ACCT - SMARTBOOK #7
Which of the following statements are true?
Advertising for a specific product line is a direct fixed cost. Direct fixed costs can include fixed machinery costs. Direct fixed costs are avoidable if a segment is eliminated.
Which of the following is a limitation of some type that restricts a company's ability to satisfy demand?
Constrained resource
If the part is purchased, the supervisor will be eliminated. The special equipment used to manufacture Part XYZ has no other use and no salvage value. Total allocated fixed overhead will be the same regardless of the decision. Should the company buy the part or continue to make it?
Continue to make—$60,000 advantage
Advantages of dropping a division or other segment include ______.
an overall increase in net operating income avoiding more direct fixed costs than the amount of lost contribution margin
Relevant costs ______.
are also called differential costs differ between alternatives occur in the future
When deciding whether to sell a product as is or continue to process it, costs incurred to get the product to its current condition ______ relevant to the decision.
are not
When making a decision, ______ should be considered.
both quantitative and qualitative data
A(n) ______ limits a system's overall output.
bottleneck
The most constrained resource in called the
bottleneck
Given the following, determine if a buy price of $4.00 per unit for 3,000 units should be accepted. Total variable production costs of making the units equal $11,100, and total production fixed costs are $3,500. Of the fixed costs, $1,500 is avoidable if the units are purchased. Based on price, the company should (make/buy) ________ the units at a total net benefit of $
buy 600
When performing a keep-or-drop decision analysis, __________ fixed costs should be excluded from the analysis.
common
When a limited resource of some type restricts a company's ability to satisfy demand, the company has a(n) ___________ resource
constrained
When a constraint exists, companies need to focus on maximizing ______.
contribution margin per unit of constraint
Once you have identified a problem, the next step is to determine the possible solutions, which are called ___________ __________.
decision alternatives
A fixed cost that can be traced to a specific business segment is called a(n) _________ fixed cost
direct
A fixed cost that can be traced to a specific business segment is called a(n) _________- fixed cost
direct
When a company has more than enough resources to satisfy demand it is operating with _________ capacity
excess
When the total amount of the cost will be the same regardless of the alternatives selected in a decision, the cost should be ______ when doing decision analysis.
excluded
When there is excess capacity, an analysis of a special order ______.
excludes fixed costs
True or false: When making a decision, only quantitative factors should be considered.
false
Identifying the decision problem is the ______ step in the decision-making process.
first
Opportunity costs become relevant when a company is operating at
full capacity
Irrelevant costs include ______.
future costs that do not differ between alternatives sunk costs
The calculation of segment margin ______.
includes both variable and direct fixed costs
Jay's Furniture makes couches and love seats. Last year the total contribution margin was $900,000 for couches and $350,000 for love seats. Love seats had a segment margin of $50,000 and common fixed costs of $100,000, so the company is considering stopping love seat production. If that happens, sales of couches are expected to increase by 10%, The net impact of stopping production of love seats will (increase/decrease) __________ profits by $ ____________
increase 40,000
Jay's Furniture makes couches and love seats. Last year the total contribution margin was $900,000 for couches and $350,000 for love seats. Love seats had a segment margin of $50,000 and common fixed costs of $100,000, so the company is considering stopping love seat production. If that happens, sales of couches are expected to increase by 10%, The net impact of stopping production of love seats will (increase/decrease) _________ profits by $
increase 40,000
Comparing the relevant costs and benefits of alternative decision choices is called ______ analysis.
incremental
In the long term, companies can manage constrained resources by ______.
iring more workers increasing capacity
When planning a 5-day trip and making a decision to drive or take the train, the cost of boarding your dog while you are away is a(n) ______ cost.
irrelevant
Determining decision alternatives ______.
is a critical step in the decision-making process
Incremental analysis ______.
is also called differential analysis may be referred to as relevant costing
The process of making a decision ______.
is basically the same for all decisions
If, by dropping a segment, a company cannot avoid as much in direct fixed costs as it loses in contribution margin, the company should ______ the segment.
keep
Continue-or-discontinue decisions are commonly known as _________ or- ________ decisions
keep or drop
Deciding to carry out an activity internally or buy externally from a supplier is called a ______ decision.
make-or-buy
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 forgone benefit of choosing one decision alternative over another is its
opportunity costs
When considering a keep-or-drop decision, it is important to consider ________________ such as whether the elimination of the segment will free resources that could be used in another way.
opportunity costs
When considering whether or not to take a trip, the ______ is irrelevant to the decision.
original cost of the car
Make-or-buy decisions are also referred to as
outsourcing
Make-or-buy decisions are also referred to as __________ decisions
outsourcing
Costs that differ between alternatives are called _______ 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
You are planning a trip and deciding whether to drive your car or take the train. The cost of gasoline is a(n) ______ cost.
relevant
Costs that differ between alternatives are called
relevant costs
Sales revenue minus all fixed and variable costs attributable to a particular division is called ______.
segment margin
Deciding what to do with a product that is salable or could be enhanced is a ______ decision.
sell-or-process-further
An analysis of a special order ______.
should consider the impact on regular customers should consider if excess capacity exists
A one-time order that is not considered part of the company's normal ongoing business is called a ______ order.
special
Deciding to accept a sales request that is outside the scope of normal sales is called a(n) _________-_______ decision.
special-order
A cost that has already been incurred and cannot be avoided regardless of what a manager decides to do is a(n) ______ cost
sunk
When making decisions, managers should ignore ________ costs.
sunk costs
Goodstone Tire Corporation sells tires for $90 each. Per-unit costs associated with producing and selling the tires are: Direct materials $35; Direct labor $10; Factory overhead $20. The variable portion of the factory overhead is $8 per unit. A foreign company wants to purchase 1,000 tires for $65 each. Assuming that Goodstone has excess capacity, ______.
the incremental profit from the special order will be $12,000
True or false: An important consideration in a keep-or-drop decision is the impact on the costs and revenues of other segments.
true
True or false: Incremental analysis is a decision-making approach that compares the relevant costs and benefits of decision alternatives.
true
True or false: Qualitative factors should be considered in special-order decisions.
true
Common fixed costs ______.
will be incurred even if a segment is eliminated
Which of the following statements are true?
Hiring more workers or leasing additional machines are long-term strategies for managing constrained resources. Eliminating non-value-added activities can help companies manage constrained resources.
Which of the following is NOT a question managers need to consider when making a keep-or-drop decision?
How much is the salary of the company CEO?
