2071 assign chap 7

Incremental analysis ______.

-is also called differential analysis -may be referred to as relevant costing

Select all that apply It is important to review the results of decisions because ______.

-there are likely to be unexpected costs and benefits -feedback is an important component of managerial accounting -corrective action may be needed

True or false: When making a decision, only quantitative factors should be considered.

False Reason: Both quantitative and qualitative factors should be considered.

When making a decision a company should consider ______.

relevant costs and benefits

Deciding what to do with a product that is salable or could be enhanced is a ______ decision.

sell-or-process-further

Common fixed costs ______.

will be incurred even if a segment is eliminated

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

special

When deciding whether to sell a product as is or continue to process it, costs incurred to get the product to its current condition ______ relevant to the decision

are not Reason: The costs already incurred are sunk and never relevant.

A cost that can be eliminated in whole or in part by choosing one alternative over another is a(n) ______ cost.

avoidable

When making a decision, ______ should be considered.

both quantitative and qualitative data

The number of customers who can be seated in an auditorium is a measure of the facility's ______.

capacity

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

contribution margin per unit of constraint

Identifying the decision problem is the ______ step in the decision-making process.

first

The calculation of segment margin ______.

includes both variable and direct fixed costs

Deciding to carry out an activity internally or buy externally from a supplier is called a ______ decision.

make-or-buy

Opportunity costs are ______.

only relevant when capacity is limited

When making a decision to drive or take the train on a trip, the cost of the train ticket is a(n) ______ cost.

relevant

You are planning a trip and deciding whether to drive your car or take the train. The cost of gasoline is a(n) ______ cost.

relevant

Select all that apply In the long term, companies can manage constrained resources by ______.

-hiring more workers -increasing capacity

When considering a keep-or-drop decision, it is important to consider---- , such as whether the elimination of the segment will free resources that could be used in another way. (Enter only one word per blank.)

Blank 1: opportunity Blank 2: costs or cost

Make-or-buy decisions are also referred to as-- decisions. (Enter only one word per blank.)

Blank 1: outsourcing

Costs that differ between alternatives are called-- costs. (Enter only one word per blank.)

Blank 1: relevant, avoidable, differential, or incremental

True or false: Qualitative factors should be considered in special-order decisions.

True Reason: Both opportunity costs (lost sales) and unhappy customers (qualitative) factors should be considered.

A(n) ______ limits a system's overall output.

bottleneck

When planning a 5-day trip and making a decision to drive or take the train, the cost of boarding your dog while you are away is a(n) ______ cost

irrelevant

The process of making a decision ______.

is basically the same for all decisions

If, by dropping a segment, a company cannot avoid as much in direct fixed costs as it loses in contribution margin, the company should ______ the segment.

keep Reason: If the contribution margin is greater than the direct fixed costs, dropping the segment will reduce overall operating income.

Given the following, determine if a buy price of $4.00 per unit for 3,000 units should be accepted. Total variable production costs of making the units equal $11,100, and total production fixed costs are $3,500. Of the fixed costs, $1,500 is avoidable if the units are purchased. Based on price, the company should (make/buy) the units at a total net benefit of $ . (Enter your answer as a whole number.)

Blank 1: buy Blank 2: 600

When performing a keep-or-drop decision analysis,-- fixed costs should be excluded from the analysis. (Enter only one word per blank.)

Blank 1: common or irrelevant

Managers must prioritize how products are produced when faced with a(n)-- resource. (Enter only one word per blank.)

Blank 1: constrained or limited

Once you have identified a problem, the next step is to determine the possible solutions, which are called-- . (Enter only one word per blank.)

Blank 1: decision Blank 2: alternatives

A fixed cost that can be traced to a specific business segment is called a(n)-- fixed cost. (Enter only one word per blank.)

Blank 1: direct or relevant

When a company has more than enough resources to satisfy demand it is operating with-- capacity. (Enter only one word per blank.)

Blank 1: excess or idle

Opportunity costs become relevant when a company is operating at---- . (Enter only one word per blank.)

Blank 1: full, maximum, or max Blank 2: capacity

Jay's Furniture makes couches and love seats. Last year the total contribution margin was $900,000 for couches and $350,000 for love seats. Love seats had a segment margin of $50,000 and common fixed costs of $100,000, so the company is considering stopping love seat production. If that happens, sales of couches are expected to increase by 10%, The net impact of stopping production of love seats will (increase/decrease) profits by $.

