ACCT 2020 Ch. 6

Depreciation of existing assets is relevant to decisions.

False

Opportunity costs are not found in accounting records because they are not relevant to decisions.

False

Some decisions only have one alternative.

False

A company must make a volume trade-off decision when they I. do not have enough capacity to satisfy the demand for all of its products II. must trade off units of one product for units of another due to limited production capacity III. have excess capacity that has not currently being utilized

I, II

Which of the following may be an advantage of making a part rather than buying it? I. Less dependance on outside suppliers II. A smoother flow of parts and materials for production III. More dependence on suppliers IIII. Higher quality and lower cost because the supplier company enjoys economies of sale

I, II

Which of the following are ways in which to calculate the benefit of selecting one alternative over another? I. An analysis that looks at all costs and benefits and identifies those that are differential II. An analysis that just looks at the relevant costs and benefits III. The difference between the net operating income for the two alternatives IIII. An analysis that looks at just the sunk costs of each of the two alternatives

I, II, III

Potential advantages of dropping a product line or other segment include: I. an overall increase in net operating income II. an overall decrease in other product line sales III. avoiding more fixed costs than the company loses in contribution margin IIII. increasing relevant costs that the company incurs

I, III

Effectively managing an organization is key to increased profits

True

Mingling irrelevant and relevant costs may cause confusion and distract attention from critical information.

True

The first step in decision making is to: a. define the alternatives b. perform a differential analysis c. identify relevant costs and benefits

a.

When a constraint exists, companies need to focus on maximizing: a. total contribution margin b. net income from sales c. net sales d. contribution margin per unit

a.

Which of the following can make a product line look less profitable than it really is? a. Allocated common fixed costs b. Common variable costs

a.

If a company is using a resource that could be used for some other purpose, the opportunity cost of that resource is: a. zero b. the profit from the best alternative us of the resource c. the profit from the current use of the resource

b.

Two or more products produced from a common input are called a. joint costs b. joint products c. intermediate products d. opportunity costs

b.

When there is a constrained resource, the best way to increase profits is to: a. keep the capacity of the bottleneck the same b. increase the capacity of the bottleneck c. decrease the capacity of the bottleneck

b.

As it applies to sell or process further decisions, which term refers to a product that is in the process of being made? a. joint product b. opportunity cost c. intermediate product d. joint cost

c.

When planning a trip and deciding whether to drive or fly, the ____________ is a sunk cost and should be ignored. a. cost of gasoline for the trip b. cost of car repairs and maintenance c. original cost of the car d. monthly parking fee that must be paid at your apartment while you're gone

c.

Anything that prevents you from getting more of what you want is a(n) _____________.

constraint

When a resource, such as space in the factory, has no alternative use, its opportunity cost is: a. not determinable b. infinite c. negative d. zero

d.

A future cost that is not the same between any two alternatives is know as a(n) _______________, incremental, or avoidance cost.

differential

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

When making a product line decision, a company may focus on lost contribution margin and avoidable fixed costs or prepare comparative ____________ _____________.

income statements

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

keep

Determining whether to carry out an activity in the value chain internally or use a supplier is a _____________ decision.

make or buy

The potential benefit given up when selecting one alternative over another is a(n) ______________ cost.

opportunity

Differential revenue is an example of a(n) _____________ benefit.

relevant

When making a decision only ______________ costs and benefits should be included in the analysis.

relevant

Deciding what to do with a joint product at the split-off point is a(n) _________ or ___________ ___________ decision

sell or process further

Deciding what to do with a joint product at the split off point is a ______________________.

sell or process further decision

A one-time order that is not constrained part of the company's normal ongoing business is a _______________ order.

special

A one-time sale that is not considered part of the company's normal ongoing business is referred to as a(n) _____________ ____________ decision.

special order

When a product is past the split-off point, but is not yet a finished product, it is called a(n) ______________ product.

intermediate

Costs and benefits that should be ignored when making decisions are called ________________ costs and benefits.

irrelevant

Future costs and benefits that do not differ between alternatives are ___________ costs to the decision-making process.

irrelevant

In order to prevent confusion and keep attention focused on critical information, it is desirable to:

isolate relevant costs from irrelevant costs

Two or more products that are produced from a common input are know as ____________ products.

joint

Two or more products that are produced from a common input are known as _______________ products.

joint

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

keep

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

sunk

Being less dependent on suppliers and making profits on both parts and the final products are advantages of ____________ ____________.

vertical integration

When demand for products exceeds the production company, a __________ ____________-__________ decision must be made.

volume trade-off

The total cost approach and the differential approach methods of direction analysis ____________ provides the same correct answer.

will always