ACC 222 Chapter 12

Costs which are always relevant in decision making are those costs which are...

avoidable

The opportunity cost of making a component part in a factory with no excess capacity is the net ______ foregone from the best ______ use of the capacity required.

benefit ; alternative

a machine or some other part of a process that limits the total output of the entire system

bottleneck

when a products contribution margin is negative the company should probably....

close the segment and allocate resources elsewhere

An apparent loss may be the result of allocated _________ or of ______ costs that cannot be avoided if the product is dropped.

common costs ; sunk

Any resource that is required to make products and get them into the hands of customers could be a _____________.

constraint

A product should be discontinued only if the contribution margin that will be lost as a result of dropping the product is less than the ________ that would be avoided.

fixed costs

A company can maximize its total contribution margin by focusing on the products with the greatest amount of contribution margin per ________________ of the constrained resource.

greatest amount of contribution margin per unit of

costs that are shared in the manufacturing and marketing of several products in a product line

joint costs

An incremental cost (or benefit) is the change in cost (or benefit) that will result from some ___________.

proposed action

only the costs that differ between alternatives are...

relevant

a benefit that differs between alternatives in a decision. synonyms are differential benefit and incremental benefit

relevant benefit

a decision as to whether a joint product should be sold at the split-off point or sold after further processing

sell or process further decision

a one-time order that is not considered part of the company's normal ongoing business

special order

An avoidable cost is a cost that can be eliminated (in whole or in part) as a result of choosing one alternative over another.

true

Avoidable costs are also called relevant costs.

true

Future costs that do not differ among the alternatives are not relevant in a decision

true

If by dropping a product a firm can avoid more in fixed costs than it loses in contribution margin, then the firm is better off economically if the product is dropped.

true

Joint costs are not relevant to the decision to sell a product at the split-off point or to process the product further.

true

The cost of a resource that has no alternative use in a make or buy decision problem has an opportunity cost of zero.

true

Vertical integration is the involvement by a company in more than one of the steps from securing basic raw materials to the production and distribution of a finished product.

true

When a company has a production constraint, the product with the highest contribution margin per unit of the constrained resource should be given highest priority.

true

firms that own plants that perform different functions in the various stages of the production process are considered to be

vertically integrated

Managers should not authorize working overtime at a work station that contains a bottleneck.

false

The book value of a machine, as shown on the balance sheet, is relevant in a decision concerning the replacement of that machine by another machine.

false

unk costs are considered to be avoidable costs.

false

When there is a production constraint, a company should emphasize the products with the highest ___________ per unit of the constrained resource.

contribution margin

A general rule in relevant cost analysis is ____ and ______ are always relevant.

differential future costs and revenues

Depreciation expense on existing factory equipment is generally relevant to a decision of whether to accept or reject a special offer for a company's product.

false

Fixed costs are irrelevant in a decision.

false

Generally, a product line should be dropped when the fixed costs that can be avoided by dropping the product line are less than the contribution margin that will be lost.

false

Joint production costs are relevant costs in decisions about what to do with a product from the split-off point onward in the production process.

false

A sunk cost is a cost that has already been incurred and that cannot be avoided regardless of what action is chosen.

true

Each decision situation must be carefully analyzed to isolate the ______ costs

relevant

Freestone Company is considering renting Machine Y to replace Machine X. It is expected that Y will waste less direct materials than does X. If Y is rented, X will be sold on the open market. For this decision, which of the following factors is (are) relevant?

I. Cost of direct materials used II. Resale value of Machine X

In a sell or process further decision, which of the following costs are relevant? I. A variable production cost incurred prior to the split-off point. II. An avoidable fixed production cost incurred after the split-off point.

II. An avoidable fixed production cost incurred after the split-off point.

Variable costs are relevant costs only if they differ in total between the ___________ _______ ____

alternatives under consideration.

Allocations of common fixed costs can make a product....

appear to be unprofitable, whereas in fact it may be profitable.

machine time, direct labor time, floor space, raw materials, investment capital, supervisory time, and storage space would be good examples of possible

constraints

Which of the following are valid reasons for eliminating a product line? I. The product line's contribution margin is negative. II. The product line's traceable fixed costs plus its allocated common corporate costs are less than its contribution margin.

first statement

joint costs should not be allocated among __________ for decision-making purposes.

joint products

two or more products that are produced from a common input

joint products

If the level of activity is the same for the two alternatives, a variable cost will __________ and it will be __________.

not be affected ; irrelevant.

If the incremental revenue from further processing exceeds the incremental costs of further processing, the product should be _______________.

processed further.

_______ is an action that _______ the amount of a constrained resource. Equivalently, an action that increases the capacity of the ________.

relaxing the constraint ; increases; bottleneck