LearnSmart Chapter 7
Which of the following should not be included in the analysis when making a decision?
Skunk costs & Non-differential future costs
When should a special order be accepted?
When the incremental revenue from the special order exceeds the incremental costs of the order
Potential advantages of dropping a product line or other segment include:
an overall increase in net operating income & avoiding more fixed costs than the company loses in contribution margin
Bad decisions can easily result from erroneously including _______ costs and benefits when analyzing activities.
irrelevent
The costs provided by a well-designed activity based costing system are _______ relevant to a decision.
potentially
When planning a trip and deciding to drive your car or take the train, gasoline is a(n) ______ cost.
relevant
Deciding what to do with a joint product at the split-off point is a(n) _______ or _______ ________ decision.
sell; process further
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 ________ costs.
joint
Which of the following are ways to increase the capacity of a bottleneck?
Investing in additional machines at the bottleneck & Shifting workers from processes that are not bottlenecks to the process that is the bottleneck
True or false: Mingling irrelevant and relevant costs may cause confusion and distract attention from critical information.
True
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
To maximize total contribution margin when a constrained resource exists, produce the products with the:
highest contribution margin per unit of the constrained resource
When there is a constrained resource, the best way to increase profits is to:
increase the capacity of the bottleneck
A joint product should be processed after the split-off if the:
incremental revenue after split-off exceeds the incremental processing cost after split-off
The split-off point is the point in the manufacturing process at which the ______ products can be recognized as separate products.
joint
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; buy
Any final decision to drop or add a business segment is going to hinge primarily on the impact the decision will have on net _____ _____.
operating income
The potential benefit given up when selecting one alternative over another is a(n) ______ cost.
opportunity
A one-time order that is not considered part of the company's normal ongoing business is a ______ order.
special
The capacity of a bottleneck can be effectively increased by:
subcontracting some of the processing that would be done in the area & focusing business process improvement efforts on the bottleneck
A cost that can be eliminated by choosing one alternative over another is a(n) _______ cost.
avoidable
Which of the following are ways in which to calculate the benefit of selecting one alternative over another?
An analysis that looks at all costs and benefits and identifies those that are differential, An analysis that just looks at the relevant costs and benefits, & The difference between the net operating income for the two alternatives
Which of the following techniques describes how a bottleneck should be managed?
Focus business process improvement efforts on the bottleneck, Find ways to increase the capacity of the bottleneck, & Ensure there is minimal lost time at the bottleneck due to breakdowns and set-ups
Managers may choose to retain an unprofitable product line because it:
attracts customers & helps sell other products
ABC Lumber spent $1,000 cutting down a tree. The result was 40 pieces of unfinished lumber that sell for $20.00 each and 100 bags of sawdust that sell for $1.00 each. If the unfinished pieces of lumber are processed into finished lumber at a cost of $8.00 each, they will sell for $35.00. A bag of sawdust can be processed into Presto Logs that sell for $1.25 at a cost of $0.75 per bag. Which of the following statements are true concerning whether the unfinished pieces of lumber should be processed into finished lumber and whether the sawdust should be processed into Presto Logs?
The sawdust should be sold as is without being processed into Presto Logs & The pieces of unfinished lumber should be processed
One of the benefits of dropping a product line is that a company can eliminate the product line's _______ fixed costs.
avoidable
If a company has a resource that could be used for something else, the ______ cost is the profit that could be derived from the best alternative use of the resource.
opportunity
Which of the following can make a product line look less profitable than it really is?
Allocated common fixed costs
What is the typical approach to allocating joint costs to products?
Allocating the costs based on the relative sales value of the end products
When the total amount of the cost is going to be the same regardless of the alternatives selected in a decision, what should be done about the cost in the decision analysis?
Ignore the cost
When a limited resource of some type restricts a company's ability to satisfy demand, the company has a(n) _______.
constraint
When a constraint exists, companies need to focus on maximizing:
contribution margin per unit of constraint
Costs that differ between alternatives are called ______ costs.
differential
True of false: Sunk costs are always the same regardless of the alternative, which is why they are irrelevant in decision making.
True
The machine or process that is limiting overall output is called a(n) _______.
bottleneck
When dealing with a constrained resource, managers should focus their attention on managing the:
bottleneck
