ACCT 202 HW (Connect - Chapter 12)

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 synonyms for avoidable cost? (Check all that apply)

-Incremental cost -Differential cost

A company considering buying a component part that they currently make. Which following items related to the equipment currently being used to make the components are relevant to the decision?

-alternative uses for the equipment -salvage value

Average costs:

-are often misleading -contain sunk costs

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

avoidable

The key to effective decision making is:

differential analysis

Future costs and benefits to not differ b/t alternatives are ____ costs to the decision-making process.

irrelevant

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

irrelevant costs

In deciding whether to drive to a location or to take the train, the relaxation factor that comes from not having to drive _______ relevant to the decision.

is

The present trend appears to be towards ________ vertical integration.

less

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

make or buy decision

Allocated common costs are:

only relevant to decisions if they re avoidable

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

opportunity

Differential revenue is an example of a(n) ______ benefit.

relevant

When making a decision only _____ costs and benefits should to be included in the analysis.

relevant

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

sunk

Activities ranging from development to production to after-sales services are called a(n) ______ _______.

value chain

Less dependence on suppliers is an advantage of:

vertical integration

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

vertical integration

Differential costs and benefits that should be considered in a decision:

may be qualitative or quantitative

Assume you are considering visiting your grandmother for a month this summer. In deciding whether to drive or fly, the ________ is a sunk cost and should be ignored.

original cost of the car

When planning a trip or deciding to drive your car or take the train, gasoline is a:

relevant cost

Andrews Co. can purchase 20,000 units of Part XYZ from a supplier for $18 per part. The relevant manufacturing costs for the part is $15 per unit. If the company decides to purchase the part, the space now being used can be used to produce another product that will generate a segment margin of $80,000 per year. Should Andrews continue to make or should they buy the part?

Buy -- $20,000 advantage [The total buy price = 20,000 x $18 or $360,000. The cost to make equals (20,000 x $15) + $80,000 forgone opportunity or 380,000. Thus, there is a $20,000 advantage to buying the part.]

The first step in decision making is to:

define the alternative

Andrews Co. can purchase 20,000 units of Part XYZ from a supplier for $18 per part. Andrew's per unit manufacturing cost for 20,000 units is: Cost : Variable manufacturing per unit $12 = $240,000 Supervisor salary per unit $3 = $60,000 Depreciation per unit $1 = $20,000 Allocated fixed OH per unit $7 = $140,000 If the part is purchased, the supervisor position would be eliminated. The special equipment 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?

Continue to make -- $60,000 advantage [The avoidable costs of making the product are the variable costs plus the supervisor salary or $15 per unit. The total savings is $60,000 ($18 buy price - $12 variable cost - $3 supervisor salary = $3 advantage to make * 20,000 units).

True or False: Opportunity costs are NOT found in accounting records because they are not relevant to decisions.

False (They ARE relevant to decisions)

True or False: The monthly fee that a student pays to park at school is NOT relevant when deciding whether to take a train or drive for a weekend trio to visit an out-of-town friend.

True