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
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
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
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 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
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