ACCT - SMARTBOOK #7

Which of the following statements are true?

Advertising for a specific product line is a direct fixed cost. Direct fixed costs can include fixed machinery costs. Direct fixed costs are avoidable if a segment is eliminated.

Which of the following is a limitation of some type that restricts a company's ability to satisfy demand?

Constrained resource

If the part is purchased, the supervisor will be eliminated. The special equipment used to manufacture Part XYZ has no other use and no salvage value. Total allocated fixed overhead will be the same regardless of the decision. Should the company buy the part or continue to make it?

Continue to make—$60,000 advantage

Advantages of dropping a division or other segment include ______.

an overall increase in net operating income avoiding more direct fixed costs than the amount of lost contribution margin

Relevant costs ______.

are also called differential costs differ between alternatives occur in the future

When deciding whether to sell a product as is or continue to process it, costs incurred to get the product to its current condition ______ relevant to the decision.

are not

When making a decision, ______ should be considered.

both quantitative and qualitative data

A(n) ______ limits a system's overall output.

bottleneck

The most constrained resource in called the

bottleneck

Given the following, determine if a buy price of $4.00 per unit for 3,000 units should be accepted. Total variable production costs of making the units equal $11,100, and total production fixed costs are $3,500. Of the fixed costs, $1,500 is avoidable if the units are purchased. Based on price, the company should (make/buy) ________ the units at a total net benefit of $

buy 600

When performing a keep-or-drop decision analysis, __________ fixed costs should be excluded from the analysis.

common

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

constrained

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

contribution margin per unit of constraint

Once you have identified a problem, the next step is to determine the possible solutions, which are called ___________ __________.

decision alternatives

A fixed cost that can be traced to a specific business segment is called a(n) _________ fixed cost

direct

A fixed cost that can be traced to a specific business segment is called a(n) _________- fixed cost

direct

When a company has more than enough resources to satisfy demand it is operating with _________ capacity

excess

When the total amount of the cost will be the same regardless of the alternatives selected in a decision, the cost should be ______ when doing decision analysis.

excluded

When there is excess capacity, an analysis of a special order ______.

excludes fixed costs

True or false: When making a decision, only quantitative factors should be considered.

false

Identifying the decision problem is the ______ step in the decision-making process.

first

Opportunity costs become relevant when a company is operating at

full capacity

Irrelevant costs include ______.

future costs that do not differ between alternatives sunk costs

The calculation of segment margin ______.

includes both variable and direct fixed costs

Jay's Furniture makes couches and love seats. Last year the total contribution margin was $900,000 for couches and $350,000 for love seats. Love seats had a segment margin of $50,000 and common fixed costs of $100,000, so the company is considering stopping love seat production. If that happens, sales of couches are expected to increase by 10%, The net impact of stopping production of love seats will (increase/decrease) __________ profits by $ ____________

increase 40,000

Jay's Furniture makes couches and love seats. Last year the total contribution margin was $900,000 for couches and $350,000 for love seats. Love seats had a segment margin of $50,000 and common fixed costs of $100,000, so the company is considering stopping love seat production. If that happens, sales of couches are expected to increase by 10%, The net impact of stopping production of love seats will (increase/decrease) _________ profits by $

increase 40,000

Comparing the relevant costs and benefits of alternative decision choices is called ______ analysis.

incremental

In the long term, companies can manage constrained resources by ______.

iring more workers increasing capacity

When planning a 5-day trip and making a decision to drive or take the train, the cost of boarding your dog while you are away is a(n) ______ cost.

irrelevant

Determining decision alternatives ______.

is a critical step in the decision-making process

Incremental analysis ______.

is also called differential analysis may be referred to as relevant costing

The process of making a decision ______.

is basically the same for all decisions

If, by dropping a segment, a company cannot avoid as much in direct fixed costs as it loses in contribution margin, the company should ______ the segment.

keep

Continue-or-discontinue decisions are commonly known as _________ or- ________ decisions

keep or drop

Deciding to carry out an activity internally or buy externally from a supplier is called a ______ decision.

make-or-buy

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

The forgone benefit of choosing one decision alternative over another is its

opportunity costs

When considering a keep-or-drop decision, it is important to consider ________________ such as whether the elimination of the segment will free resources that could be used in another way.

opportunity costs

When considering whether or not to take a trip, the ______ is irrelevant to the decision.

original cost of the car

Make-or-buy decisions are also referred to as

outsourcing

Make-or-buy decisions are also referred to as __________ decisions

outsourcing

Costs that differ between alternatives are called _______ 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

You are planning a trip and deciding whether to drive your car or take the train. The cost of gasoline is a(n) ______ cost.

relevant

Costs that differ between alternatives are called

relevant costs

Sales revenue minus all fixed and variable costs attributable to a particular division is called ______.

segment margin

Deciding what to do with a product that is salable or could be enhanced is a ______ decision.

sell-or-process-further

An analysis of a special order ______.

should consider the impact on regular customers should consider if excess capacity exists

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

special

Deciding to accept a sales request that is outside the scope of normal sales is called a(n) _________-_______ decision.

special-order

A cost that has already been incurred and cannot be avoided regardless of what a manager decides to do is a(n) ______ cost

sunk

When making decisions, managers should ignore ________ costs.

sunk costs

Goodstone Tire Corporation sells tires for $90 each. Per-unit costs associated with producing and selling the tires are: Direct materials $35; Direct labor $10; Factory overhead $20. The variable portion of the factory overhead is $8 per unit. A foreign company wants to purchase 1,000 tires for $65 each. Assuming that Goodstone has excess capacity, ______.

the incremental profit from the special order will be $12,000

True or false: An important consideration in a keep-or-drop decision is the impact on the costs and revenues of other segments.

true

True or false: Incremental analysis is a decision-making approach that compares the relevant costs and benefits of decision alternatives.

true

True or false: Qualitative factors should be considered in special-order decisions.

true

Common fixed costs ______.

will be incurred even if a segment is eliminated

Which of the following statements are true?

Hiring more workers or leasing additional machines are long-term strategies for managing constrained resources. Eliminating non-value-added activities can help companies manage constrained resources.

Which of the following is NOT a question managers need to consider when making a keep-or-drop decision?

How much is the salary of the company CEO?