chapter 13 and 14 review
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
Anything that prevents you from getting more of what you want is a(n)
constraint
When a shortage or limited resource of some type restricts a company's ability to satisfy demand, the company has a(n)
constraint
A business segment should only be dropped if a company can avoid more in fixed costs than it gives up in ______. Multiple choice question.
constribution margin
When a constraint exists, companies need to focus on maximizing ______.
contribution margin per unit of constraint
The first step in decision making is to ______. Multiple choice question.
define the alternatives
An increase in cost between two alternatives is a(n)
differential cost
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 product line decision, a company may focus on lost contribution margin and avoidable fixed costs or prepare comparative ______.
income statements
The potential benefit given up when selecting one alternative over another is a(n) ______ cost.
opportunity cost
A screening decision ______.
relates to whether a proposed project is acceptable
When making a decision only ______ costs and benefits should to be included in the analysis.
relevant
Deciding what to do with a joint product at the split-off point is a(n) _______ or ______ decision.
sell or process further
The capital budgeting methods that focus on incremental operating income rather than cash flows is ______. Multiple choice question.
simple rate of return
When making a decision, irrelevant items are included in the analysis of both alternatives when using ______.
the total cost approach
Less dependence on suppliers is an advantage of ______.
vertical integration
When demand for products exceeds the production capacity, a ____________ decision must be made
volume trade off
When a resource, such as space in the factory, has no alternative use, its opportunity cost is ______.
zero
Determining whether to carry out an activity in the value chain internally or use a supplier is a ______ decision.
make or buy
Capital budgeting decisions include ______. Multiple select question.
- determining which equipment to purchase among available alternatives - deciding to replace old equipment - purchasing new equipment to reduce cost - acquiring a new facility to increase capacity - choosing to lease or buy new equipment
Net present value is the ______.
- difference between the present value of a project's cash inflows and the present value of the project's cash outflows
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
Capital budgeting methods that focus on cash flows rather than incremental operating income are ______.
- payback - internal rate of return - net present value
Capital budgeting decisions ______.
- require a great deal of analysis prior to acceptance - involve an immediate cash outlay in order to obtain a future return
A new machine requires an investment of $630,000 and will generate $100,000 in cash inflows for 7 years, at which time the salvage value of the machine will be $130,000. Using a discount rate of 10%, the net present value of the machine is $
-76,510 or (76,510)
When considering decision alternatives, both relevant and irrelevant costs are included when using the
total cost approach
Select the capital budgeting approaches that use discounted cash flows.
- Net present value method - Internal rate of return method
Which of the following should not be included in the analysis when making a decision?
Sunk cost, non-differential future cost
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 ______. Multiple select question.
- alternative uses for the equipment - salvage value
Whitecotton 's Manufacturing Overhead was estimated to be $345,100 for the year along with 20,300 direct labor hours. Actual manufacturing overhead was $424,900, and actual labor hours were 21,800. The amount debited to the Manufacturing Overhead account would be:
424,900
What assumption underlies net present value analysis?
All cash flows generated by an investment project are immediately reinvested at a rate of return equal to the discount rate.
Which of the following can make a product line look less profitable than it really is?
Allocated common fixed costs
Current assets minus current liabilities is called
Blank 1: working Blank 2: capital
How managers plan significant investments in projects that have long term implications such as purchasing new equipment or introducing new products is called
Capital Budgeting
Working capital ______. Multiple choice question.
often increases when a company takes on a new project
The costs provided by a well-designed activity-based costing system are ______ relevant to a decision.
potentially
The two broad categories into which capital budgeting decisions fall are ______ and ______ decisions.
preference, screening