Accounting Module 6

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

Make or buy decision

avoidable cost

a cost that can be eliminnated by choosing one alternative over another.

sunk cost

a cost that has already been committed and cannot be recovered

Potential advantages of dropping a product line or other segment include

avoiding more fixed costs than the company loses in contribution margin and overall increase in net operating income

The machine or process that is limiting overall output is a

bottleneck

One of the dangers in allocating common____ cosdts is that such allocations can make a product line look less profitable than it really is.

common fixed costs

differential analysis

focusing on the future costs and benefits that differ between the alternatives

irrelevant costs

future costs and benefits that do not differ between alternatives are ___ costs to the decision making process.

differential revenue

future revenue that differs between any two alternatives

incremntal cost

is an increase in cost between two alternatives

Allocated commonfixed costs

makes a product line look less profitable than it really is

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

never

when making a decision ___ costs & benefits should be included in the analysis

only relevant

Deciding what to do with a joint product at the split-off point is a(n)

sell, process, further

When demand for products exceeds the production capacity, a(n)

volumn trade off decision

The point in the manufacturing process at which joint products can be recognized as separate products is called the Blank______ point.

split off

A business segment should only be dropped if a company can avoid more in fixed costs than it gives up in

Contribution margin

A company must make a volume trade-off decision when they ______.

Do not have enough capacity to satisfy all product demand must trade off units of one product for units of another

differential cost

a future cost that differs between any two alternatives. Differntail costs are always relevant costs.

total cost approach

considering both relevant and irrelevant cost

When making a product line decision, a company may focus on lost contribution margin and avoidable fixed costs or prepare comparative

income statement

opportunity cost

The potential benefit given up when selecting one alternative over another

When a product is past the split-off point, but is not yet a finished product, it is called a(n)

intermediate

As it applies to sell or process further decisions, which term refers to a product that is in the process of being made?

intermediate product

vertical integration

Being less dependent on suppliers and making profits on both parts and the final product

what are two anaylsis that should not be included in the decision making

sunk costs & Non-differential future costs

The first step in decision making is to

define the alternatives

What is the key to effective decision making?

differential analysis. Focusing on the future costs and benefits that differ between the alternatives.