Chapter 10: Short-Term Decision Making.
outsourcing
act of using another company to provide goods or services that your company requires
avoidable cost
cost that can be eliminated (in whole or in part) by choosing one alternative over another
sunk cost
cost that cannot be avoided because it has already occurred
unavoidable cost
cost that does not go away in the short-run by choosing one alternative over another
irrelevant cost
cost that has no effect on the decision being made because it is the same under either alternative
relevant cost
cost that influences the decision being made
opportunity costs
costs associated with not choosing the other alternative
allocated costs
costs that are generated by non-revenue generating portions of the business, such as corporate headquarters, that are assigned based on some formula to the revenue generating portions of the business
joint costs
costs that have been shared by products up to the split-off point
bottleneck
point at which a constraint slows production
split-off point
point at which some products are removed from production and sold while others receive additional processing
segment
portion of the business that management believes has sufficient similarities in product lines, geographic locations, or customers to warrant reporting that portion of the company as a distinct part of the entire company
relevant range
quantitative range of units that can be produced based on the company's current productive assets; for example, if a company has sufficient fixed assets to produce up to 10,000 units of product, the relevant range would be between 0 and 10,000 units
irrelevant revenue
revenue that has no effect on the decision being made
relevant revenue
revenue that influences the decision being made
constraint
scarce resource that limits output or productive capacity of an organization
unit contribution margin
selling price per unit minus variable cost per unit
differential analysis
type of analysis that considers only the differences between variables that are important to the analysis
unit contribution margin per production restraint
unit contribution margin divided by the production restrain
Mallory's Video Supply has changed its focus tremendously and as a result has dropped the selling price of DVD players from $45 to $38. Some units in the work-in-process inventory have costs of $30 per unit associated with them, but Mallory can only sell these units in their current state for $22 each. Otherwise, it will cost Mallory $11 per unit to rework these units so that they can be sold for $38 each. How much is the financial impact if the units are processed further? A. $5 per unit profit B. $16 per unit profit C. $3 per unit loss D. $12 per unit loss
A
When should a segment be dropped? A. only when the decrease in total contribution margin is less than the decrease in fixed cost B. only when the decrease in total contribution margin is equal to fixed cost C. only when the increase in total contribution margin is more than the decrease in fixed cost D. only when the decrease in total contribution margin is less than the decrease in variable cost
A
Which of the following is one of the two approaches used to analyze data in the decision to keep or discontinue a segment? A. comparing contribution margins and fixed costs B. comparing contribution margins and variable costs C. comparing gross margin and variable costs D. comparing total contribution margin under each alternative
A
When operating in a constrained environment, which products should be produced? A. products with the highest contribution margin per unit B. products with the highest contribution margin per unit of the constrained process C. products with the highest selling price D. products with the lowest allocated joint cost
B
Which of the following is sometimes referred to as the "Anti Chain Store Act"? A. Sarbanes-Oxley Act B. Robinson-Patman Act C. Wright-Patman Act D. Securities Act of 1939
B
Youngstown Construction plans to discontinue its roofing segment. Last year, this segment generated a contribution margin of $65,000 and incurred $70,000 in fixed costs. Discontinuing the segment will allow the company to avoid half of the fixed costs. What effect is expected to occur to the company's overall profit? A. a decrease of $5,000 B. a decrease of $30,000 C. a decrease of $5,000 D. an increase of $30,000
B
________ are the costs associated with not choosing the other alternative. A. Sunk costs B. Opportunity costs C. Differential costs D. Avoidable costs
B
________ is the act of using another company to provide goods or services that your company requires. A. Allocating B. Outsourcing C. Segmenting D. Leasing
B
A company produces two products, E and F, in batches of 100 units. The production and cost data are:Product E Contribution margin per batch $450, Machine set-ups needed per batch 25. Product F Contribution margin per batch $340, Machine set-ups needed per batch 20. The company can only perform 12,000 set-ups each period yet there is unlimited demand for each product. What is the differential profit from producing product E instead of product F for the year? A. $216,000 B. $204,000 C. $12,000 D. $54,000
C
Jansen Crafters has the capacity to produce 50,000 oak shelves per year and is currently selling 44,000 shelves for $32 each. Cutrate Furniture approached Jansen about buying 1,200 shelves for bookcases it is building and is willing to pay $26 for each shelf. No packaging will be required for the bulk order. Jansen usually packages shelves for Home Depot at a price of $1.50 per shelf. The $1.50 per-shelf cost is included in the unit variable cost of $27, with annual fixed costs of $320,000. However, the $1.50 packaging cost will not apply in this case. The fixed costs will be unaffected by the special order and the company has the capacity to accept the order. Based on this information, what would be the profit if Jansen accepts the special order? A. Profits will decrease by $1,200. B. Profits will increase by $31,200. C. Profits will increase by $600. D. Profits will increase by $7,200.
C
Which type of incurred costs are not relevant in decision-making (i.e., they have no bearing on future events) and should be excluded in decision-making? A. avoidable costs B. unavoidable costs C. sunk costs D. differential costs
C
The managerial decision-making process has which of the following as its third step? A. Review, analyze and evaluate the results of the decision. B. Decide, based upon the analysis, the best course of action. C. Identify alternative courses of action to achieve a goal or solve a problem. D. Perform a comprehensive differential (differential) analysis of potential solutions.
D
Which of the following is a disadvantage of outsourcing? A. freeing up capacity B. freeing up capital C. transferring production and technology risks D. limiting ability to upsize or downsize production
D
Which of the following is not one of the five steps in the decision-making process? A. identify alternatives B. review, analyze, and evaluate decision C. decide best action D. consult with CFO concerning variable costs
D
which of the following is not a qualitative decision that should be considered in an outsourcing decision? A. employee morale B. product quality C. company reputation D. relevant costs
D
normal capacity
company's maximum production level, without adding additional production resources, or within the company's relevant range
quantitative factor
component of a decision-making process that can be measured numerically
qualitative factor
component of a decision-making process that cannot be measured numerically
short-term decision analysis
determining the appropriate elements of information necessary for making a decision that will impact the company in the short term, usually 12 months or fewer, and using that information in a proper analysis in order to reach an informed decision among alternatives
differential cost
difference between costs for alternatives
differential revenue
difference between revenues for alternatives
special order
one-time order that does not typically affect current sales
