ACCT ch 7

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T or F: allocating joint costs to products at the split-off point is misleading for decision making about the products

True

relevant benefits

a benefit that differs between alternatives in a decision

avoidable cost

a cost that can be eliminated by choosing one alternative over another in a decision

sunk cost

a cost that has already been incurred and that cannot be changed by any decision made now or in the future

constraint

a limitation under which a company must operate such as limited available machine time or raw materials, that restricts the company's ability to satisfy demand

bottleneck

a machine or some other part of a process that limits the total output of the entire system

special order

a one-time order that is not considered part of the company's normal ongoing

linear programming

a quantitative method that can be used to help find the proper combination of products to help get around the given set of constraints

what can make a product line look less profitable than it really is?

allocated common fixed costs

relaxing (or elevating) the constraint

an action that increases the amount of a constrained resource. equivalently, an action that increases the capacity of the bottleneck

intermediate product

an unfinished product

one of the benefits of dropping a product line is that a company can eliminate the product line's _____________ fixed costs

avoidable

one of the benefits of dropping a product line is that a company can eliminate the product line's ______________ fixed costs

avoidable

when making a product line decision, a company may focus on lost _____________ _______________ and avoidable fixed costs or prepare comparative income statements

contribution margin

_______ costs are common costs that are incurred to produce two or more products

joint

allocation of __________ costs is needed for inventory evaluation

joint

improper allocation of ______ costs can lead to incorrect decisions

joint

if a cost is traced to a segment using ABC, it:

may or may not be an avoidable cost of the segment, managers need to be careful with this

can joint costs be avoided once a process is started?

no

are joint costs relevant in decisions regarding what to do with a product from the split-off point forward?

no, joint costs are sunk costs

it is profitable to continue processing a joint product after the split-off point, so long as the incremental ________________ from such processing exceeds the incremental processing cost incurred after the split-off point

revenues

can activity based costing be used to help identify potentially relevant costs for decision-making purposes?

yes , because ABC improves the traceability of costs by focusing on the activities caused by a product or other segment

idle space, space that is not being used, has an opportunity cost of:

zero

split-off point

that point in the manufacturing process where some or all of the joint products can be recognized as individual products

make or buy decision

a decision concerning whether an item should be produced internally or purchased from an outside supplier

sell of process further decision

a decision to whether a joint product should be sold at the split-off point or sold after further processing

relevant cost

a difference in cost between any two alternatives

differential cost

a difference in cost between two alternatives

when a limited resource of some type restricts a company's ability to satisfy demand, the company has a(n) ___________-

constraint

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

contribution margin

the split-off point is the point in the manufacturing process at which the __________ products can be recognized as separate products

joint

differential revenue

the difference in revenue between two alternatives

vertically integrated

the involvement by a company in more than one of the activities in the entire value chain from development through production, distribution, sales, and after-sales service

opportunity cost

the potential benefit that is given up when one alternative is selected over another

joint products

two or more products that are produced from a common input

joint costs

costs that are incurred up to the split-off point in a process that produces joint products

to maximize total contribution margin when a constrained resource exists, produce the products with the:

highest contribution margin per unit of the constrained resource


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