ACCT 231: Ch. 13 SB

When a constraint exists, companies need to focus on maximizing what?

CM per unit of constraint

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

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

Which of the following techniques describe how a bottleneck should be managed?

-ensure there is a minimal lost time at the bottleneck due to breakdowns and setups -find ways to increase the capacity of the bottleneck -focus business process improvement efforts on the bottleneck

The machine or process that is limiting overall output is?

bottleneck

The present trend towards vertical integration is?

less

Joint costs incurred prior to the split-off point are ___________ relevant in decisions regarding what to do from the split-off point forward.

never

If a company has a resource that could be used for something else, the __________ cost is the profit that could be derived from the best alternative use of the resource.

opportunity cost

It is profitable to continue processing a joint product after the split-off point, so long as the incremental __________ from such processing exceeds the incremental processing cost incurred after the split-off point.

revenue

A special order should be accepted when?

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

To increase the strength of a chain, efforts should be concentrated on strengthening?

weakest link

When is it profitable to continue processing a joint product after the split-off point?

when incremental revenue exceeds the incremental processing cost

Isolating relevant costs is desirable because?

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

The capacity of a bottleneck can be effectively increased by _____.

-focusing business process improvement efforts on the bottleneck -subcontracting some of the processing that would be done in that area

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?

-salvage value -alternative uses for the equipment

When considering accepting a special order,

-there must be idle capacity -normal sales must not be affected

When making a decision, only relevant items are included in the analysis of the alternatives when using?

differential cost approach ONLY

What is an advantage of buying a part instead of making it?

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

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 costs

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

fixed costs

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

highest CM per unit of the constrained resource

A joint product should be processed after split-off if?

incremental revenue after split-off exceeds the incremental processing cost after split-off

What involves increasing the capacity of a bottleneck?

relaxing the constraint

When considering decision alternatives, both relevant and irrelevant costs are included when using what approach?

total cost approach

Activities ranging from development to production to after sales service is called?

value chain

Being less dependent on suppliers and making profits on both parts and the final product are advantages of?

vertical integration

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

vertical integration

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

income statements

When considering decision alternatives, only relevant costs are included when using what approach?

differential cost

Equation to find total savings:

(buy price - variable cost - supervisor salary) = $ (dis)advantage x units

Potential advantages of dropping a product line or other segment include:

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

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

allocated common fixed costs