Chapter 12 conceptual

To effectively deal with a constraint:

- efforts should be focused on the weakest link - improvements should focus on the constraint

Which of the following techniques describes how a bottleneck should be managed

- find ways to increase the capacity of the bottleneck - focus business process improvement efforts on the bottleneck - ensure there is minimal lost time at the bottleneck due to breakdowns and set-ups

When considering accepting a special order:

-normal sales must not be affected - there must be idle capacity - incremental revenue should exceed incremental cost

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

Allocated common fixed costs

A cost that can be eliminated by choosing one alternative over another is a(n) ________ cost

Avoidable

The machine or process that is limiting overall output is called a

Bottleneck

Which of the following statements about using different approaches to analyze alternatives is NOT true?

Considering only the relevant costs gives results a different answer than that obtained when all costs are considered.

The key to effective decision making is:

Differential analysis

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

False

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

Increase the capacity of the bottleneck

Synonyms for differential costs include:

Incremental cost and avoidable cost

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

Incremental cost and avoidable cost

When a product is past the split off point but is not yet a finished product it is called a

Intermediate product

When deciding whether to drive your car or take a train to a destination, the cost for your car insurance and drivers license are:

Irrelevant costs

Joint costs are:

Irrelevant in decisions regarding what to do with a product after split-off

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

Joint costs

The split-off point is the point in the manufacturing process at which the ______________ can be recognized as separate products

Joint products

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

Make or buy

If a cost is traced to a segment using activity-based costing, it:

May or may not be an avoidable cost of the segment

When planning a trip and deciding to drive your car or take the train, gasoline is a _____________ cost

Relevant

It is profitable to continue processing a joint product after the split off point, so as long as the incremental ______________ from such processing exceeds the incremental processing cost incurred after the split off point

Revenue

Deciding what to do with a joint product at the split off point is a:

Sell or process further decision

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

Special order

when making a decision, only relevant items are included in the analysis of the alternatives when using:

The differential cost approach only

When a company cannot fully satisfy demand because of a constraint, which of the following describes an action that should NOT be taken?

Tightening the constraint

T/F: joint costs incurred prior to the split-off point are not relevant in decisions regarding what to do from the split-off point forward.

True

Activities ranging from development to production to after-sales services are called

Value chain

Less dependence on suppliers is an advantage of

Vertical integration

Refers to a company that is involved in more than one activity In the value chain

Vertical integration

What of the following forms the basis for a financial advantage when making a business decision?

Whether the dfferential benefits exceed the differential costs

Managers may choose to retain an unprofitable product line because it:

helps sell other products; attracts customers

All of the following are relevant to the sell or process further decision except _______.

joint costs incurred before the split-off point

High Roller Inc. is trying to decide whether to buy a private jet or to lease one. The finder's fee is incurred only if the private jet is bought. The finder's fee is what type of cost for this decision?

relevant cost

Which of the following types of decisions involves deciding whether to accept or reject an order that is outside the scope of normal sales?

special order

Costs that have been incurred and cannot be eliminated regardless of the alternative chosen are ________.

sunk costs

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 company does not have enough capacity to produce all of the products and sales volume demanded by their customers, this leads to ________.

volume trade-off decisions

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

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

contribution margin per unit of the constrained resource

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

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

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

Irrelevant

When considering decision alternatives, both relevant and irrelevant costs are included when using the ___________________ approach

Total cost