Accounting 2300 Final

- do not have enough capacity to satisfy the demand for all of its products - must trade off units of one product for units of another due to limited production capacity

A company must make a volume trade-off decision when they ______. - have excess capacity that is not currently being utilized - do not have enough capacity to satisfy the demand for all of its products - must trade off units of one product for units of another due to limited production capacity

sunk

A cost that has already been incurred and cannot be avoided regardless of what a manager decides to do is referred to as a(n) _________ cost.

constraint

A limited resource of some type that restricts the company's ability to satisfy demand is a(n) ______.

special

A one-time order that is not considered part of the company's normal ongoing business is called a ______ order.

special order

A one-time sale that is not considered part of the company's normal ongoing business is referred to as a(n) ______ ________ decision

differential/incremental

An increase in cost between two alternatives is a(n) _______ cost

constraint

Anything that prevents you from getting more of what you want is a(n)

irrelevant

Costs and benefits that should be ignored when making decisions are called ______ costs and benefits.

sunk

Costs that have no impact on future cash flows and are irrelevant to decisions are ______ costs.

make or buy

Determining whether to carry out an activity in the value chain internally or use a supplier is a ______ decision.

relevant

Differential revenue is an example of a(n) ______ benefit.

irrelevant

Future costs and benefits that do not differ between alternatives are ______ costs to the decision-making process.

opportunity

If a company has a resource that could be used for something else, the ______ cost is the profit that could be derived from the best alternative use of the resource.

Sunk costs are always irrelevant when choosing among alternatives

Key concept #4

- working overtime on the bottleneck -subcontracting some of the processing that would be ordinarily done at the bottleneck -investing in additional machines at the bottleneck -shifting workers from processes that are not bottlenecks to the process that is the bottleneck -focusing business process improvement efforts on the bottleneck -reducing defective units. Each defective unit that is processed through the bottleneck and subsequently scrapped takes the place of a good unit that could have been sold

The capacity of a bottle neck can be increased by:

define the alternatives- examples make or buy are alternatives or keep or drop

The first step in decision making is to

opportunity

The potential benefit given up when selecting one alternative over another is a(n) ______ cost.

zero

When a resource, such as space in the factory, has no alternative use, its opportunity cost is ______.

relevant

When planning a trip and deciding to drive your car or take the train, gasoline is a(n) ______ cost.

Allocated common fixed costs

Which of the following can make a product line look less profitable than it really is? -common variable costs -allocated common fixed costs

sunk and non-differential future costs

Which of the following should not be included in the analysis when making a decision? - opportunity costs - sunk costs - avoidable costs - non-differential future costs

irrelevant costs and irrelevant benefits

_________ should be ignored when making decisions

make or buy

A decision to carry out one of the activities in the value chain internally rather than to purchase externally from a supplier is a ______ decision.

Future costs and benefits that DO NOT DIFFER BETWEEN ALTERNATIVES are irrelevant to the decision-making process

Key concept #5

Opportunity costs need to be considered when making decisions

Key concept #6

fixed

One of the great dangers in allocating common _____ costs is that such allocations can make a product line look less profitable than it really is.

Identify criteria for choosing among the alternatives--- identify relevant costs and benefits

The second step in decision making is to

perform a differential analysis--- focusing on the future costs and benefits that differ between the alternatives

The third step in decision making is to

False- Depreciation spreads sunk costs across the life of the assets and is not relevant.

True or false: Depreciation of existing assets is relevant to decisions.

False

True or false: Opportunity costs are not found in accounting records because they are not relevant to decisions.

False: Every decision involves choosing from at least two alternatives, even if the alternatives are yes or no.

True or false: Some decisions only have one alternative.

joint

Two or more products that are produced from a common input are known as ________ products.

relevant

When making a decision only ______ costs and benefits should to be included in the analysis.

original cost of the car

When planning a trip and deciding whether to drive or fly, the ______ is a sunk cost and should be ignored.

relevant- Car repairs and maintenance are related to usage, so driving for a trip will impact the need for repairs and maintenance.

When planning a trip and making a decision to drive or take the train, the cost of car repairs and maintenance is a(n) ______ cost.

irrelevant

When deciding whether to drive your car or take a train to a destination, the costs for your car insurance and driver's license are ______ costs.

irrelevant - The cost of boarding is the same whether you fly or take the train so it is irrelevant. The cost of boarding is a future, not a sunk cost.

When deciding whether to fly or take the train on a trip, the cost of putting your pet in a boarding facility while you are away is a(n) ______ cost.

volume trade-off

When demand for products exceeds the production capacity, a(n)_____ _____-_______ decision must be made.

irrelevant in decisions regarding what to do with a product after split-off

Joint costs are ______. -irrelevant in decisions regarding what to do with a product after split-off - common costs that must be allocated to make decisions about the individual products - increased or decreased after the split-off point - economically attributable to all end products

never - Joint costs are sunk costs and always irrelevant from the split-off period forward.

Joint costs incurred prior to the split-off point are ______ relevant in decisions regarding what to do from the split-off point forward.