ACC CH. 11 SB

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

zero

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

Irrelevant costs include ______.

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

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

Opportunity costs are not found in accounting records because they are not relevant to decisions.

False

True or false: The accounting depreciation of an existing asset is relevant to decisions.

False

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

True

True or false: Effectively managing an organization's constraints is a key to increased profits.

True

The first step in decision making is to ______.

define the alternatives

When considering decision alternatives, only relevant costs are included when using the ___ cost approach. (Enter only one word per blank.)

differential

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. (Enter only one word per blank.)

fixed

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

fixed costs

Synonyms for differential costs include ______ cost.

incremental avoidable

When a product is past the split-off point, but is not yet a finished product, it is called a(n) ___ product. (Enter only one word per blank.)

intermediate

Two or more products produced from a common input are called ______.

joint products

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

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 ______ 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

A one-time sale that is not considered part of the company's normal ongoing business is referred to as a(n) ___ ___ decision. (Enter only one word per blank.)

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. (Enter only one word per blank.)

sunk

Less dependence on suppliers is an advantage of ______.

vertical integration

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

Allocated common fixed costs

Which of the following should not be included in the analysis when making a decision?

Sunk costs Non-differential future costs

When a shortage or limited resource of some type restricts a company's ability to satisfy demand, the company has a(n) ___ . (Enter only one word per blank.)

constraint

When making a product line decision, a company may focus on lost contribution margin and avoidable fixed costs or prepare comparative ______.

income statements

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

increase the capacity of the bottleneck

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

The costs provided by a well-designed activity-based costing system are ______ relevant to a decision.

potentially

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

Being less dependent on suppliers and realizing profits from the parts and materials that it is "making" rather than "buying," as well as profits from its regular operations, are advantages of ___ ___ . (Enter only one word per blank.)

vertical integration

When demand for products exceeds the production capacity, a(n) ___ ___ - ___ decision must be made. (Enter only one word per blank.)

volume trade off

True or false: Mingling irrelevant and relevant costs may cause confusion and distract attention from critical information.

True

Potential advantages of dropping a product line or other segment include ______.

an overall increase in net operating income avoiding more fixed costs than the company loses in contribution margin

A limited resource of some type that restricts the company's ability to satisfy demand is a(n) ______.

constraint

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: Variable manufacturing cost: $12 PU $240,000 T Supervisor salary: $3 PU $60,000 T Depreciation: $1 PU $20,000 T Allocated fixed overhead: $7 PU $140,000 T 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 ______.

continue to make the part — $60,000 advantage The avoidable costs of making the product are the variable costs plus the supervisor salary or $15 per unit. The total savings is $60,000 ($18 buy price - $12 variable cost - $3 supervisor salary = $3 advantage to make × 20,000 units).

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

contribution margin per unit of constraint

Space being used that would otherwise be idle has a(n) ___ cost of zero. (Enter only one word per blank.)

opportunity

Costs that have already been incurred and cannot be avoided regardless of what a manager decides to do are ______ costs.

sunk

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

the differential cost approach only

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

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

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. (Enter only one word per blank.)

income statement

Costs and benefits that should be ignored when making decisions are called ______ costs and benefits.

irrelevant

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

irrelevant

When planning a road trip, the ______ is a sunk cost and should be ignored.

original cost of the car