acct 2020 ch 13

A limited resource of some type that restricts the company's ability to satisfy demand is a(n) ______.

constraint

Anything that prevents you from getting more of what you want is a(n) BLANK

constraint

A future cost that is not the same between any two alternatives is known as a(n) BLANK , incremental, or avoidable cost.

differential

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

make or buy

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

opprotunity

Effectively managing an organization's constraints is a key to increased ______.

profits

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

relevant

Product ABC has a contribution margin per unit of $10.00. Each unit of ABC requires 5 minutes of machine time and 10 minutes of labor time. Product XYZ has a contribution margin per unit of $15.00 and each unit requires 10 minutes of machine time and 5 minutes of labor time. If the company's constraint is labor hours, the contribution margin per unit of constraint for Product XYZ is $BLANK per minute.

3

Irrelevant costs include ______.

1. sunk costs 2. future costs that do not differ between alternatives

When considering decision alternatives, both relevant and irrelevant costs are included when using the BLANK BLANK approach

1. total 2. cost

To maximize total contribution margin when a constrained resource exists, produce the products with the ______.

highest contribution margin per unit of the constrained resource

When a resource, such as space in the factory, has no alternative use, its opportunity cost is ______.

zero

A company is considering buying a component part that they currently make. Items related to the equipment being used to make the component that are relevant to this decision include ______.

1. salvage value 2. alternative uses for the equipment

When a manager increases the capacity of constraint or BLANK , it is called relaxing the constraint.

bottleneck

When demand for products exceeds the production capacity, a(n) BLANK BLANK-BLANK decision must be made.

1. volume 2. trade 3. off

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

In order to prevent confusion and keep attention focused on critical information, it is desirable to ______.

isolate relevant costs from irrelevant costs

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

irrelevant

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

opportunity

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 Reason: Car repairs and maintenance are related to usage, so driving for a trip will impact the need for repairs and maintenance.

The first step in decision making is to ______.

step 1: define the alternatives step 2: identify relevant costs and benefits step 3: perform a differential analysis

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

sunk

Costs that have no impact on future cash flows and are irrelevant to decisions are ______ costs.

sunk

When making a decision, irrelevant items are included in the analysis of both alternatives when using ______.

the total cost approach only

True or false: Effectively managing an organization's constraints is a key to increased profits.

true Reason: A constraint is a limited resource of some type that restricts the company's ability to satisfy demand, so managing the constraint is the only way to increase profits.

True or false: Some decisions only have one alternative.

False Reason: Every decision involves choosing from at least two alternatives, even if the alternatives are yes or no.

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

special

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

fixed

When making a volume-trade off decision, managers should ignore ______.

fixed costs

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

1. Less dependence on outside suppliers 2. A smoother flow of parts and materials for production

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

1. Non-differential future costs 2. Sunk costs

Potential advantages of dropping a product line or other segment include ______.

1. an overall increase in net operating income 2. avoiding more fixed costs than the company loses in contribution margin

A company must make a volume trade-off decision when they ______.

1. must trade off units of one product for units of another due to limited production capacity 2. do not have enough capacity to satisfy the demand for all of its products

A one-time sale that is not considered part of the company's normal ongoing business is referred to as a(n) BLANK BLANK decision

1. special 2. order

Product ABC has a contribution margin per unit of $10.00. Each unit of ABC requires 5 minutes of machine time. Product XYZ has a contribution margin per unit of $15.00 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 ______.

ABC Reason: The company should fill the demand for the product with the highest CM per unit of the constrained resource. ABC's is $2 per minute of machine time (CM of $10 ÷ 5 minutes) while XYZ's is only $1.50 per minute of machine time (CM of $15 ÷ 10 minutes).

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

Allocated common fixed costs

True or false: Depreciation of existing assets is relevant to decisions.

False Reason: Depreciation spreads sunk costs across the life of the assets and is not relevant.

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

False Reason: Opportunity costs are not found in accounting records because they are not cash outlays. Opportunity costs are relevant to decisions.

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

Relaxing the constraint

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

contribution margin per unit of constraint

Costs and benefits that should be ignored when making decisions are called ______ costs and benefits.

irrelevant

Future costs and benefits that do not differ between alternatives are ______ costs to the decision-making process.

irrelevant

When planning a trip and deciding whether to drive or fly, the ______ is a sunk cost and should be ignored.

original cost of the car Reason: A sunk cost is a cost that has already been incurred and cannot be avoided.

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

relevant

When planning a trip and deciding to drive your car or take the train, gasoline is a(n) ______ cost.

relevant

Less dependence on suppliers is an advantage of ______.

vertical integration

Andrews Co. can purchase 20,000 units of Part XYZ from a supplier for $18 per part. Andrews' per unit manufacturing costs for 20,000 units is as follows: Cost - Variable manufacturing cost per unit total: $12 ($240,000) - Supervisor salary per unit total: $3 ($60,000) - Depreciation per unit total: $1 ($20,000) - Allocated fixed overhead per unit total: $7 ($140,000) If the part is purchased, the supervisor position will be eliminated. The special equipment has no other use and no salvage value. Total allocated fixed overhead would be unaffected by the decision. The company should ______.

continue to make the part — $60,000 advantage Reason: 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 X 20,000 units). Reason: Depreciation is not a relevant cost. 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 X 20,000 units).

When making a product line decision, a company may focus on lost contribution margin and avoidable fixed costs or prepare comparative ______.

income statements

An increase in cost between two alternatives is a(n) BLANK cost.

differential or incremental

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

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

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

avoidable

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

contribution margin

If some products must be cut back because of a constraint, produce the products with the highest ______.

contribution margin per unit of constrained resource

Isolating relevant costs is desirable because ______.

1. critical information may be overlooked with the total cost approach 2. all information needed for the total cost approach is rarely available 3. irrelevant costs may be used incorrectly in the analysis

True or false: Mingling irrelevant and relevant costs may cause confusion and distract attention from critical information.

True Reason: Irrelevant costs should not be included in decision making, so mingling them with relevant costs may cause problems.

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.

1. avoidable 2. incremental

When making a product line decision, a company may focus on lost contribution margin and avoidable fixed costs or prepare comparative BLANK BLANK.

1. income 2. statements

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

1. make 2. buy