ACCT ch 7
T or F: allocating joint costs to products at the split-off point is misleading for decision making about the products
True
relevant benefits
a benefit that differs between alternatives in a decision
avoidable cost
a cost that can be eliminated by choosing one alternative over another in a decision
sunk cost
a cost that has already been incurred and that cannot be changed by any decision made now or in the future
constraint
a limitation under which a company must operate such as limited available machine time or raw materials, that restricts the company's ability to satisfy demand
bottleneck
a machine or some other part of a process that limits the total output of the entire system
special order
a one-time order that is not considered part of the company's normal ongoing
linear programming
a quantitative method that can be used to help find the proper combination of products to help get around the given set of constraints
what can make a product line look less profitable than it really is?
allocated common fixed costs
relaxing (or elevating) the constraint
an action that increases the amount of a constrained resource. equivalently, an action that increases the capacity of the bottleneck
intermediate product
an unfinished product
one of the benefits of dropping a product line is that a company can eliminate the product line's _____________ fixed costs
avoidable
one of the benefits of dropping a product line is that a company can eliminate the product line's ______________ fixed costs
avoidable
when making a product line decision, a company may focus on lost _____________ _______________ and avoidable fixed costs or prepare comparative income statements
contribution margin
_______ costs are common costs that are incurred to produce two or more products
joint
allocation of __________ costs is needed for inventory evaluation
joint
improper allocation of ______ costs can lead to incorrect decisions
joint
if a cost is traced to a segment using ABC, it:
may or may not be an avoidable cost of the segment, managers need to be careful with this
can joint costs be avoided once a process is started?
no
are joint costs relevant in decisions regarding what to do with a product from the split-off point forward?
no, joint costs are sunk costs
it is profitable to continue processing a joint product after the split-off point, so long as the incremental ________________ from such processing exceeds the incremental processing cost incurred after the split-off point
revenues
can activity based costing be used to help identify potentially relevant costs for decision-making purposes?
yes , because ABC improves the traceability of costs by focusing on the activities caused by a product or other segment
idle space, space that is not being used, has an opportunity cost of:
zero
split-off point
that point in the manufacturing process where some or all of the joint products can be recognized as individual products
make or buy decision
a decision concerning whether an item should be produced internally or purchased from an outside supplier
sell of process further decision
a decision to whether a joint product should be sold at the split-off point or sold after further processing
relevant cost
a difference in cost between any two alternatives
differential cost
a difference in cost between two alternatives
when a limited resource of some type restricts a company's ability to satisfy demand, the company has a(n) ___________-
constraint
a business segment should only be dropped if a company can avoid more in fixed costs than it gives up in ______________ ___________
contribution margin
the split-off point is the point in the manufacturing process at which the __________ products can be recognized as separate products
joint
differential revenue
the difference in revenue between two alternatives
vertically integrated
the involvement by a company in more than one of the activities in the entire value chain from development through production, distribution, sales, and after-sales service
opportunity cost
the potential benefit that is given up when one alternative is selected over another
joint products
two or more products that are produced from a common input
joint costs
costs that are incurred up to the split-off point in a process that produces joint products
to maximize total contribution margin when a constrained resource exists, produce the products with the:
highest contribution margin per unit of the constrained resource