Managerial Accounting Chapter 10

outsourcing

act of using another company to provide goods or services that your company requires

avoidable cost

cost that can be eliminated (in whole or in part) by choosing one alternative over another

sunk cost

cost that cannot be avoided because it has already occurred

unavoidable cost

cost that does not go away in the short-run by choosing one alternative over another

irrelevant cost

cost that has no effect on the decision being made because it is the same under either alternative

relevant cost

cost that influences the decision being made

opportunity costs

costs associated with not choosing the other alternative

allocated costs

costs that are generated by non-revenue generating portions of the business, such as corporate headquarters, that are assigned based on some formula to the revenue generating portions of the business

joint costs

costs that have been shared by products up to the split-off point

bottleneck

point at which a constraint slows production

split-off point

point at which some products are removed from production and sold while others receive additional processing

segment

portion of the business that management believes has sufficient similarities in product lines, geographic locations, or customers to warrant reporting that portion of the company as a distinct part of the entire company

relevant range

quantitative range of units that can be produced based on the company's current productive assets; for example, if a company has sufficient fixed assets to produce up to 10,000 units of product, the relevant range would be between 0 and 10,000 units

irrelevant revenue

revenue that has no effect on the decision being made

relevant revenue

revenue that influences the decision being made

constraint

scarce resource that limits output or productive capacity of an organization

unit contribution margin

selling price per unit minus variable cost per unit

differential analysis

type of analysis that considers only the differences between variables that are important to the analysis

unit contribution margin per production restraint

unit contribution margin divided by the production restrain

normal capacity

company's maximum production level, without adding additional production resources, or within the company's relevant range

quantitative factor

component of a decision-making process that can be measured numerically

qualitative factor

component of a decision-making process that cannot be measured numerically

short-term decision analysis

determining the appropriate elements of information necessary for making a decision that will impact the company in the short term, usually 12 months or fewer, and using that information in a proper analysis in order to reach an informed decision among alternatives

differential cost

difference between costs for alternatives

differential revenue

difference between revenues for alternatives

special order

one-time order that does not typically affect current sales