Blank 1: increase Blank 2: 40,000 or 40000

Comparing the relevant costs and benefits of alternative decision choices is called-- analysis. (Enter only one word per blank.)

Blank 1: incremental or differential

Fill in the blank question. When choosing between two alternatives, such as replacing or not replacing a machine, do not-- include costs in the analysis because these costs will be the same under each alternative. (Enter only one word per blank.)

Blank 1: irrelevant, sunk, or unavoidable

When making decisions, managers should ignore-- costs. (Enter only one word per blank.)

Blank 1: irrelevant, sunk, or unavoidable

Continue-or-discontinue decisions are commonly known as-- -or- --decisions. (Enter only one word per blank.)

Blank 1: keep Blank 2: drop

The forgone benefit of choosing one decision alternative over another is its---- . (Enter only one word per blank.)

Blank 1: opportunity Blank 2: cost or costs

Deciding to accept a sales request that is outside the scope of normal sales is called a(n)----decision. (Enter only one word per blank.)

Blank 1: special or specialty Blank 2: order

Which of the following is a limitation of some type that restricts a company's ability to satisfy demand?

Constrained resource

Stephens Co. can purchase 20,000 units of Part XYZ from a supplier for $18 per part. Stephens's per-unit manufacturing costs for 20,000 units are:

Continue to make—$60,000 advantage Reason: If the company stops making the part, $15 cost per unit will be eliminated (variable costs + supervisor's salary). Thus, they save $3 per unit ($18 - $15) or $60,000 in total by continuing to make the part.

Which of the following is NOT a question managers need to consider when making a keep-or-drop decision?

How much is the salary of the company CEO?

True or false: A sunk cost may be used to evaluate the outcome of previous decisions.

True Reason: Sunk costs are not relevant to future decisions, but they may be used to evaluate previous decisions.

True or false: An important consideration in a keep-or-drop decision is the impact on the costs and revenues of other segments.

True Reason: The elimination of a segment may impact sales of other segments.

True or false: Incremental analysis is a decision-making approach that compares the relevant costs and benefits of decision alternatives.

True Reason: With incremental analysis you isolate the information that is relevant to the decision.

Sales revenue minus all fixed and variable costs attributable to a particular division is called ______.

segment margin

Determining decision alternatives ______.

is a critical step in the decision-making process

Reviewing the results of a decision _____.

is an important final step in decision making

A cost that can be eliminated by choosing one alternative over another is called a(n)-- cost. (Enter only one word per blank.)

Blank 1: avoidable or relevant

The most constrained resource in called the-- . (Enter only one word per blank.)

Blank 1: bottleneck

A measure of the limit placed on a specific resource is known as its-- . (Enter only one word per blank.)

Blank 1: capacity

A business segment should only be dropped if a company can save more in fixed costs than it gives up in ______.

contribution margin

When the total amount of the cost will be the same regardless of the alternatives selected in a decision, the cost should be ______ when doing decision analysis

excluded

When the total amount of the cost will be the same regardless of the alternatives selected in a decision, the cost should be ______ when doing decision analysis.

excluded

When there is excess capacity, an analysis of a special order ______.

excludes fixed costs

Goodstone Tire Corporation sells tires for $90 each. Per-unit costs associated with producing and selling the tires are: Direct materials $35; Direct labor $10; Factory overhead $20. The variable portion of the factory overhead is $8 per unit. A foreign company wants to purchase 1,000 tires for $65 each. Assuming that Goodstone has excess capacity, ______.

the incremental profit from the special order will be $12,000 Reason: The revenue per tire is $65 and the cost is $53 (direct materials, direct labor, variable overhead), so each tire will generate $12 in incremental profit or $12,000 total.

Select all that apply Which of the following statements are true?

-Advertising for a specific product line is a direct fixed cost. -Direct fixed costs can include fixed machinery costs. -Direct fixed costs are avoidable if a segment is eliminated.

Select all that apply Which of the following statements are true?

-Hiring more workers or leasing additional machines are long-term strategies for managing constrained resources. -Eliminating non-value-added activities can help companies manage constrained resources.

Select all that apply Irrelevant costs include ______.

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

Select all that apply When making a decision to either buy a movie ticket or rent a DVD, the cost of the movie ticket is an example of a(n) ______ cost.

-incremental -avoidable

Select all that apply An analysis of a special order ______.

-should consider the impact on regular customers -should consider if excess capacity exists