ACCT 2020 Test 2

the first step in decision making is to

define the alternatives

When a constraint exists, companies need to focus on maximizing

total contribution margin

True or false: Depreciation of existing assets is relevant to decisions.

false, depreciation spreads sunk costs across the life of the assets and are not relevant

Product markup is generally expressed as a(n) ____________ of cost

percentage

True or false: Some decisions only have one alternative.

False: every decision involves choosing from at least two alternatives, even if they are yes or no

One of the great dangers in allocating common ______ costs is that such allocation can make a product line look less profitable than it really is

fixed

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

irrelevant

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) __________ or _________ decision

make or buy

The costs provided by a well-designed activity-based costing system are _____ relevant to a decision.

potentially

A product's markup is the difference between its selling ________ and its ___________

price and cost

Costs and benefits that always differ between alternatives are ______ costs and benefits

relevant

Differential revenue is an example of a(n) ______ benefit

relevant

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

sunk

When demand for products exceeds the production capacity, a _________ __________ _______ decision must be made

volume trade off

The process of determining the maximum allowable cost for a product and developing a profitable prototype is called:

target costing

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

Differential analysis

focusing on the future costs and benefits that differ between the alternatives

Irrelevant costs include:

future costs that do not differ between alternatives and sunk costs

total cost approach

includes all of the costs and benefits, relevant or not

Incremental cost

increase in cost between two alternatives

An increase in cost between two alternatives is a(n) ______ cost

incremental

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

irrelevant

Sunk costs are always...

irrelevant when choosing among alternatives

Differential costs are always...

relevant costs

Future costs and benefit that do not differ between alternatives are irrelevant to

the decision-making process

Which of the following are ways in which to calculate the benefit of selecting one alternative over another?

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

The terms ___________ ______ and ________ ______ are often used to describe differential costs

Incremental cost and avoidable cost

Synonyms for differential costs include ______ cost.

incremental and avoidable

The total cost approach and the differential approach methods of decision analysis ______ provide the same correct answer.

will always