Multiple Choice questions on cost management basics.

1. The book value of an old machine is always considered a sunk cost in a decision between alternatives.

a)     True

b)    False

2. When a company has a production constraint, the product with the highest contribution margin per unit of the constrained resource should be given the highest priority.

a)     True

b)    False

3. In a sell or process further decision, an avoidable fixed production cost incurred after the split-off point is relevant to the decision.

a)     True

b)    False

4. Joint processing after the split-off point is profitable if the incremental revenue from such processing exceeds the incremental processing costs.

a)     True

b)    False

5. Both the net present value method and the internal rate of return method can be used as a screening tool in capital budgeting decisions.

a)     True

b)    False

6. When discounting cash flow methods of capital budgeting are used, the working capital required for a project is ordinarily counted as a cash outflow at the beginning of the project and as a cash inflow at the end of the project.

a)     True

b)    False

7. The salvage value of new equipment should not be considered when using the internal rate of return method to evaluate a project.

a)     True

b)    False

8. In the payback method, depreciation is added back to net operating income when computing the net annual cash flows.

a)     True

b)    False