Accounting Exam 3: Chapter 6

When making a volume-trade off decision, managers should ignore: Multiple choice question.

Fixed costs

When a shortage or limited resource of some type restricts a company's ability to satisfy demand, the company has a(n)

constraint or bottleneck

The first step in decision making is to:

define the alternatives

A future cost that is not the same between any two alternatives is known as a(n) ______________ , incremental, or avoidable cost.

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

fixed

Irrelevant costs include:

future costs that do not differ between alternatives sunk costs

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

income statements

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

income statements

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

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

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

Costs and benefits that always differ between alternatives are ______ costs and benefits.

relevant

Costs and benefits that always differ between alternatives are ______costs and benefits.

relevant

Deciding what to do with a joint product at the split-off point is a(n) ________________ or ________________ decision.

sell or process further

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

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

true

Which of the following are ways in which to calculate the benefit of selecting one alternative over another?

An analysis that looks at all costs and benefits and identifies those that are differential. The difference between the net operating income for the two alternatives. An analysis that just looks at the relevant costs and benefits.

True or false: Depreciation of existing assets is relevant to decisions.

false

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

false

Differential revenue is an example of a(n) ______ benefit.

relevant

When demand for products exceeds the production capacity, a - ______________________ decision must be made.

volume trade-off