Accounting II Ch 12

mingling irrelevant and relevant costs may cause confusion and distract attention from critical information.

True

joint costs incurred prior to the split-off point __ relevant in decisions regarding what to do from the split-off point forward.

are not

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

avoidable

which of the following is a cost that can be eliminated in whole of in part by choosing one alternative over another?

avoidable cost

the machine or process that is limiting overall output is a(n):

bottleneck

which of the following is the best way to increase profits when there is a constrained resource?

increase the capacity of the bottleneck

a joint product should be processed after split-off if the:

incremental revenue after split-off exceeds the incremental processing cost after split-off.

when a product is past the split-off point, but is not yet a finished product, it is called a(n) __ product.

intermediate

as it applies to sell or process further decisions, which term refers to a product that is in the process of being made?

intermediate product

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

any final decision to drop or add business segment is going to hinge primarily on the impact the decision will have on net __ __.

operating income.

which of the following does not have an opportunity cost?

space being used that has no alternative use.

a set of activities ranging from development to production to after-sales service is called:

the value chain

when a company is involved in more than one activity in the entire value chain, it is __ __.

vertically integrated

which of the following should not be included in the analysis when making a decision?

-suck costs -non-differential costs

when trying to decide if a particular cost is avoidable, how does a manager categorize irrelevant costs?

-sunk costs -future costs that do no differ between alternatives

what is the typical approach to allocating joint costs to products?

allocating the cost based on the relative sales value of the end products

when identifying costs that are differential, a manager would eliminate costs and benefits that do not differ between alternatives and use the remaining costs and benefits that do differ between alternatives in making the decision. The costs that remain are the differential or __ costs.

avoidable

a decision to carry out one of the activities in the value chain internally, rather than to buy externally from a supplier, is a called a(n) __ or __ decision.

make buy

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

space being used that would otherwise be idle has a(n) __ cost of zero.

opportunity

the potential benefit given up when selecting one alternative over another is a(n) __ cost.

opportunity

which of the following involves increasing the capacity of a bottleneck?

relaxing the constraint

joint costs are traditionally allocated among the different products at the split-off point. a typical approach is to allocate joint costs according to the relative __ value of the end products.

sales

a(n) __ order is a one-time order that is not considered part of the company's normal ongoing business.

special

a one-time order that it not considered part of the company's normal ongoing business is referred to as a(n) __ __ decision.

special order

when a resource, such as space in the factory, has no alternative use, what is its opportunity cost?

zero

the capacity of a bottleneck can be effectively increased by:

-subcontracting some of the processing that would be done in that area. -focusing business process improvement efforts on the bottleneck

only those costs and benefits that differ in total between alternatives are __ in a decision.

relevant

which of the following refers to the costs that always differ between alternatives?

relevant costs

managers may choose to retain an unprofitable product line:

-because it attracts customers -because it helps sell other products

which of the following are synonyms for avoidable cost?

-differential cost -incremental cost

which of the following techniques describe how a bottleneck should be managed?

-focus business process improvement efforts on the bottleneck -find wats to increase the capacity of the bottleneck ensure there is minimal lost time at the bottleneck due to breakdowns and setups.

a(n) __ resource requires a manager to decide which products or services should be cut back.

constrained

if some products must be cut back because of a constraint:

produce the products with the highest contribution margin per unit of constrained resource

costs that differ between alternatives are called __ costs.

relevant

when making a decision to continue using a current machine versus purchasing a new machine, what type of costs need to be included in the analysis?

relevant

when a limited resource of some type restrict a company's ability to satisfy demand, the company has a(n) __.

constraint

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

constraint

when making a decision to drive or take the train on a trip, the cost of the train ticket is a:

relevant cost

which of the following should be included in the analysis when making a decision?

-opportunity costs -differential costs -avoidable costs -relevant costs

which of the following is an advantage of buying a part instead of making it?

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

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

joint

two or more products that are produced from a common input are known as __ products.

joint

if, by dropping a product line, a company cannot avoid as much in fixed costs as it loses in contribution margin, the company should:

keep the product line.

if a company has more than one potential constraint, the proper combination of products can be found by use of a quantitive method known as __ __.

linear programming

a __ involves determining whether to carry out an activity in the value chain internally or use a supplier.

make or buy decision

__ __ can help companies control quality better by producing their own parts and materials, rather than relying on the quality control standards of outside suppliers.

vertical integration

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

vertical integration

costs that are relevant in one decision situation:

may not be relevant in another.

when deciding whether to fly or take the train on a trip, the cost of putting your pet in a boarding facility while you are away is a(n) __ cost.

irrelevant

when making decisions, managers should ignore __ costs.

irrelevant

__ are two or more products produced from a common input.

joint products

when determining which product or service makes the best use of a constrained resource, a company has to determine which course of action will maximize the company's total:

contribution margin

when making a product line decision, a company may focus on lost __ __ and avoidable fixed costs or prepare comparative income statements.

contribution margin

the monthly fee that a student pays to park at school is not relevant when deciding whether to take a train or drive to visit an out-of-town friend.

True

the machine or process that is limiting overall output is called a(n) __.

bottleneck

which of the following may be an advantage of making a part rather than buying it?

-a smoother flow of parts and materials for production -less dependence on outside suppliers

which of the following are ways in which to calculate the benefit of selecting one alternative over another?

-an analysis that just looks a the relevant costs and benefits. -the difference between the net operating income for the two alternatives. -an analysis that looks at all costs and benefits and identifies those that are differential.

joint costs:

-are irrelevant in decisions regarding what to do with a product after split-off -cannot be avoided once a process is started.

when making a decision to either go to a movie or rent a DVD, choosing the movie instead of the DVD means that the cost of the DVD would be eliminated. This is an example of which type of cost?

-avoidable cost -relevant cost

which of the following statements are true?

-improper allocation of joint costs can lead to incorrect decisions -joint costs are common costs that are incurred to produce two or more products. -allocation of joint costs is needed inventory valuation.

which of the following are ways to increase the capacity of a bottleneck?

-investing in additional machines at the bottleneck. -shifting workers from processes hat are not bottlenecks to the process that is the bottleneck

the decision to add or drop a product line should be based on the impact the decision will have on:

net operating income

effectively managing an organization's constraints is a key to increased:

profits

joint costs are traditionally allocated among the different products at the split-off point. a typical approach is to allocate the joint costs according to the relative __ value of the end products.

sales

deciding what to do with a joint product at the split-off point is a(n) __ or __ __ decision.

sell or process further

a one-time order that it not considered part of the company's normal ongoing business is referred to as a(n). __ __ decision.

special order

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

sunk

when should a special order be accepted?

when the incremental revenue from the special order exceeds the incremental costs of the order

when a limited resource of some types restricts a company's ability to satisfy demand, the company has a(n) __.

constraint

which of the following is a limited resource of some type that restricts the company's ability to satisfy demand?

constraint

a __ decision is a decision to carry out one of the activities in the value chain internally rather than to buy externally from a supplier.

make or buy

which of the following can make a product line look less profitable than it really is?

allocated common fixed costs

one of the greatest dangers in allocating common __ costs is that such allocations can make a product line look less profitable than it really is.

fixed

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

the costs incurred up to the split-off point in a process in which two or more products are produced from a common input are know as __ costs.

joint

which of the following is considered a sunk cost when planning a trip?

the original cost of the car

a(n)__ __ includes activities ranging from development to production to after-sales service.

value chain

one advantage of using external suppliers instead of __ integration is that suppliers can pool demand from a number of companies and enjoy economies of scale, which can result in higher quality and lower costs than a company could obtain if it made the parts on its own.

vertical