Chapter 11 Prereading

When a constraint exists, companies need to focus on maximizing ______.

contribution margin per unit of constraint

The first step in decision making is to

define the alternatives

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

T/F: In the context of decision making, every decision involves choosing from among at least two alternatives.

True

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

constraint

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

fixed costs

When planning a road trip, the____is a sunk cost and should be ignored.

original cost of the car

The cost provided by a well-designed activity-based costing system are____relevant to a decision.

potentially

Effectively managing an organization's constraints is a key to increased

profits

Less dependence on suppliers is an advantage of

vertical integration

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

zero

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

contribution margin

When there is a constrained resource, the best way to increase profits is to

increase the capacity of the bottleneck

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

constraint

When making a decision, only____costs and benefits should be included in the analysis.

relevant

Costs that have no impact on future cash flows and are irrelevant to decisions are____costs.

sunk

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

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

vertical integration

Determining whether to carry out an activity in the value chain internally or use a supplier is a____decision.

make or buy

A decision to carry out one of the activities in the value chain internally rather than to purchase externally from a supplier is a____decision.

make or buy

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

volume trade-off

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

-alternative uses for the equipment -salvage value

Select all that apply Isolating relevant costs is desirable because

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

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

Allocated common fixed costs

One of the great dangers in allocating____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

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

intermediate

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

intermediate product

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

irrelevant

Costs and benefits that always differ between alternatives are____costs and benefits.

relevant

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

relevant

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

special

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

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

total

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

may or may not be

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

opportunity

Select all that apply 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

Select all that apply Irrelevant costs include____.

-sunk costs -future costs that do not differ between alternatives

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

isolate relevant costs from irrelevant costs.

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

joint

Select all that apply 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

Select all that apply Synonyms for differential costs include____cost.

-avoidable -incremental

T/F: Opportunity costs are not found in accounting records because they are not relevant to decisions.

False

T/F: The accounting depreciation of an existing asset is relevant to decisions.

False

Andrews Co. can purchase 20,000 units of Part XYZ from a supplier for $18 per part. Andrews' per unit manufacturing costs for 20,000 units is as follows: Cost Per Unit Total Variable manufacturing cost $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 Blank______. Multiple choice question.

continue to make the part - $60,000 advantage

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 statement

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 statement(s)