accounting chapter 12

2. Sanchez International is considering replacing equipment that originally cost $300,000 and has $280,000 in accumulated depreciation to date. A new machine will cost $450,000. What is the sunk cost in this situation a. $20,000 b. $150,000 c. $300,000 d. $280,000

a

Unit contribution margin per bottleneck hour for product y = (revised price of product x - unit variable cost for product x) / ___ hours per unit for product y

bottleneck

Unit contribution margin per production ____ ___ = unit contribution margin / production hours per unit

bottleneck hour

The theory of constraints (TOC) focuses on reducing the influence of _____ on a process

bottlenecks

1. Mars, Inc. can process Product X to produce Product Y. Product X is currently selling for $18 per round and costs $12.50 to produce. Product Y would sell for $32 per round and would require an additional cost of $8.75 to produce. What is the differential cost of producing Product Y? a. $14 per pound b. $32 per pound c. $8.75 per pound d. $12.50 per pound

c

5. The amount of income that would result from an alternative use of cash is called: a. Differential revenue b. Differential income c. Opportunity cost d. Sunk cost

c

Company is currently operating at 80% of capacity and is currently purchasing a part used in its manufacturing operations for $25 unit. The unit cost for company to make the part is $30, which includes $3 of fixed costs. If 20,000 units of the part are normally purchased each year but could be manufactured using unused capacity, what would be the amount of differential cost increase or decrease for making the part rather than purchasing it? A. $60,000 cost decrease B. $40,000 cost decrease C. $40,000 cost increase D. $60,000 cost increase

c

Products that use a large amount of the constrained resource require a higher ___ ___

contribution margin

3. Franklin, Inc. received an offer from an exporter to buy 5,000 units of product at $10 per unit. Franklin's acceptance of the offer will not affect normal production or domestic sales prices, as the product will be sold internationally by the exporter. Franklin's normal domestic selling price is $1 a. $10,000 gain b. $5,000 loss c. $10,000 loss d. $5,000 gain

d

4. The amount of increase or decrease in revenue that is expected from a particular course of action as compared to an alternative is called a: a. Differential cost b. Contribution margin c. Manufacturing margin d. Differential revenue

d

company is considering replacing equipment that originally cost $250,000 and that has $225,000 in accumulated depreciation to date. The cost of the new machine is $500,000 and the old equipment can be sold for $6,000. alternative investments are available to the company that yield a 10% return. What is the opportunity cost? (consider purchase price/net cost; pay out and paid in return) A. $250,000 B. $500,000 C. $50,000 D. $49,400

d

___ looks at the effects of different alternatives by using estimated revenues and costs & focusing on relevant revenues and costs

differential analysis

The amount of increase or decrease in cost that is expected from a course of action as compared to an alternative

differential cost

__ __ includes direct materials and direct labor

differential cost

Differential income = differential revenues - ___

differential costs

___ = differential revenues - differential costs

differential income

Could arise from differences in the timing of the income from the two alternatives and differences in the amount that is taxed

differential income tax

The amount of increase or decrease in revenue that is expected from a course of action as compared to an alternative

differential revenue

Differential income = ___ - differential costs

differential revenues

differential cost includes direct materials and ___ ___

direct labor

differential cost includes ___ ___ and direct labor

direct materials

reviewing, analyzing, and assessing the results of the decision is the ___ step in differential analysis

fifth

identifying the objective of the decision is the ___ step in differential analysis

first

how many steps are there involved in differential analysis

five

if a company has excess factory capacity, ___ costs will not change and hence they are irrelevant to the decision

fixed

making a decision is the ___ step in differential analysis

fourth

Products that use a large amount of the constrained resource require a ___ (lower, higher) contribution margin

higher

Products that use a ____ amount of the constrained resource require a higher contribution margin

large

Measures the amount of revenue that is forgone from an alternative use of an asset

opportunity cost

Unit contribution margin per bottleneck hour for product y = (revised ___ of product x - unit variable cost for product x) / bottleneck hours per unit for product y

price

Occurs at the point in the process where the demand for the product exceeds the ability to produce the product

production bottleneck

Unit contribution margin per production bottleneck hour = unit contribution margin / __ per unit

production hours

when a company has a production bottleneck in its production process, the unit contribution margin of each product per production bottleneck constraint is used. this is the best measure of _____

profitability

identifying the alternative courses of action is the ___ step in differential analysis

second

when using differential analysis, ignore ____ costs

sunk

those costs that have occurred in the past and are irrelevant for future decision making

sunk costs

Manufacturing strategy that focuses on reducing the influence of bottlenecks on production processes

theory of constraints (TOC)

gathering relevant information is the ___ step in differential analysis

third

Unit contribution margin per production bottleneck hour = ___ / production hours per unit

unit contribution margin

__ ___ __ per production bottleneck hour = unit contribution margin / production hours per unit

unit contribution margin

____ per bottleneck hour for product y = (revised price of product x - unit variable cost for product x) / bottleneck hours per unit for product y

unit contribution margin

best measure of profitability

unit contribution margin

Unit contribution margin per bottleneck hour for product y = (revised price of product x - ___ for product x) / bottleneck hours per unit for product y

unit variable cost

Unit contribution margin per bottleneck hour for product y = (revised price of product ___ (x,y) - unit variable cost for product x) / bottleneck hours per unit for product y

x

Unit contribution margin per bottleneck hour for product y = (revised price of product x - unit variable cost for product ___ (x,y)) / bottleneck hours per unit for product y

x

Unit contribution margin per bottleneck hour for product _ (x,y) = (revised price of product x - unit variable cost for product x) / bottleneck hours per unit for product y

y

Unit contribution margin per bottleneck hour for product y = (revised price of product x - unit variable cost for product x) / bottleneck hours per unit for product ___ (x,y)

y