ACCT 2521 Chapter 10 Learnsmart

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What can make a product line look less profitable then it really is

Allocated Common Fixed Costs

Joint Costs:

Are irrelevant in decisions regarding what to do with a product after split off Cannot be avoided once a process is started

One of the great dangers of allocating common __________ costs is that such allocations can make a product look less profitable than it really is

Fixed

Managers may choose to retain an unprofitable product line because it

Helps sell other products Attracts customers

A cost that can be eliminated by choosing one alternative over another is a(n)

Avoidable

What should be included in the analysis when decision making

Avoidable Costs Differential Costs Opportunity Costs Differential Costs

The machine or process that is limiting overall outputs is called a(n)

Bottleneck

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

Constraint

When a constraint exists companies should focus on maximizing

Contribution Margin Per Unit of Constraint

True or False: Opportunity costs are not found in accounting records because they are not relevant decisions

False

Costs incurred up to the point in the split off point in a process in which two or more products are produced from a common input are called ____________ costs

Joint

The split off point is the point in the manufacturing process at which the ___________ products can be recognized as separate process

Joint

Two or more products produced from a common input are:

Joint Products

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 Decision

Costs that are relevant in a given situation:

May not be relevant in another decision situation

The decision to add or drop a product line should be based on the impact the decision will have on:

Net Operating Income

The potential benefit given up when selecting one alternative over another is a(n) __________ cost

Opportunity

Joint costs are traditionally allocated among different products at the split off point. A typical approach is to allocate the joint costs according to the relative ___________ value of the end products

Sales

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

Sunk

A set of activities ranging from development to production to after sales service is called

The Value Chain

When should a special order be accepted?

When the incremental revenue exceeds the incremental costs from the order

When making a product line decision a company may focus on lost ____________ _____________ and avoidable fixed costs or prepare comparative income statemetns

Contribution Margin

A one-time order that is not considered part of the company's normal on going business is referred to as a(n) ___________ ____________ decision

Special Order

Advantages of dropping a product line or other segment include:

Avoiding more fixed costs than the company losses in contribution margin An overall increase in Net Operating Income

Effectively managing an organization's constraints is a key to increased

Profits

When a company is involved in more than one activity in the entire value chain it is _____________ _______________

Vertically Integrated

I some products must be cut back because of a constraint, produce the product with the highest

Contribution Margin Per Unit of Constrained Resource

When a product is past the split off point, but is not yet a finished product it is called a(n) _____________ product

Intermediate

If by dropping a product line a company cannot avoid as much fixed cost as it loses in contribution margin, the company should:

Keep the Product Line

Ways to calculate the benefit of selecting one alternative over the other

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 The difference between the net operating income for the two alternatives

The best way to handle a constrained resource is to ____________ the capacity of the bottleneck

Relax

Only rarely enough will enough information be available to prepare a detailed income statement for both alternatives in a decision. This makes isolating ____________ costs desirable

Relevant

When identifying costs that are differential, a manager would eliminate costs and benefits that do not differ between alternatives and use the remaining costs and benefits that do differ between alternatives in making the decision. The costs that remain are the differential or _____________ costs

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

When planning a trip and deciding to drive your car or take the train gasoline is a:

Relevant Cost

A joint product should be processed after split off if the:

Incremental Revenue after split off exceeds the incremental processing costs after split off

Bad decisions can only result from erroneously including __________ costs and benefits when analyzing alternatives

Irrelevant

What is true of Joint Costs?

Joint Costs are common costs that are incurred to produce two or more products Improper allocation of joint costs can lead to incorrect decisions Allocation of joint costs is needed for inventory valuation

If a company has a resource that could be used for something else, the _____________ cost is the profit that could be derived from the best alternative use of the resource

Opportunity

Deciding what to do with a joint product is a(n) ____________ or __________ ___________ decision

Sell or Process Further

True or False: The monthly fee that a student pays to park at school is not relevant when deciding whether to take the train or drive for a weekend trip to visit an out of town friend

True

True or False: Allocating joint costs to products at the split off point is misleading for decision making about the products

True


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