ACCTG 231 - Ch11 McGrawHil

When making a decision only ______ costs and benefits should to be included in the analysis. a) unavoidable b) irrelevant c) relevant d) opportunity

c) relevant

Two or more products that are produced from a common input are known as ____________ products.

joint

True or false: Mingling irrelevant and relevant costs may cause confusion and distract attention from critical information.

True

What of the following forms the basis for a financial advantage when making a business decision?

Whether the differential benefit exceed the differential costs

Costs that have no impact on future cash flows and are irrelevant to decisions are ______ costs. a) sunk b) avoidable c) unavoidable d) marginal

a) sunk

When dealing with a constrained resource, managers should focus their attention on managing the ______. a) value chain b) employees c) bottleneck d) production

c) bottleneck

When a shortage or limited resource of some type restricts a company's ability to satisfy demand, the company has a(n) _______________.

constraint

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 that is given up when one alternative is selected over another is called ________.

opportunity cost

High Roller Incorporated is trying to decide whether to buy a private jet or to lease one. The finder's fee is incurred only if the private jet is bought. The finder's fee is what type of cost for this decision?

relevant cost

Costs that have been incurred and cannot be eliminated regardless of the alternative chosen are ________.

sunk costs

When considering decision alternatives, both relevant and irrelevant costs are included when using the ______________ _______________ approach.

total cost

Being less dependent on suppliers and making profits on both parts and the final product are advantages of ___________ ___________.

vertical integration

A company is considering buying a component part that they currently make. Items related to the equipment being used to make the component that are relevant to this decision include ______. (select all that apply) a) salvage value b) annual depreciation charges c) alternative uses for the equipment d) original cost

a) salvage value c) alternative uses for the equipment

Determining whether to carry out an activity in the value chain internally or use a supplier is a ______ decision. a) utilization of a constrained resource b) special order c) make or buy d) product line

c) make or buy

Costs and benefits that always differ between alternatives are ______ costs and benefits. a) variable b) sunk c) relevant d) irrelevant

d) irrelevant

Future costs and benefits that do not differ between alternatives are ______ costs to the decision-making process. a) sunk b) relevant c) opportunity d) irrelevant

d) irrelevant

When a company does not have enough capacity to produce all of the products and sales volume demanded by their customers, this leads to ________.

volume trade-off decisions

The machine or process that is limiting overall output is a(n) ______. a) bottleneck b) opportunity cost c) contribution margin per unit of the constrained resource d) irrelevant cost

a) bottleneck

A company is considering buying a component part that they currently make. Items related to the equipment being used to make the component that are relevant to this decision include ______. a) original cost b) salvage value c) annual depreciation charges d) alternative uses for the equipment

b) salvage value d) alternative uses for the equipment

All of the following are relevant to the sell or process further decision except _______.

joint costs incurred before the split-off point

The potential benefit given up when selecting one alternative over another is a(n) ______ cost. a) opportunity b) sunk c) avoidable d) irrelevant

a) opportunity

To increase the strength of a chain, efforts should be concentrated on strengthening ______. a) the weakest link b) all the links c) the strongest link

a) the weakness link

Product ABC has a contribution margin per unit of $10.00. Each unit of ABC requires 5 minutes of machine time. Product XYZ has a contribution margin per unit of $15.00 and each unit requires 10 minutes of machine time. If the company's constraint is machine hours, to maximize profit, they should first fill the demand for Product ______. a) XYZ b) ABC

b) ABC

When a constraint exists, companies need to focus on maximizing ______. a) contribution margin per unit b) contribution margin per unit of constraint c) net income from sales d) net sales

b) contribution margin per unit of constraint

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 is called ________.

vertical integration

True or false: Effectively managing an organization's constraints is a key to increased profits.

