ACC 202 CHAPTER 11

which of the following many be advantage of making a part rather than buying it

a smoother flow of parts and materials for production, less dependence on outside suppleirs

what are three ways to calculate the benefit of selecting one alternative over another?

an analysis that just looks at the relevant costs and benefits, the difference between net operating income for the two alternatives, ana analysis that looks at all the cost and benefits and identifies those that are differential

the first step in decision making is ro

define the alternatives

when considering decision alternatives, only relevant costs are included when using the

differential cost approach

the reduction in reseal value of an asset through use or over time is called real or

economic depreciation

when considering accepting a special order

normal sales must not be affected, there must be idle capacity

allocated common costs are

only relevant to decisions if they are avoidable

costs that are traceable to a segment are x rev leant and x be avoidable

potentially, may or may not

if the contribution margin is greater than the avoidable fixed costs, dropping the product line will x the overall net operating income

reduce

when considering decision alternatives, both relevant and irrelevant costs are included when using he

total cost approach

activities ranging from development to production to after-sales service are called a

value chain

being less dependent on suppliers and making profits on both parts and the final product are advantages of

vertical integration

potential advantages of dropping a product line or other segment include

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

going costs incurred prior to the split-off point x revenant in decisions regarding what to do from the split-off point forward

are not

to effectively deal with constraint

improvements should focus on the constraint, efforts should be focused on the weakest link

when making a product line decision, a company may focus on the 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

increase the capacity of the bottle neck

a joint production should be processed after split off if the

incremental revenue after split off exceeds the incremental processing cost after split off

a company must make volume trade-off decision when

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

the total cost approach and the differential approach methods of decision analysis will x provide the same correct answer

will always

managers may choose to retain an unprofitable product line because it

attracts customers, helps sell other products

when a manager increases the capacity of constraint, or x, it is called relaxing the constraint

bottleneck

which of the following techniques describe how a bottleneck should be managed?

find ways to increase the capacity of the bottleneck, focus business process improvement efforts on the bottleneck, ensure there is minimal lost time at the bottleneck due to breakdowns and set-ups

when a company is involved in more than one activity in the entire value chain it Is

vertically integrated

when a demand for products exceeds the production capacity a

volume trade-off must be made

one of the dangers in allocating common fixed costs is that

these allocation can make a product line look less profitable than it really is

if some products must be cut back because of a constraint, produce the products with the highest

contribution margin per unit of constrained resource

benefit from relaxing the constraint equals

contribution margin per unit of the constrained resource

opportunity costs

represent forgone economic benefits, are sometimes zero

a company is considering buying a component part that they currently make. What factors are best to make sure the component are relevant to the decision?

salvage value, alternative uses for the equipment

average costs

contain sunk costs, are often misleading

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

contribution margin

isolating relevant costs is desirable because

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