chapter 11
profits
effectively managing an organization's constraint is a key to increased
isolate relevant costs from irrelevant costs
in order to prevent confusion and keep attention focused on critical information, it is desirable to
less vertical integration
the present trend appears to be towards
-salvage value -alternative uses for the equipment
a company is considering buying a component part that they currently make. which of the following items related to the equipment currently being used to make component are relevant to the decision
an avoidable cost
a cost that can be eliminated by choosing one alternative over another is
-contain sunk costs -are often misleading
average costs
-irrelevant costs may be used incorrectly in the analysis -critical information may be overlooked with the total cost approach -all information needed for the total cost approach is rarely available
isolating relevant costs is desirable because
an incremental cost
an increase in cost between two alternatives is
vertical integration
being less dependent on suppliers and making profits on both parts and the final product are advantages of
contribution margin
business segment should only be dropped if a company can avoid more in fixed costs than it gives up in
volume trade off
when demand for products exceeds the production capacity which decision must be made
relevant cost
when planning a trip and deciding to drive your car or take the train gasoline is a
-an analysis that just looks at relevant costs and benefits -the difference between the net operating income for the two alternatives -an analysis that looks at all costs and benefits and identifies those that are differential
which of the following are ways in which to calculate the benefit of selecting one alternative over another
-focus business process improvement efforts on the bottle neck -find ways to increase the capacity of the bottle neck -ensure there is minimal lost time at the bottleneck due to breakdowns and set ups
which of the following techniques describe how a bottleneck should be managed
vertically integrated
when a company is involved in more than one activity in the entire value chain
contribution margin per unit of constraint
when a constraint exists, companies need to focus on maximizing
a constraint
when a shortage or limited resources of some type restricts a company's ability to satisfy demand, the company has
-sunk costs -future costs that do not differ between alternatives
irrelevant costs include
-incremental -avoidable
synonyms for differential costs include
-there must be idle capacity -normal sales must not be affected
when considering accepting a special order
total cost approach
when considering decision alternatives both relevant and irrelevant costs are included when using the
differential cost approach
when considering decision alternatives, only relevant costs are included when using the
sunk costs
cost that have no impact on future cash flows and irrelevant to decisions are
joint costs
costs incurred up to the split off point in a process in which two or more products are produced from a common input are called
sell or process further decision
deciding what to do with a joint product at the split off point is a
special order
a one time sale that is not considered part of the company's normal ongoing business is referred to as
opportunity
if a company has a resource that could be used for something else, which cost is the profit that could be derived from the best alternative use of the resource
a make or buy decision
a decision to carry out one of the activities in the value chain internally, rather than to buy externally from a supplier is called
incremental revenue after split off exceeds the incremental processing cost after split off
a joint product should be processed after split off if the
a value chain
activities ranging from development to production to after sales service are called
define the alternatives
the first step in decision making is to
differential analysis
the key to effective decision making is
a bottleneck
the machine or process that is limiting overall output is called
split off point
the point in the manufacturing process at which joint products can be recognized as separate products is called the
an opportunity cost
the potential benefit given up when selecting one alternative over another is
-improvements should focus on the constraint -efforts should be focused on the weakest link
to effectively deal with a constraint
joint products
two or more products produced from a common input are called