Chapter 6 Accounting Smartbook
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
Irrelevant costs include:
-Sunk costs -Future costs that do not differ between alternatives
Which of the following should not be included in the analysis when making a decision?
-Sunk costs -Non-differential future costs
Which of the following are ways in which to calculate the benefit of selecting one alternative over another?
-The difference between the net operating income for the two alternatives. -An analysis that just looks at the relevant costs and benefits. -An analysis that looks at all costs and benefits and identifies those that are differential.
True or False: Effectively managing an organization's constraints is a key to increased profits.
True
The total cost approach and the differential approach methods of decision analysis _______________ provide the same correct answer.
will always
True or False: Some decisions only have one alternative.
False (Every decision involves choosing from at least two alternatives, even if the alternatives are yes or no.)
The process of determining the maximum allowable cost for a product and developing a profitable prototype is called ______________________________.
Target costing
The process of determining the maximum allowable cost for a product and developing a profitable prototype is called:
Target costing
True or False: When deciding whether to take a train or drive for a weekend trip to visit an out-of-town friend, the monthly fee a student pays to park at school is **not** relevant to the decision.
True
Which of the following can make a product line look less profitable than it really is?
allocated common fixed costs
A limited resource of some type that restricts the company's ability to satisfy demand 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:
contribution margin
The first step in decision making is to:
define the alternatives
A business segment should only be dropped if a company can save more in ______________ costs than it loses in contribution margin.
fixed
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 volume-trade off decision, managers should ignore:
fixed costs
An increase in cost between two alternatives is a(n) ___________________ cost.
incremental
Costs and benefits that should be ignored when making decisions are called ______________ costs and benefits.
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(n) _____________ or _______________ decision.
make or buy
Determining whether to carry out an activity in the value chain internally or use 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
Space being used that would otherwise be idle has a(n) _________________ cost of zero.
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
Product markup is generally expressed as a(n) ________________ of cost.
percentage
The costs provided by a well-designed activity-based costing system are ________________ relevant to a decision.
potentially
A product's markup is the difference between its selling ________________ and its ____________________.
price cost
Effectively managing an organization's constraints is a key to increased:
profits
Costs and benefits that **always** differ between alternatives are ________________ costs and benefits.
relevant
Differential revenue is an example of a(n) ______________ benefit.
relevant
When making a decision only ______________ costs and benefits should be included in the analysis.
relevant
When planning a trip and deciding to drive your car or take the train, gasoline is a(n) _____________ cost.
relevant
When planning a trip and deciding to drive your car or take the train, gasoline is a(n) ________________ cost.
relevant
When planning a trip and making a decision to drive or take the train, the cost of car repairs and maintenance is a(n) ______________ cost.
relevant
A one-time order that is **not** considered part of the company's normal ongoing business is a ______________ order.
special
A one-time order that is not considered part of the company's normal ongoing business is a __________________ order.
special
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
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
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
When a constraint exists, companies need to focus on maximizing
total contribution margin
When demand for products exceeds the production capacity, a ____________ ____________-_______ decision must be made.
volume trade-off
True or False: Opportunity costs are not found in accounting records because they are not relevant to decisions.
False
True or false: Depreciation of existing assets is relevant to decisions.
False