ACC 202 Chapter 7

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.

Blank 1: opportunity Blank 2: costs or cost

Make-or-buy decisions are also referred to as _____ decisions.

Blank 1: outsourcing

Deciding to accept a sales request that is outside the scope of normal sales is called a(n) _____-_____ decision.

Blank 1: special or specialty Blank 2: order

A cost that has already been incurred and cannot be avoided regardless of what a manager decides to do is a(n) _____ cost.

Blank 1: sunk or sunken

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

True

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

True

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

True

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

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.

avoidable incremental

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

bottleneck

The process that limits overall output is called a(n) _____.

bottleneck

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

capacity

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

excludes fixed costs

Segment margin ______.

includes both variable and direct fixed costs

In the long term, companies can manage constrained resources by ______.

increasing capacity hiring more workers

Comparing the relevant costs and benefits of alternative decision choices is called _____ analysis.

incremental

Bad decisions can easily result from erroneously including ______ costs and benefits when analyzing alternatives.

irrelevant

Opportunity costs are ______.

only relevant when capacity is limited

When evaluating a make-or-buy decision, managers should consider __.

qualitative factors all variable production costs opportunity costs

Costs and benefits that always differ between alternatives are called ______ costs and benefits.

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

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

segment margin

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

sell-or-process-further

An analysis of a special order ______.

should consider the impact on regular customers is only valid when excess capacity exists

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

special

Costs that have already been incurred and cannot be avoided regardless of what a manager decides to do are ______ costs.

sunk

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

Common fixed costs ______.

will be incurred even if a segment is eliminated

Which of the following statements are true?

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

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

Blank 1: avoidable or relevant

Given the following, determine if a buy price of $4.00 per unit for 3,000 units should be accepted or if the company should continue to make the units. Total variable costs of making the units (materials, labor, and overhead) equal $11,100, and total 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 $_____ .

Blank 1: buy Blank 2: 600

A measure of the limit placed on a specific resource is known as its _____

Blank 1: capacity

When performing a keep-or-drop decision analysis, _____ fixed costs should be excluded from the analysis.

Blank 1: common or irrelevant

When a limited resource of some type restricts a company's ability to satisfy demand, the company has a(n) _____ resource.

Blank 1: constrained

Managers must prioritize how products are produced when faced with a(n) _____ resource.

Blank 1: constrained or limited

A fixed cost that can be traced to a specific business segment is called a(n) _____ fixed cost.

Blank 1: direct or relevant

One of the benefits of dropping a product line is that a company can eliminate the product line's _____ fixed costs.

Blank 1: direct, traceable, or avoidable

When a company has more than enough resources to satisfy demand it is operating with _____ capacity.

Blank 1: excess or idle

Opportunity costs become relevant when a company is operating at _____ _____.

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

Jay's Furniture makes several types of furniture, including 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

Continue-or-discontinue decisions are commonly known as _____ -or-_____ decisions.

Blank 1: keep Blank 2: drop

The forgone benefit of choosing one decision alternative over another is its _____ _____.

Blank 1: opportunity Blank 2: cost or costs

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: Cost Per Unit Total Variable manufacturing cost $12 $240,000 Supervisor salary $3 $60,000 Depreciation $1 $20,000 Allocated fixed overhead $7 $140,000 If the part is purchased, the supervisor position would be eliminated. The special equipment used to manufacture Part XYZ has no other use and no salvage value. Total allocated fixed overhead would be unaffected by the decision. Should the company buy the part or continue to make it?

Continue to make—$60,000 advantage

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.

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?

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.

Irrelevant

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

contribution margin

Relevant costs ______.

differ between alternatives occur in the future