If Managers Make Processing or Selling Decisions Using Incremental Revenue

question 40

Multiple Choice

If managers make processing or selling decisions using incremental revenue / incremental cost approach, which of the following statements is true?

• A) The resulting budgeted product-line income statement under the sales value at split off method, will show each product to have a positive operating income.
• B) The resulting budgeted product-line income statement under the physical measure method, will show each product to have a positive operating income.
• C) The resulting budgeted product-line income statement under the constant gross margin NRV method, will show each product to have a positive (or zero) operating income.
• D) Estimated net-realizable method the resulting budgeted product-line income statement under the estimated NRV method, will show each product to have a zero operating income.
• E) The resulting budgeted product-line income statement under the sales value at split off method, will show each product to have a negative operating income.

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Definitions:

Short Run

A period during which at least one factor of production is considered fixed, limiting the capacity to adjust production levels.

Continue to Operate

A business decision to keep running the operations despite challenges or low profitability in the short term.

Fixed Costs

Expenses that do not change in proportion to the activity of a business, such as rent or salaries.

Monopolistically Competitive

A market structure in which many firms sell products that are similar but not identical, allowing for some degree of market power.