Chapter 11: The differential Analysis: Key to Decision Making

A company must make a volume trade-off decision when they ______. Multiple select question. do not have enough capacity to satisfy the demand for all of its products must trade off units of one product for units of another due to limited production capacity have excess capacity that is not currently being utilized

-do not have enough capacity to satisfy the demand for all of its products -must trade off units of one product for units of another due to limited production capacity

Which of the following should not be included in the analysis when making a decision? Multiple select question. Non-differential future costs Avoidable costs Opportunity costs Sunk costs

Non-differential future costs Sunk costs

Which of the following can make a product line look less profitable than it really is?

allocated common fixed costs

A limited resource of some type that restricts the company's ability to satisfy demand is a(n) ______.

constraint

ndrews Co. can purchase 20,000 units of Part XYZ from a supplier for $18 per part. Andrews' per unit manufacturing costs for 20,000 units is as follows: Cost Per Unit Total Variable manufacturing cost: $12 $240,000 Supervisor salary: $3 $60,000 Depreciation: $1 $20,000 Allocated fixed overhead: $7 $140,000 If the part is purchased, the supervisor position will be eliminated. The special equipment has no other use and no salvage value. Total allocated fixed overhead would be unaffected by the decision. The company should ______.

continue to make the part- $60k advantage

A business segment should only be dropped if a company can avoid more in fixed costs than it gives up in ______.

contribution margin

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

contribution margin per unit of constraint

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

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

false

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 volume-trade off decision, managers should ignore ______. Multiple choice question. fixed costs variable costs contribution margin

fixed 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

When there is a constrained resource, the best way to increase profits is to ______. Multiple choice question. keep the capacity of the bottleneck the same decrease the capacity of the bottleneck increase the capacity of the bottleneck

increase the capacity of the bottleneck

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

intermediate

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

intermediate

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 produced from a common input are called ______.

joint products

When planning a trip and deciding whether to drive or fly, the ______ is a sunk cost and should be ignored.

og cost of the car

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

opportunity

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

special

A one-time sale that is not considered part of the company's normal ongoing business is referred to as a(n) ______ ______decision.

special order

Less dependence on suppliers is an advantage of ______.

vertical integration

When a resource, such as space in the factory, has no alternative use, its opportunity cost is ______.

zero

When considering decision alternatives, both relevant and irrelevant costs are included when using the _____ ______ approach.

total cost

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

true

True or false: Mingling irrelevant and relevant costs may cause confusion and distract attention from critical information.

true

Being less dependent on suppliers and making profits on both parts and the final product are advantages of _____ ______.

vertical integration

When demand for products exceeds the production capacity, a(n) ______ _____ - ______ decision must be made.

volume trade- off

A company is considering buying a component part that they currently make. Items related to the equipment being used to make the component that are relevant to this decision include ______. Multiple select question. original cost annual depreciation charges alternative uses for the equipment salvage value

alternative uses for the equipment salvage value

True or false: Some decisions only have one alternative.

false

An increase in cost between two alternatives is a(n) _____ cost.

incremental

Costs and benefits that should be ignored when making decisions are called ______ costs and benefits.

irrelevant

Future costs and benefits that do not differ between alternatives are ______ costs to the decision-making process.

irrelevant

Two or more products that are produced from a common input are known as ______ products.

joint

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

keep

A decision to carry out one of the activities in the value chain internally rather than to purchase externally from a supplier is a ______ decision.

make or buy

The costs provided by a well-designed activity-based costing system are ______ relevant to a decision. Multiple choice question. potentially always not ever

potentially

What type of cost is never relevant and should be disregarded when making decisions?

sunk

Anything that prevents you from getting more of what you want is a(n) ______.

constraint

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

false

As it applies to sell or process further decisions, which term refers to a product that is in the process of being made? Multiple choice question. Joint product Intermediate product Opportunity cost Joint cost

intermediate product

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

relevant

Costs that have already been incurred and can not be changed by decisions made in the current period or in future periods are called______ costs.

sunk

A decision to carry out one of the activities in the value chain internally, rather than to purchase externally from a supplier, is called a(n) ______ _____ or decision.

make/buy

If a cost is traced to a segment using activity-based costing, it ______ an avoidable cost of the segment.

may or may not be

If a company is using a resource that could be used for some other purpose, the opportunity cost of that resource is ______. Multiple choice question. the profit from the current use of the resource the profit from the best alternative use of the resource zero

the profit from the best alternative use of the resource

When making a decision, irrelevant items are included in the analysis of both alternatives when using ______.

the total cost approach only