Ch. 6

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

False

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.

avoidable; incremental

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

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

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

fixed costs

Irrelevant costs include:

future costs that do not differ between alternatives; sunk 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

Synonyms for differential costs include ____________ cost.

incremental; avoidable

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; buy

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

may be qualitative or quantitative

When considering accepting a special order:

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

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

opportunity

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

When making a decision, qualitative differences between alternatives ____________ be ignored.

should not

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

special

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

special order

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

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

sunk costs; non-differential future costs

If a company is using a resource that could be used for some other purpose, the opportunity cost of that resource is:

the profit from the best alternative use of the resource

When a constraint exists, companies need to focus on maximizing

total contribution margin

When demand for products exceeds the production capacity, a ____________ ____________-____________ decision must be made.

volume trade-off

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

False

True or false: Some decisions only have one alternative.

False

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

irrelevant

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:

irrelevant costs

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 ____________ decision.

make or buy

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

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

income statements

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) ____________ cost.

incremental

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

relevant

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

sunk

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

zero

True or false: When deciding whether to take a train or drive for a weekend trip to visit an out-of-town friend, the monthly fee a student pays to park at school is not relevant to the decision.

True

When should a special order be accepted?

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

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

contribution margin per unit of constrained resource

The first step in decision making is to:

define the alternatives

Focusing on future costs and benefits that are not the same between alternatives is:

differential analysis

A cost that can be eliminated in whole or in part by choosing one alternative over another is a(n) ____________ cost.

avoidable

When a shortage or limited resource of some type restricts a company's ability to satisfy demand, the company has a(n) ____________.

constraint

The key to effective decision making is:

differential analysis