return method, the project is rejected when the internal rate of return is less than the required rate.