Managerial Accounting Chp 10
________ is the act of using another company to provide goods or services that your company requires.
Outsourcing
The managerial decision-making process has which of the following as its third step? Review, analyze and evaluate the results of the decision. Decide, based upon the analysis, the best course of action. Identify alternative courses of action to achieve a goal or solve a problem. Perform a comprehensive differential (differential) analysis of potential solutions.
Perform a comprehensive differential (differential) analysis of potential solutions.
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
joint costs
costs that have been shared by products up to the split-off point
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
products or services with the highest contribution margin have the _______ impact on income
largest
When should a segment be dropped?
only when the decrease in total contribution margin is less than the decrease in fixed cost
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
When operating in a constrained environment, which products should be produced?
products with the highest contribution margin per unit of the constrained process
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
Which of the following is not a qualitative decision that should be considered in an outsourcing decision? employee morale product quality company reputation relevant costs
relevant costs
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?
$5 per unit profit
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
________ are the costs associated with not choosing the other alternative.
Opportunity costs
Many outsourced jobs have resulted in "offshoring" jobs, rather than using domestic outsourcing. If a U.S. company wants to offshore a service like customer service, for example, what are some of their considerations? In your answer, address offshoring disadvantages as compared with domestic outsourcing.
First and foremost, customer service quality is a consideration, followed closely by the ability of the offshore personnel to speak clearly in English and to understand the customer's needs. Chief operating officers should also make sure that the call centers are adequately staffed and run in an ethical manner, similar to the main company contracting with the outsourced service. Offshoring disadvantages should be weighed against domestic outsourcing in the areas of time zone problems, politically correct labor choices, rising labor costs abroad, as well as culture and language.
What is a general rule to remember with respect to a sell-or-process-further environment, and what costs are irrelevant to the decision?
In general, if the differential revenue from processing further is greater than the differential costs, then it will be profitable to process a joint product after the split-off point. Any costs incurred prior to the split-off point are irrelevant to the decision to process further, as those are sunk costs, and only future costs are relevant costs. Joint product costs are common costs that are incurred simultaneously to produce a variety of end products. Even though they are common costs, they are routinely allocated to the joint products.
Identify the cost as relevant or irrelevant for Felipe's Restaurant and Pie Shop. Then identify the type of cost (sunk, fixed, variable, or opportunity). Felipe's decision not to attend graduate school
Irrelevant and Opportunity
Identify the cost as relevant or irrelevant for Felipe's Restaurant and Pie Shop. Then identify the type of cost (sunk, fixed, variable, or opportunity). Felipe's culinary school tuition
Irrelevant and Sunk
Identify the cost as relevant or irrelevant for Felipe's Restaurant and Pie Shop. Then identify the type of cost (sunk, fixed, variable, or opportunity). Painting dining area last year
Irrelevant and Sunk
What are some of the qualitative issues that a special order can create?
One issue is the concern for how existing customers will feel if they discover that the company offered a lower price to the special-order customer for the same goods or services. If the goods in the special order are modified, and thus cheaper for that reason, current customers may prefer the modified, cheaper version of the product. The company would need to determine if selling the new version of the project would hurt profitability or the company's reputation.
Your roommate at school believes that all fixed costs are always avoidable. Do you agree? How would you explain your point of view to your roommate?
Primarily disagree, but there are a few times where fixed costs can be avoided or partially avoided. Variable costs are avoidable costs since variable costs do not exist if the product is no longer made, or if the portion of the business (such as a segment or division) that generated the variable costs ceases to operate. Fixed costs, on the other hand, may be unavoidable, partially unavoidable, or avoidable only in certain circumstances. When a company discontinues a product or service, certain fixed costs may not be required.
_______ would include consequences such as potential loss of current customers or displacement of jobs.
Qualitative factors
Identify the cost as relevant or irrelevant for Felipe's Restaurant and Pie Shop. Then identify the type of cost (sunk, fixed, variable, or opportunity). Rent
Relevant and Fixed
Identify the cost as relevant or irrelevant for Felipe's Restaurant and Pie Shop. Then identify the type of cost (sunk, fixed, variable, or opportunity). Baker wages
Relevant and Variable
Identify the cost as relevant or irrelevant for Felipe's Restaurant and Pie Shop. Then identify the type of cost (sunk, fixed, variable, or opportunity). Berries for pies
Relevant and Variable
Which of the following is sometimes referred to as the "Anti Chain Store Act"?
Robinson-Patman Act
In the decision by a grocery company that is trying to decide whether to keep or drop the bakery department in its grocery stores, what would the bakery manager's salary be in relationship to the decision if the manager will be laid off?
The bakery manager's salary would be avoidable and therefore differential in the analysis.
managing scarce resources will help reduce
bottlenecks
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
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