Chapter 11 prechapter reading

Which of the following may be an advantage of making a part rather than buying it?

-A smoother flow of parts and materials for production -Less dependence on outside suppliers

A company is considered 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__________.

-Alternative uses for the equipment -Salvage value

A company must make a volume trade-off decision when they______.

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

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

Isolating relevant costs is desirable because ______.

-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

Two or more products from a common input are called

Joint products

Differential revenue is an example of a(n)_____benefit.

Relevant

When making a decision only_____costs and benefits should to be included in the analysis.

Relevant

When considering decision alternatives, both relevant and irrelevant costs are included when using the______ ________ approach.

Total cost

True or false: effectively managing an organizations constraints is a key to increased profits.

True

When demand for products exceeds the production capacity, a(n)_______ _______-__________decision must be made.

Volume trade-off decision

Future costs and benefits that do not differ between alternatives are ______ costs to the decision-making process.

irrelevant

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 _____ or _____ decision.

make or buy

Space being used that would otherwise be idle has a(n) __________ cost of zero.

opportunity

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

special order

Costs that have already been incurred and can not be changed by decisions made in the current period or in the future periods are called __________ costs.

sunk

Irrelevant costs include:

sunk costs and future costs that do not differ between alternatives

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

vertical integration

A company is considered 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_________.

Alternative uses for the equipment Salvage value

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

Constraint

Andrews Co. can purchase 20,000 units of Part XYZ from a supplier for $18 per part. Andrew's' per unit manufacturing costs for $20,000 units is as follows: Cost. Per unit. Total Variable manufacturing costs $12. $240,000 Supervisor salary $3. $60,000 Depreciation $1. $20,000 Allocated fixed overhead $7 $140,000 If the part is purchased, the supervisor position will be eliminated. The special equipment has no other use and no salvage value. Total allocated fixed overhead would be unaffected by the decision. The company should__________.

Continue to make the part—$60,000 advantage ($18 buy price-$12 variable cost-$3 supervisor salary=$3 advantage to make X $20,000 units).

A business event should only be dropped if a company can avoid more in fixed costs than it gives up in_________.

Contribution margin

As it applies to sell or process further decisions, which terms refers to a product that is in the process of being made.

Intermediate

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

What type of cost is never relevant and should be disregarded when making decisions?

sunk

When making a decision, irrelevant items are included in the analysis of both alternatives when using________.

The total cost approach only

The first step in decision making is to

define the alternatives

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

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

income statements

In order to prevent confusion and keep attention focused on critical information, it is desirable to

isolate relevant costs from irrelevant costs

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

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

The costs provided by a well-designed activity-based costing system are________relevant to a decision.

Potentially

Effectively managing an organization constraints is a key to increased______.

Profits

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

Special

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

Allocated common fixed costs

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

Constraint

When a constraint exists, companies need to focus on maximizing

Contribution margin per unit of constraint

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

False

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

False

A business segment should only be dropped if a company can save more in_____costs than it loses in contribution margin.

Fixed

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

Fixed costs

An increase in cost between two alternatives is a(n)______cost

Incremental

Two or more products that are produced from a common input are known as_______products.

Joint

A decision to carry out one of the activities in the value chain internally, rather than to purchase externally from a supplier, is called a(n)_______or________decision

Make or buy

If a cost is traced to a segment using activity-based costing, it______an avoidable cost of the segment.

May or may not be