Chapter 10 LearnSmart

T/F: Effectively managing an organization's constraints is a key to increased profits.

True

When a constraint exists, companies need to focus on maximizing:

contribution margin per unit of constraint

The decision to add or drop a product line should be based on the impact the decision will have on:

net operating income

It is often possible for a manager to increase the capacity of a bottleneck, which is called ________ the constraint.

relaxing

Only rarely will enough information be available to prepare a detailed income statement for both alternatives in a decision. This makes isolating ________ costs desirable.

relevant

Activities ranging from development to production to after-sales services are called a(an) _______ ________.

value chain

When a company is involved in more than 1 activity in the entire value chain, it is ________ ________.

vertically integrated

When making a product line decision, a company may focus on lost ________ ________ and avoidable fixed costs or prepare comparative income statements.

contribution margin

Which of the following techniques describes how a bottleneck should be be managed?

- Focus business process improvement efforts on the bottleneck - Ensure there is minimal lost time at the bottleneck due to breakdowns and setups - Find ways to increase the capacity of the bottleneck

Which of the following are ways in which to calculate the benefit of selecting one alternative over another?

- The difference between the net operating income for the two alternatives - An analysis that just looks at the relevant costs and benefits - An analysis that looks at all costs and benefits and identifies those that are differential

Managers may choose to retain an unprofitable product line because it:

- helps sell other products - attracts customers

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

highest contribution margin per unit of the constrained resource