ACCT Chapter 10

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Relevant Benefits

A benefit that differs between alternatives in a decision.Differential revenue is a relevant benefit

Avoidable Cost

A cost that can be eliminated by choosing one alternative over another in a decision. This term is synonymous with differential cost and relevant cost.

Make or Buy Decision

A decision concerning whether an item should be produced internally or purchased from an outside supplier.

Differential Cost

A difference in cost between any two alternatives.

Relevant Cost

A difference in cost between any two alternatives. Synonyms are avoidable cost, differential cost, and incremental cost.

Differential Revenue

A difference in revenue between any two alternatives.

Sunk Cost

Any cost that has already been incurred and that cannot be changed by any decision made now or in the future.

Special Order

Is a one time order that is no considered part of the company's normal ongoing business. When analyzing a special order, only the incremental costs and benefits are relevant. 1. Have to know if you have enough capacity to produce the order. 2. Is this order beneficial to you? 3. Is there any fixed costs that apply to the special order?

Increasing the capacity of a constrained resources should...

Lead to increased production and sales

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.

Bottleneck

The machine or process that is limiting overall output.

Split off point

The point in the manufacturing process where each joint product an be recognized as a separate product.

Opportunity Cost

The potential benefit that is given up when one alternative is selected over another

Value Chain

The various steps that are necessary to develop and sell a product or service. These steps often include conceptualization, research and development, production, distribution, after-sales service, and other activities

Joint Cost

Two or more products produced from a common input.

Constraint

When a limited resource of some type restricts the company's ability to satisfy demand.


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