Chapter 11 accounting (and extra)

Contribution margin per unit divided by selling price per unit equals

Contribution margin ratio

Example of oppurtunity cost

Giving up a high paying job to travel overseas

an increase in cost between two alternatives

incremental cost

That point in the manufacturing process where some or all of the joint products can be recognized as individual products.

split-off point

Given the following information, calculate the unit product cost under absorption costing. Direct materials: $50/unit Direct labor: $75/unit Variable manufacturing overhead: $27/unit Fixed manufacturing overhead: $30,000 total Units: 10,000 produced and 6,000 sold

$155

A company has received a special order from a customer to make 5,000 units of a customized product. The direct materials cost per unit of the customized product is $15, the direct labor cost per unit is $5, and the manufacturing overhead per unit is $18, including $6 of variable manufacturing overhead. If the company has sufficient available manufacturing capacity, what is the minimum price that can be accepted for the special order?

$26 (15+5+6)

Example of incremental cost

A Lincoln car over and Toyota car

What are the two applications in the costing method?

Absorption and variable costing

A limitation under which a company must operate, such as limited available machine time or raw materials, that restricts the company's ability to satisfy demand

Constraint

Abba, Inc. is considering dropping a product line. During the prior year, the line had sales of $207,000 and a contribution margin of $124,000. Fixed expenses consist of: Salaries $60,000 Rent 50,000 Advertising 20,000 Administrative 35,000 Total fixed expenses $165,000 The product line manager's $60,000 salary is avoidable as is the $20,000 of advertising. Of the administrative expenses, $10,000 is avoidable. The rest are general allocated expenses that will not change if the product is dropped. The rent expense is allocated to product lines based on sales and represents a share of the total cost for the building. If this product line is dropped overall net operating income will

Decrease by $34,000 (124,000 - 90,000)

Incremental and avoidable costs are synonyms for what cost?

Differential costs

Example of facility level activities

Facility upkeep: the cost of depreciation, insurance, property tax, and maintenance of the entire production plant.

Only variable costs are relevant costs. Fixed costs cannot be relevant costs. True or false?

False

Under some circumstances, a sunk cost may be a relevant cost true or false?

False

Future costs and future benefits that do not differ between alternatives are ____________ to decision making process.

Irrelevant

Example of Batch-Level Activities

Machine Setup, purchase orders, and packing equipment

When planning a road trip, the ______ is a sunk cost and should be ignored. Multiple choice question. cost of gasoline for the trip cost of parking at the motel where one will be staying original cost of the car cost of car repairs and maintenance

Original cost of the car

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

Special order

Example of product level activities

The cost to research, develop, design, and market new models.

When companies do not have enough capacity to produce all of the products and sales volumes, companies are forced to make a......

Trade off decision

Direct materials and direct labor can be directly traced into products true or false?

True

In the context of decision making, every decision involves choosing from among at least two alternatives. True or false.

True

When making decisions, allocating common fixed costs to segments may understate the true profitability of those segments true or false?

True

Unit-level activities

activities that are performed each time a unit is produced

A machine or some other part of a process that limits the total output of the entire system

bottleneck

When considering decision alternatives, only relevant costs are included when using the _____________ cost approach

differential

a future cost that differs between any two alternatives

differential cost

Future revenue that differs between any two alternatives is known as

differential revenue

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. (2)

incremental and avoidable

When a product is past the split-off point, but is not yet a finished product, it is called a(n) ____________ product

intermediate

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

irrelevant

Costs that are incurred up to the split-off point in a process that produces joint products

joint costs

Two or more products that are produced from a common input

joint products

a decision concerning whether an item should be produced internally or purchased from an outside supplier

make or buy decision

The potential benefit that is given up when one alternative is selected over another

opportunity cost

a benefit that should be considered when making decisions?

relevant benefit

a cost that should be considered when making decisions?

relevant cost

A decision as to whether a joint product should be sold at the split-off point or sold after further processing

sell or process further decision

a cost that has already been incurred and that cannot be changed by any decision made now or in the future

sunk cost

The involvement by a company in more than one of the activities in the entire value chain from development through production, distribution, sales, and after-sales service is called ________.

vertical integration

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

zero

Common fixed costs should not be allocated to business segments for decision making purposes true or false?

True

example of avoidable cost

Watching a movie at home instead of buying a movie ticket

A cost that can be eliminated by choosing one alternative over another in a decision. This term is synonymous with differential cost and relevant cost

avoidable cost

When making a product line decision, a company may focus on lost contribution margin and avoidable fixed costs or prepare comparative _______________ ______________ showing the effects of either keeping or dropping the product line.

income statements

The reduction of resale value of an asset through use or over time is called _____ or _____ depreciation.

real, economic

An action that increases the amount of a constrained resource. Equivalently, an action that increases the capacity of the bottleneck

relaxing (or elevating) the constraint

example of sunk cost

sitting through bad movie because you paid for it. Or buying a used car

Allocated common costs are ______ avoidable and/or relevant to a decision.

sometimes

It is profitable to continue processing a joint product after the split-off point so long as the incremental ____________ from such processing ___________ the incremental processing costs incurred after the ___________ ______ point.

Revenue, exceeds, spilt-off

If, by dropping a product line, a company cannot avoid as much in fixed costs as it loses in contribution margin, the company should ______ the product line.

to keep

A financial advantage occurs when differential benefits are___________ than differential costs. Vice versa.

Greater

When a company has a constraint and wishes to maximize profits, it should favor the products that have the highest?

contribution margin per unit of the constraining resource