Multiple Choice
Identify the
letter of the choice that best completes the statement or answers the question.
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1.
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A
business must decide between two mutually exclusive courses of action. Alternative 1 would incur
costs of £17,500 and would yield revenue of £26,000. Alternative 2 would incur costs of
£13,700 and would yield revenue of £25,000. The opportunity cost of choosing Alternative 2
is: a. | £11,300 | c. | £26,000 | b. | £13,700 | d. | £8,500 | | | | |
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2.
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When
making a management decision, a relevant cash flow is one which: a. | Cannot be
affected by the outcome of the decision | b. | Has already occurred | c. | Is a future
incremental cash flow | d. | Can be ignored when making the
decision | | |
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3.
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A
sunk cost is one which: a. | Will be incurred at some point in the
future | b. | Is relevant to a management decision | c. | Might or might
not be incurred in the future, depending upon the outcome of a management
decision | d. | Has already been incurred | | |
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4.
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A
weakness which is inherent in an analysis of relevant cash flows is: a. | The analysis
ignores sunk costs | c. | The analysis
ignores opportunity costs | b. | The analysis is based upon
predictions | d. | The analysis is
based upon objective fact | | | | |
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5.
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A
company which makes several different products has analysed the revenues and costs associated with
each product for the year which has just ended. The analysis assumes that fixed costs should be
allocated to products in proportion to the number of units of each product which have been made and
sold during the year. On the basis of this analysis, the company should discontinue a product
if: a. | The product has
made a loss for the company | b. | The product has made a lower contribution to fixed costs than
any other product | c. | The fixed costs allocated to the product exceed the
contribution made by the product | d. | The variable costs of the product exceed the revenue derived
from sales of the product | | |
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6.
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The
role of accounting information for decision making is: a. | To reduce
uncertainty | b. | To remove uncertainty | c. | To eliminate
choice | d. | To ensure that the right decision is always
taken | | |
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