Managerial Cost Accounting - ch. 11

relevant costs to the sell or process further decision are:

1. costs incurred beyond the split-off point 2. revenues at the split-off point 3. revenues beyond the split-off point

6 key concepts of business decision-making

1. defining the alternatives 2. distinguishing between relevant and irrelevant costs 3. performing differential analysis 4. identify sunk costs 5. identify future costs and benefits that do not differ between alternatives 6. identify opportunity costs

joint costs incurred before the split-off point

are not relevant to the sell or process further decision

A cost that can be eliminated by choosing one alternative over another is a(n) _____________.

avoidable cost

when a shortage or limited resource of some type restricts a company's ability to satisfy demand, the company has a(n) ______________.

contraint

Identifying and focusing on future costs and benefits that differ from one alternative to another is known as ________.

differential analysis

A future cost that differs between any two alternatives is known as ______________.

differential costs

A future revenue that differs between any two alternatives is known as ____________.

differential revenue

Relevant Costs and Revenues

future costs and revenues that will be changed by a decision

the correct solution to maximizing the total contribution margin is to favor the products that provide the

highest contribution margin per unit of the constrained resource.

An increase in cost between 2 alternatives is a(n) ---------.

incremental cost

Costs and revenues that do not differ between alternatives are _____________.

irrelevant to decision-making.

two or more products that are produced from a single raw material input are known as _______________.

joint products.

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

make or buy decision

The potential benefit that is given up when one alternative is selected over another is called ________.

opportunity cost

The decision to process such products further or to sell at the split-off point is known as a _____________.

sell or process further decision

Joint costs are not relevant to the decision to sell a product at the ____________.

split-off point or to process the product further

Costs that have been incurred and cannot be eliminated regardless of the alternative chosen are ________.

sunk costs and are irrelevant.

Costs that should not be included in the analysis when decision making are _____________.

sunk costs and non-differential future costs

The depreciation of special equipment is an irrelevant cost because _________________.

the equipment has already been purchased

The involvement by a company in more than one of the activities in the entire value chain from development through production, distribution, sales, and after-sales service is called ________.

vertical integration

When a company does not have enough capacity to produce all of the products and sales volume demanded by their customers, this leads to ________.

volume trade-off decisions