chapter 11

profits

effectively managing an organization's constraint is a key to increased

isolate relevant costs from irrelevant costs

in order to prevent confusion and keep attention focused on critical information, it is desirable to

less vertical integration

the present trend appears to be towards

-salvage value -alternative uses for the equipment

a company is considering buying a component part that they currently make. which of the following items related to the equipment currently being used to make component are relevant to the decision

an avoidable cost

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

-contain sunk costs -are often misleading

average costs

-irrelevant costs may be used incorrectly in the analysis -critical information may be overlooked with the total cost approach -all information needed for the total cost approach is rarely available

isolating relevant costs is desirable because

an incremental cost

an increase in cost between two alternatives is

vertical integration

being less dependent on suppliers and making profits on both parts and the final product are advantages of

contribution margin

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

volume trade off

when demand for products exceeds the production capacity which decision must be made

relevant cost

when planning a trip and deciding to drive your car or take the train gasoline is a

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

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

-focus business process improvement efforts on the bottle neck -find ways to increase the capacity of the bottle neck -ensure there is minimal lost time at the bottleneck due to breakdowns and set ups

which of the following techniques describe how a bottleneck should be managed

vertically integrated

when a company is involved in more than one activity in the entire value chain

contribution margin per unit of constraint

when a constraint exists, companies need to focus on maximizing

a constraint

when a shortage or limited resources of some type restricts a company's ability to satisfy demand, the company has

-sunk costs -future costs that do not differ between alternatives

irrelevant costs include

-incremental -avoidable

synonyms for differential costs include

-there must be idle capacity -normal sales must not be affected

when considering accepting a special order

total cost approach

when considering decision alternatives both relevant and irrelevant costs are included when using the

differential cost approach

when considering decision alternatives, only relevant costs are included when using the

sunk costs

cost that have no impact on future cash flows and irrelevant to decisions are

joint costs

costs incurred up to the split off point in a process in which two or more products are produced from a common input are called

sell or process further decision

deciding what to do with a joint product at the split off point is a

special order

a one time sale that is not considered part of the company's normal ongoing business is referred to as

opportunity

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

a make or buy decision

a decision to carry out one of the activities in the value chain internally, rather than to buy externally from a supplier is called

incremental revenue after split off exceeds the incremental processing cost after split off

a joint product should be processed after split off if the

a value chain

activities ranging from development to production to after sales service are called

define the alternatives

the first step in decision making is to

differential analysis

the key to effective decision making is

a bottleneck

the machine or process that is limiting overall output is called

split off point

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

an opportunity cost

the potential benefit given up when selecting one alternative over another is

-improvements should focus on the constraint -efforts should be focused on the weakest link

to effectively deal with a constraint

joint products

two or more products produced from a common input are called