MBA 620 FINAL EXAM SCRIPT 2026
COMPLETE QUESTIONS ACCURATE
ANSWERS
◉ 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. Answer: 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 Answer: 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 Answer: 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. Answer: make-or-buy decision
,◉ A cost that can be avoided, or eliminated, if one alternative is chosen
over another (also differential costs) Answer: avoidable cost
◉ How is differential analysis used in deciding whether to keep or drop
product lines?
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
___________ Answer: 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 Answer: 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 Answer: allocated fixed costs
◉ Managers often use ________ as a determining factor for deciding
whether to keep or drop customers and products Answer: profit
, ◉ For product line decisions, _______ and _______ are assigned to
individual product lines. For customer decisions, both are assigned to
individual customers. Answer: revenues and costs
◉ Is used for both product line and customer decisions to asses the
profitability of various alternatives Answer: contribution margin income
statement
◉ What two assumptions must be considered when evaluating special
order scenarios? Answer: capacity and pricing
◉ Acquiring or maintaining fixed assets that will be used for more than
a year such as buildings and equipment Answer: capital expenditures
◉ Deciding which long-term investments to make Answer: 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
Answer: capital budgeting decisions
◉ Describes the value of future cash flows (both in and out) in today's
dollars Answer: present value
COMPLETE QUESTIONS ACCURATE
ANSWERS
◉ 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. Answer: 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 Answer: 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 Answer: 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. Answer: make-or-buy decision
,◉ A cost that can be avoided, or eliminated, if one alternative is chosen
over another (also differential costs) Answer: avoidable cost
◉ How is differential analysis used in deciding whether to keep or drop
product lines?
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
___________ Answer: 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 Answer: 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 Answer: allocated fixed costs
◉ Managers often use ________ as a determining factor for deciding
whether to keep or drop customers and products Answer: profit
, ◉ For product line decisions, _______ and _______ are assigned to
individual product lines. For customer decisions, both are assigned to
individual customers. Answer: revenues and costs
◉ Is used for both product line and customer decisions to asses the
profitability of various alternatives Answer: contribution margin income
statement
◉ What two assumptions must be considered when evaluating special
order scenarios? Answer: capacity and pricing
◉ Acquiring or maintaining fixed assets that will be used for more than
a year such as buildings and equipment Answer: capital expenditures
◉ Deciding which long-term investments to make Answer: 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
Answer: capital budgeting decisions
◉ Describes the value of future cash flows (both in and out) in today's
dollars Answer: present value
