ACCT 2521 Chapter 10 Learnsmart
What can make a product line look less profitable then it really is
Allocated Common Fixed Costs
Ways to calculate the benefit of selecting one alternative over the other
An analysis that just looks at the relevant costs and benefits 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
Joint Costs:
Are irrelevant in decisions regarding what to do with a product after split off Cannot be avoided once a process is started
A cost that can be eliminated by choosing one alternative over another is a(n)
Avoidable
What should be included in the analysis when decision making
Avoidable Costs Differential Costs Opportunity Costs Differential Costs
Advantages of dropping a product line or other segment include:
Avoiding more fixed costs than the company losses in contribution margin An overall increase in Net Operating Income
The machine or process that is limiting overall outputs is called a(n)
Bottleneck
When a limited resource of some type restricts a company's ability to satisfy demand, the company has a(n)
Constraint
When making a product line decision a company may focus on lost ____________ _____________ and avoidable fixed costs or prepare comparative income statemetns
Contribution Margin
I some products must be cut back because of a constraint, produce the product with the highest
Contribution Margin Per Unit of Constrained Resource
When a constraint exists companies should focus on maximizing
Contribution Margin Per Unit of Constraint
True or False: Opportunity costs are not found in accounting records because they are not relevant decisions
False
One of the great dangers of allocating common __________ costs is that such allocations can make a product look less profitable than it really is
Fixed
Managers may choose to retain an unprofitable product line because it
Helps sell other products Attracts customers
A joint product should be processed after split off if the:
Incremental Revenue after split off exceeds the incremental processing costs after split off
When a product is past the split off point, but is not yet a finished product it is called a(n) _____________ product
Intermediate
Bad decisions can only result from erroneously including __________ costs and benefits when analyzing alternatives
Irrelevant
Costs incurred up to the point in the split off point in a process in which two or more products are produced from a common input are called ____________ costs
Joint
The split off point is the point in the manufacturing process at which the ___________ products can be recognized as separate process
Joint
What is true of Joint Costs?
Joint Costs are common costs that are incurred to produce two or more products Improper allocation of joint costs can lead to incorrect decisions Allocation of joint costs is needed for inventory valuation
Two or more products produced from a common input are:
Joint Products
If by dropping a product line a company cannot avoid as much fixed cost as it loses in contribution margin, the company should:
Keep the Product Line
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 Decision
Costs that are relevant in a given situation:
May not be relevant in another decision situation
The decision to add or drop a product line should be based on the impact the decision will have on:
Net Operating Income
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
Opportunity
The potential benefit given up when selecting one alternative over another is a(n) __________ cost
Opportunity
Effectively managing an organization's constraints is a key to increased
Profits
The best way to handle a constrained resource is to ____________ the capacity of the bottleneck
Relax
Only rarely enough will enough information be available to prepare a detailed income statement for both alternatives in a decision. This makes isolating ____________ costs desirable
Relevant
When identifying costs that are differential, a manager would eliminate costs and benefits that do not differ between alternatives and use the remaining costs and benefits that do differ between alternatives in making the decision. The costs that remain are the differential or _____________ costs
Relevant
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
When planning a trip and deciding to drive your car or take the train gasoline is a:
Relevant Cost
Joint costs are traditionally allocated among different products at the split off point. A typical approach is to allocate the joint costs according to the relative ___________ value of the end products
Sales
Deciding what to do with a joint product is a(n) ____________ or __________ ___________ decision
Sell or Process Further
A one-time order that is not considered part of the company's normal on going business is referred to as a(n) ___________ ____________ decision
Special Order
Costs that have already been incurred and cannot be avoided regardless of what a manager decides to do are _______ costs
Sunk
A set of activities ranging from development to production to after sales service is called
The Value Chain
True or False: The monthly fee that a student pays to park at school is not relevant when deciding whether to take the train or drive for a weekend trip to visit an out of town friend
True
True or False: Allocating joint costs to products at the split off point is misleading for decision making about the products
True
When a company is involved in more than one activity in the entire value chain it is _____________ _______________
Vertically Integrated
When should a special order be accepted?
When the incremental revenue exceeds the incremental costs from the order