Chapter 6 Accounting Smartbook

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

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

Irrelevant costs include:

-Sunk costs -Future costs that do not differ between alternatives

Which of the following should not be included in the analysis when making a decision?

-Sunk costs -Non-differential future costs

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.

True or False: Effectively managing an organization's constraints is a key to increased profits.

True

The total cost approach and the differential approach methods of decision analysis _______________ provide the same correct answer.

will always

True or False: Some decisions only have one alternative.

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

The process of determining the maximum allowable cost for a product and developing a profitable prototype is called ______________________________.

Target costing

The process of determining the maximum allowable cost for a product and developing a profitable prototype is called:

Target costing

True or False: When deciding whether to take a train or drive for a weekend trip to visit an out-of-town friend, the monthly fee a student pays to park at school is **not** relevant to the decision.

True

Which of the following can make a product line look less profitable than it really is?

allocated common fixed costs

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

constraint

When a shortage or 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 first step in decision making is to:

define the alternatives

A business segment should only be dropped if a company can save more in ______________ costs than it loses in contribution margin.

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.

fixed

When making a volume-trade off decision, managers should ignore:

fixed costs

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

incremental

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

irrelevant

A decision to carry out one of the activities in the value chain internally, rather than to buy externally from a supplier, is called a(n) _____________ or _______________ decision.

make or buy

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

make or buy

If a cost is traced to a segment using activity-based costing, it:

may or may not be an avoidable cost of the segment

Space being used that would otherwise be idle has a(n) _________________ cost of zero.

opportunity

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

opportunity

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

original cost of the car

Product markup is generally expressed as a(n) ________________ of cost.

percentage

The costs provided by a well-designed activity-based costing system are ________________ relevant to a decision.

potentially

A product's markup is the difference between its selling ________________ and its ____________________.

price cost

Effectively managing an organization's constraints is a key to increased:

profits

Costs and benefits that **always** differ between alternatives are ________________ costs and benefits.

relevant

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

relevant

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

relevant

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

relevant

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

relevant

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.

relevant

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

special

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

special

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

special order

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.

sunk

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

sunk

If a company is using a resource that could be used for some other purpose, the opportunity cost of that resource is:

the profit from the best alternative use of the resource

When a constraint exists, companies need to focus on maximizing

total contribution margin

When demand for products exceeds the production capacity, a ____________ ____________-_______ decision must be made.

volume trade-off

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

False

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

False


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