ACCT 2020 Test 2
the first step in decision making is to
define the alternatives
When a constraint exists, companies need to focus on maximizing
total contribution margin
True or false: Depreciation of existing assets is relevant to decisions.
false, depreciation spreads sunk costs across the life of the assets and are not relevant
Product markup is generally expressed as a(n) ____________ of cost
percentage
True or false: Some decisions only have one alternative.
False: every decision involves choosing from at least two alternatives, even if they are yes or no
One of the great dangers in allocating common ______ costs is that such allocation can make a product line look less profitable than it really is
fixed
Future costs and benefits that do not differ between alternatives are ______ costs to the decision-making process.
irrelevant
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
The costs provided by a well-designed activity-based costing system are _____ relevant to a decision.
potentially
A product's markup is the difference between its selling ________ and its ___________
price and cost
Costs and benefits that always differ between alternatives are ______ costs and benefits
relevant
Differential revenue is an example of a(n) ______ benefit
relevant
Costs that have already been incurred and cannot be avoided regardless of what a manager decides to do are ______ costs
sunk
When demand for products exceeds the production capacity, a _________ __________ _______ decision must be made
volume trade off
The process of determining the maximum allowable cost for a product and developing a profitable prototype is called:
target costing
Potential advantages of dropping a product line or other segment include:
an overall increase in net operating income avoiding more fixed costs than the company loses in contribution margin
Differential analysis
focusing on the future costs and benefits that differ between the alternatives
Irrelevant costs include:
future costs that do not differ between alternatives and sunk costs
total cost approach
includes all of the costs and benefits, relevant or not
Incremental cost
increase in cost between two alternatives
An increase in cost between two alternatives is a(n) ______ cost
incremental
Costs and benefits that should be ignored when making decisions are called ______ costs and benefits
irrelevant
Sunk costs are always...
irrelevant when choosing among alternatives
Differential costs are always...
relevant costs
Future costs and benefit that do not differ between alternatives are irrelevant to
the decision-making process
Which of the following are ways in which to calculate the benefit of selecting one alternative over another?
An analysis that looks at all costs and benefits and identifies those that are differential. The difference between the net operating income for the two alternatives. An analysis that just looks at the relevant costs and benefits.
The terms ___________ ______ and ________ ______ are often used to describe differential costs
Incremental cost and avoidable cost
Synonyms for differential costs include ______ cost.
incremental and avoidable
The total cost approach and the differential approach methods of decision analysis ______ provide the same correct answer.
will always