managerial accounting chapter 13

When making a product line decision, a company may focus on lost contribution margin and avoidable fixed costs or prepare comparative _______________ ________________.

Income statement

When making a decision ______ costs and benefits should to be included in the analysis.

Only relevant

Potential advantages of dropping a product line or other segment include ______. (select all that apply) an overall decrease in other product line sales increasing relevant costs that the company incurs an overall increase in net operating income avoiding more fixed costs than the company loses in contribution margin

an overall increase in net operating income avoiding more fixed costs than the company loses in contribution margin

A business segment should only be dropped if a company can avoid more in ___________. net operating income variable costs contribution margin segment sales

contribution margin

When a constraint exists, companies need to focus on maximizing ______. contribution margin per unit of constraint contribution margin per unit incorrect net income from sales net sales

contribution margin per unit of constraint

A future cost that is not the same between any two alternatives is known as a(n) ___________, incremental, or avoidable cost.

differential

Some decisions have only one alternative and cannot consider steps in decision making. t/f

f

The second step in decision making is to ______.

identify relevant costs and benefits

When making a product line decision, a company may focus on lost contribution margin and avoidable fixed costs or prepare comparative ______. balance sheets income statements statements of cash flow

income statements

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

intermediate

Costs and benefits that should be ignored when making decisions are called ______ costs and benefits. differential irrelevant relevant incremental opportunity

irrelevant

Future costs and benefits that do not differ between alternatives are Blank______ costs to the decision-making process. sunk opportunity irrelevant relevant

irrelevant

In order to prevent confusion and keep attention focused on critical information, it is desirable to ______. combine relevant and irrelevant costs to obtain a total cost isolate relevant costs from irrelevant costs ignore relevant costs and focus on irrelevant one

isolate relevant costs from irrelevant costs

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 drop

keep

If a cost is traced to a segment using activity-based costing, it ______ an avoidable cost of the segment. is never may or may not be is always

may or may not be reason: Costs that are traced to a segment are not always avoidable. For example, depreciation on equipment may be easily traced to a segment, but may not be an avoidable cost.

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

opportunity

Space being used that would otherwise be idle has a(n) _________ cost of zero.

oppurtunity

The third step in decision making is to ______.

perform a differential analysis

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

potentially

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

the segment margin from the best alternative use of the resource

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

total

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

vertical integration

Less dependence on suppliers is an advantage of ______. outsourcing vertical integration horizontal integration special orders

vertical integration

Irrelevant costs include ______. (select all that apply) sunk costs all fixed costs future costs that do not differ between alternatives future costs that differ between alternatives

sunk costs future costs that do not differ between alternatives

When making a decision, irrelevant items are included in the analysis of both alternatives when using ______. the total cost approach only the differential cost approach only both the differential and total cost approaches neither the differential nor total cost approach

the total cost approach only

A company is considering buying a component part that they currently make using some existing equipment. Relevant costs to this sourcing decision include ______. (select all that apply) equipment depreciation charges allocated general overhead variable overhead outside purchase price

variable overhead outside purchase price

Which of the following can make a product line look less profitable than it really is? Common variable costs Allocated common fixed costs

Allocated common fixed costs

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

False, Depreciation spreads sunk costs across the life of the assets and is not relevant.

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

constraint

The first step in decision making is to ______.

define the alternatives

Opportunity costs are not found in accounting records because they are not relevant to decisions. t/f

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 ______. contribution margin variable costs fixed costs

fixed costs

When there is a constrained resource, the best way to increase profits is to Blank______. 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

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 or buy

Determining whether to carry out an activity in the value chain internally or use a supplier is a ______ decision. utilization of a constrained resource special order product line make or buy

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.

oppurtunity

When planning a trip and deciding whether to drive or fly, the ______ is a sunk cost and should be ignored. cost of gasoline for the trip original cost of the car monthly parking fee that must be paid at your apartment while you are gone cost of car repairs and maintenance

original cost of the car

Differential revenue is an example of a(n) _____ benefit. irrelevant relevant sunk avoidable

relevant

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

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

sunk

Costs that have no impact on future cash flows and are irrelevant to decisions are ______ costs. sunk unavoidable avoidable marginal

sunk

Which of the following should not be included in the analysis when making a decision? (pick all that apply) Opportunity costs Avoidable costs Sunk costs Non-differential future costs

Sunk costs Non-differential future costs

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 Joint product Opportunity cost Joint cost

Intermediate product

Which of the following may be advantages of making a part rather than buying it (i.e. vertical integration)? (select all that apply) More dependence on suppliers. A smoother flow of parts and materials for production. Higher quality and lower cost because the supplier company enjoys economies of scale. Less dependence on outside suppliers.

A smoother flow of parts and materials for production. Less dependence on outside suppliers.

Isolating relevant costs is desirable because ______. (select all that apply) critical information may be overlooked with the total cost approach irrelevant costs may be used incorrectly in the analysis managers prefer to see all costs and benefits associated with a decision all information needed for the total cost approach is rarely available

critical information may be overlooked with the total cost approach irrelevant costs may be used incorrectly in the analysis all information needed for the total cost approach is rarely available

A company must make a volume trade-off decision when they Blank______. (select all that apply) must trade off units of one product for units of another do not have enough capacity to satisfy all product demand have excess capacity that is not currently being utilized

must trade off units of one product for units of another do not have enough capacity to satisfy all product demand

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

true

When demand for products exceeds the production capacity, a(n) _______ ___________- ____________ decision must be made.

volume trade-off