ACCT 2120 chapter 12

synonyms for differential costs

-avoidable -incremental

irrelevent costs include

-future costs that do not differ between alternatives -sunk costs

average costs:

-often misleading -contain sunk costs

potential advantages of dropping a product line or segment include

-overall increase in NOI -avoiding more fixed costs that the company loses in CM

what kind of costs are not included in analysis when making decisions

-sunk costs -non-differential future costs

when considering accepting a special order

-there must be ideal capacity -normal sales must not be effected

how to increase the capacity of a bottleneck

-working overtime on the bottleneck -subcontracting some of the processes -investing in additional machines -focusing improvement efforts on the bottleneck

a cost that can eliminated by choosing one alternative over another

avoidable cost

total cost approach

both relevant and irrelevant costs are included

only relevant costs are included when using the ___ _____ approach

differential cost

advantage of buying a part instead of making it

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

true or false, some decisions only have one alternative

false

true or false: depreciation of existing assets is relevant to decision making

false: depreciation is a sunk cost and is not relevant

when making a volume trade off decision, managers should ignore:

fixed costs

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 product is past the split off point but is not yet a finished product it is...

intermediate

two or more products that are produced in common input are known as...

joint products

a one time sale that is not part of a companys normal ongoing business

special order decision

what is split off point

the point in the manufacturing process where each joint product can be recognized as a separate product

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

vertically integrated