ACCT 201 B - CONNECT Chp. 10 practice questions

when making a decision to either go to a movie or rent a DVD, choosing the movie instead of the DVD means that the cost of renting the DVD would be eliminated. This is an example of a(n):

1. relevant cost 2. avoidable cost

When should a special order be accepted?

when the incremental revenue from the special order exceeds the incremental costs of the order

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

avoidable

determining whether to carry out an activity in the value chain internally or use a supplier is a ________ decision

make or buy

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

only those costs and benefits that differ in total between alternatives are _________ in a decision.

relevant

when deciding to fly or take the train on a trip, the cost of putting your pet in a boarding facility while you are away is a(n) _________ cost

irrelevant

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

contribution margin

when choosing b/w two alternatives, such as replacing or not replacing the machine, do not include _______ costs in the analysis because these costs will be the same under each alternative.

irrelevant

when planning a trip and making a decision to drive or take the train, the cost of car repairs and maintenance is a(n) __________ cost

relevant

a one-time order that is not considered part of the company's normal ongoing business is referred to as a(n) ________ ________ decision

special order

a one-time order that is not considered part of the company's normal ongoing business is referred to as a(n) __________ ________ decision

special order

What are ways in which to calculate the benefit of selecting one alternative over another? (3) :

1. the difference between the net operating income for the two alternatives 2. an analysis that looks at all costs and benefits and identifies those that are differential 3. an analysis that just looks at the relevant costs and benefits

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

bad decisions can easily result from erroneously including _______ costs and benefits when analyzing alternatives

irrelevant

only rarely will enough information be available to prepare a detailed income statement for both alternatives in a decision. This makes isolating ________ costs desirable.

relevant

when making a decision to continue using a current machine versus purchasing a new machine, what type of costs need to be included in the analysis?

relevant

when a company is involved in more than one activity in the entire value chain, it is ________ __________.

vertically integrated

What are the ways in which to calculate the benefit of selecting one alternative over another? (3):

1. an analysis that just looks at the relevant costs and benefits 2. the difference between the net operating income for the two alternatives 3. an analysis that looks at all costs and benefits and identifies those that are differential

when determining which product or service makes the best use of a constrained resource, a company has to determine which products or customers will maximize:

contribution margin

when making a product line decision, a company may focus on lost _______ ______ and avoidable fixed costs or prepare comparative income statements

contribution margin

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

contribution margin per unit of constrained resource

when planning a trip and deciding to drive your car or take the train, gasoline is a:

relevant

costs that have already been incurred and cannot be avoided regardless of what a manager decides to do are ______ costs

sunk

activities ranging from development to production to after-sales service are called a(n) _____ ________.

value chain

Managers may choose to retain an unprofitable line because it: (2)

1. attracts customers 2. it helps sell other products

what are the advantages of dropping a product line or other segment? (2):

1. avoiding more fixed costs than the company loses in contribution margin 2. an overall increase in net operating income

What are synonyms for avoidable cost? (2):

1. differential cost 2. incremental cost

what techniques describe how a bottleneck should be managed? (3):

1. find ways to increase the capacity of the bottleneck 2. focus business process improvement efforts on the bottleneck 3. ensure there is minimal lost time at the bottleneck due to breakdowns and set-ups

the capacity of a bottleneck can be effectively increased by: (2):

1. focusing business process improvement efforts on the bottleneck 2. subcontracting some of the processing that would be done in that area

What are ways to increase the capacity of a bottleneck? (2):

1. investing in additional machines at the bottleneck 2. shifting workers from processes that are not bottlenecks to the process that is the bottleneck

What should NOT be included in the analysis when making a decision? (2):

1. non-differential costs 2. sunk costs

which of the following should be included in the analysis when making a decision: (4)

1. opportunity costs 2. relevant costs 3. differential costs 4. avoidable costs

True of False: The monthly fee that a student pays to park at school is not relevant when deciding whether to take a train or drive for a weekend trip to visit an out-of-town friend.

True

one of the benefits of dropping a product line is that a company can eliminate the product line's _________ fixed costs

avoidable

the machine or process that is limiting overall output is a(n):

bottleneck

What is a limited resource of some type that restricts the company's ability to satisfy demand?

constraint

a business segment should only be dropped if a company can save more in ______ costs than it loses in contribution margin

fixed

if dropping a product line enables a company to avoid more in _______ costs than it loses in contribution margin, then its overall net operating income would improve by eliminating the product line.

fixed

what is the best way to increase profits when there is a constrained resource?

increase the capacity of the bottleneck

if, by dropping a product line, a company cannot avoid as much in fixed costs as it loses in contribution margin, the company should:

keep the product line

costs that are relevant in one decision situation:

may not be relevant in another

any final decision to drop or add a business segment is going to hinge primarily on the impact the decision will have on net _______ _______.

operating income

space being used that would otherwise be idle has a(n) ______ cost of zero

opportunity

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

opportunity

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.

oppportunity