cob 242 exam 4

Which of the following is an advantage of buying a part instead of making it? Companies can realize profits from the parts and materials that it makes in addition to profits from its regular operations. Buying from suppliers ensures a smoother flow of parts and materials. Economies of scale can result in higher quality and lower costs from suppliers. Companies can control quality better by purchasing from a supplier.

.Economies of scale can result in higher quality and lower costs from suppliers.

Steps in decision making

1. Define the alternatives being considered 2. Identify relevant costs and benefits 3. Perform a differential analysis

Residual income is a better measure for performance evaluation of an investment center manager than return on investment because _________________. a. It encourages managers to make investments that are profitable for the entire company b. It can be used to compare the performance of divisions of different sizes c. It does not measure performance based on operating assets d. Letter A and B are correct

A

The performance evaluation of a cost center is typically based on its a. Return on investment b. Flexible budget variance c. Residual income d. Sales revenue

B

A manager can increase return on investment by doing which of the following? a. Increase operating assets b. Decrease sales c. Decrease operating expenses d. Letter A and C are correct

C

Air Capital, Inc. is trying to decide whether to buy a private jet or to lease one. The finder's fee is incurred only if the private jet is bought. The finder's fee is what type of cost for this decision? a. Sunk cost b. Unavoidable cost c. Relevant cost d. Irrelevant cost

C

Residual Income

Net Operating Income - (Average Operating Assets x Minimum Required Rate of Return)

return on investment

Net Operating Income / Average Operating Assets

margin

Net Operating Income / Sales

EBIT is another term for ______.

Net operating income

turnover

Sales / Average Operating Assets

relevant benefit

a benefit that should be considered when making decisions

avoidable cost

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

Relevant cost

a cost that should be considered when making decisions

incremental cost

an increase in cost between two alternatives

A cost that can be eliminated by choosing one alternative over another is a(n)____________ cost

avoidable or relevant

When dealing with a constrained resource, managers should focus their attention on managing the ______.

bottleneck

Operating Assets

cash, accounts receivable, inventory, plant and equipment, and all other assets held for operating purposes

Anything that prevents you from getting more of what you want is a(n)

constraint

When a constraint exists, companies need to focus on maximizing ______.

contribution margin per unit of constraint

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

fixed

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

income/profit statement

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

joint

Costs and benefits that always differ between alternatives are Blank______ costs and benefits.

revelent

Deciding what to do with a joint product at the split-off point is a(n) ______________ or _________ _____________ decision

sell or process further

irrelevant costs

should be ignored when making decisions

differential cost

A future cost that differs between any two alternatives. Always relevant costs

Which of the following attempts to match the sunk cost of an asset with the periods that benefit from that cost? Accounting depreciation only Neither economic nor accounting depreciation Economic depreciation only Both economic and accounting depreciation

Accounting depreciation only

Roger Rabbit Enterprises is considering whether to discontinue a division that generates a total contribution margin $66,000 per year and has net operating income of $16,000. Fixed manufacturing overhead allocated to this division is $50,000, of which $19,000 is unavoidable. If Roger Rabbit Enterprises were to eliminate this division, the effect on the company's net operating income would be a(n) a. Increase in total operating income of $35,000 b. Decrease in total operating income of $35,000 c. Increase in total operating income of $47,000 d. Decrease in total operating income of $47,000

B Contribution margin lost if division eliminated ........... $(66,000) Less fixed manufacturing costs that can be avoided: ($50,000 - 19,000) 31,000 Net disadvantage of dropping the division .................. $(35,000)

Two or more products that are produced from a common input are known as __________ products

joint

The present trend appears to be towards Blank______ vertical integration.

less

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

make or buy

When managers are evaluated on residual income, rather than on return on investment (ROI), they will be Blank______ likely to pursue projects that will benefit the entire company.

more

The reduction in resale value of an asset through use or over time is called ______________ or _______________ depreciation

real and economic

a company can increase its return on investment by ________. borrowing additional funds reducing operating expenses increasing sales increasing operating assets

reducing operating expenses increasing sales

When a manager accepts a project because the net operating income from the investment exceeds the minimum acceptable profit based on required rate of return, the investment was evaluated based on

residual income

Which of the following evaluation measures are used for investment center managers only—not for cost or profit center managers? Residual income Actual profits compared to budgeted profits Return on investment (ROI) Standard cost variances

residual income and return on investment

contribution margin

revenue - variable costs

breakeven point

total fixed costs / contribution per unit

A set of activities ranging from development to production to after-sales service is called ________________

value chain

Which term refers to a company that is involved in more than one activity in the value chain?

vertical integration

When demand for products exceeds the production capacity, a(n) __________ ______________ - _________

volume trade off