Acct 202 Exam 2

Product ABC has a contribution margin per unit of $10. Each unit of ABC requires 5 minutes of machine time. Product XYZ has a contribution margin per unit of $15 and each unit requires 10 minutes of machine time. If the company's constraint is machine hours, to maximize profit, they should first fill the demand for: Product XYZ Product ABC

Product ABC

Which of the following are ways in which to calculate the benefit of selecting one alternative over another? The difference b/w the net operating income for the 2 alternatives. An analysis that looks at just the sunk costs of each of the 2 alternatives. An analysis that just looks at the relevant costs and benefits. An analysis that looks at all costs and benefits and identifies those that are differential.

The difference b/w the net operating income for the 2 alternatives. An analysis that just looks at the relevant costs and benefits. An analysis that looks at all costs and benefits and identifies those that are differ

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

Avoidable

T or F: Opportunity costs are not found in accounting records because they are not relevant to decisions.

False

What 2 things do you need to figure out what the highest price you would pay for an additional pound of materials?

Highest contribution margin of all the products plus direct materials.

Costs that are relevant in a given decision situation: Will never be relevant in another decision situation. May not be relevant in another decision situation. Will be relevant in all decision situations.

May not be relevant in another decision situation.

T or F: Mingling irrelevant and relevant costs may cause confusion and distract attention from critical info.

True

T or F: Only future costs that differ b/w alternatives are relevant in decision making.

True

Which term refers to a company that is involved in more than one activity in the value chain? Non-integrated value chain Horizontal integration Integrated value chain Vertical Integration

Vertical Integration

When should a special order be accepted? Almost always, because it means more business and income, and will keep the employees productive. When the incremental revenue from the special order exceeds the incremental costs of the order. When the incremental costs from the special order exceeds the incremental revenue of the order.

When the incremental revenue from the special order exceeds the incremental costs of the order.

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

bottleneck

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 sunk irrelevant opportunity

relevant

Effectively managing an organization's constraints is a key to increased: products employees costs profits

profits

The best way to handle a constrained resource is to _____ the capacity of the bottleneck.

relax

When making a decision to drive or take the train on a trip, the cost of the train ticket is a: relevant cost irrelevant cost unavoidable cost sunk cost

relevant cost

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

special

Costs that have already been incurred and cannot be avoided regardless of what a manager decides to do are ________ costs. sunk differential relevant avoidable

sunk

When making decisions, managers should ignore __________ costs.

sunk

A set of activities ranging from development to production to after-sales service is called: the value chain vertical intergration a marketing strategy

the value chain

All activities from development to production to after-sales service are called______

value chain

When a company is involved in more than one activity in the entire value chain it is______.

vertically integrated

When a resource, such as space in a factory, has no alternative use, its opportunity cost is: negative infinite zero not determinable

zero

Which of the following are ways to increase the capacity of a bottle neck: Pick all that apply Selling some of the machines at the bottle neck Shifting workers from processes that are not bottlenecks to the process that is the bottleneck Investing in additional machines at the bottleneck Not spending any overtime hours on the bottleneck

Shifting workers from processes that are not bottlenecks to the process that is the bottleneck Investing in additional machines at the bottleneck

Potential advantages of dropping a product or other segment include: Pick all that apply. increasing relevant costs that the company incurs an overall decrease in other product line sales an overall increase in bet operating income avoiding more fixed costs than the company loses in contribution margin

an overall increase in bet operating income avoiding more fixed costs than the company loses in contribution margin

Managers may choose to retain an unprofitable product line because it: Pick all that apply attracts customers is an alternative to a profitable one helps sell other products

attracts customers helps sell other products

A cost that can be eliminated in whole or in part by choosing one alternative over another is a(n) _______ cost. irrelevant sunk avoidable incremental

avoidable

The machine or process that is limiting overall output is called a(n) ________.

bottleneck

If dropping a product line enables a company to avoid more in __________ costs than is loses in contribution margin, then its overall net operating income would improve by eliminating the product line.

fixed

One of the great dangers in allocating common ________ costs is that such allocations can make a product line look less profitable than it really is.

fixed

To maximize total contribution margin when a constrained resource exists, produce the products with the: lowest contribution margin per unit of the constrained resource highest contribution margin per unit of the constrained resource lowest unit contribution margin highest contribution margin

highest contribution margin per unit of the constrained resource

When deciding whether to drive your care or take the train to a destination, the costs for your car insurance and driver's license are: irrelevant costs relevant costs avoidable costs

irrelevant costs

Determining whether to carry out an activity in the value chain internally or use a supplier is a ______ decision. special order product line make or buy utilization of a constrained resource

make or 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

Which of the following should be included in the analysis when making a decision? Opportunity costs Avoidable costs Sunk costs Relevant costs Future costs that don't differ b/w alternatives Differential costs

Opportunity costs Avoidable costs Relevant costs Differential costs

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

contribution margin

If some products must be cut back b/c of a constraint, produce the products w/ the highest: contribution margin per unit of product. net operating income per unit. contribution margin per unit of constrained resource.

contribution margin per unit of constrained resource.

When a constraint exists, companies need to focus on maximizing: contribution margin per unit of constraint net income from sales net sales contribution margin per unit

contribution margin per unit of constraint