True

Which of the following may be an advantage of making a part rather than buying it? (select all that apply) a) Less dependence on outside suppliers b) Higher quality and lower cost because the supplier company enjoys economies of scale c) More dependence on suppliers d) A smoother flow of parts and materials for production

a) Less dependence on outside suppliers d) A smoother flow of parts and materials for production

When planning a trip and deciding whether to drive or fly, the ______ is a sunk cost and should be ignored. a) monthly parking fee that must be paid at your apartment while you are gone b) cost of car repairs and maintenance c) original cost of the car d) cost of gasoline for the trip

c) original cost of the car

If a company is using a resource that could be used for some other purpose, the opportunity cost of that resource is ______. a) the profit from the current use of the resource b) zero c) the profit from the best alternative use of the resources

c) the profit from the best alternative use of the resources

To effectively deal with a constraint ______. (select all that apply) a) improvements should focus on the constraint b) efforts should be focused on the weakest link c) improvements should be made before the constraint d) efforts should be focused on the strongest link

a) improvements should focus on the constraint b) efforts should be focused on the weakest link

When making a product line decision, a company may focus on lost contribution margin and avoidable fixed costs or prepare comparative ______. a) income statements b) statements of cash flow c) balance sheet

a) income statement

When there is a constrained resource, the best way to increase profits is to ______. a) increase the capacity of the bottleneck b) decrease the capacity of the bottleneck c) keep the capacity of the bottleneck the same

a) increase the capacity of the bottleneck

When making a decision, irrelevant items are included in the analysis of both alternatives when using ______. a) the total cost approach only b) both the differential and total cost approaches c) neither the differential nor total cost approach d) the differential cost approach only

a) the total cost approach only

If some products must be cut back because of a constraint, produce the products with the highest ______. a) net operating income per unit b) contribution margin per unit of constrained resource c) contribution margin per unit of product

b) contribution margin per unit of constrained resource

The capacity of a bottleneck can be effectively increased by ______. (select all that apply) a) increasing defective units that are processed through the bottleneck b) subcontracting some of the processing that would be done in that area c) focusing business process improvement efforts on the bottleneck

b) subcontracting some of the processing that would be done in that area c) focusing business process improvement efforts on the bottleneck

When making a volume-trade off decision, managers should ignore ______. a) contribution margin b) fixed costs c) variable costs

b) fixed costs

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

False

True or false: Opportunity costs are not found in accounting records because they are not relevant to decisions.

False

True or false: Some decisions only have one alternative.

False

When making a product line decision, a company may focus on lost contribution margin and avoidable fixed costs or prepare comparative _____________ ____________.

income statements

When a product is past the split-off point, but is not yet a finished product, it is called a(n) ______________ product.

intermediate

In order to prevent confusion and keep attention focused on critical information, it is desirable to ______. a) ignore relevant costs and focus on irrelevant one b) combine relevant and irrelevant costs to obtain a total cost c) isolate relevant cost from irrelevant costs

c) isolate relevant cost from irrelevant costs

Two or more products produced from a common input are called ______. a) opportunity costs b) intermediate products c) joint costs d) joint products

d) joint products

A decision to carry out one of the activities in the value chain internally rather than to purchase externally from a supplier is a ______ decision. a) product line b) sell or process c) special order d) make or buy

d) make a buy

Irrelevant costs include ______. (select all that apply) a) sunk costs b) all fixed costs c) future costs that differ between alternatives d) future costs that do not differ between alternatives

a) sunk costs d) future costs that do not differ between alternatives

A one-time sale that is not considered part of the company's normal ongoing business is referred to as 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 referred to as a(n) _________________ cost.

sunk

Which of the following types of decisions involves deciding whether to accept or reject an order that is outside the scope of normal sales?

Special order

When a company cannot fully satisfy demand because of a constraint, which of the following describes an action that should NOT be taken?

Tightening the constraint

Which of the following statements about using different approaches to analyze alternatives is NOT true? a) Considering only the relevant costs gives results a different answer than that obtained when all costs are considered. b) Differential analysis focuses on the future costs and benefits that differ between any two alternatives. c) Mixing irrelevant costs with relevant costs may cause confusion and distract attention from the information that is critical. d) Costs and revenues that do not differ between alternatives are irrelevant to decision making.

a) Considering only the relevant costs gives results a different answer than that obtained when all costs are considered.

Synonyms for differential costs include ______ cost. (select all that apply) a) avoidable b) sunk c) irrelevant d) incremental

a) avoidable d) incremental

Differential revenue is an example of a(n) ______ benefit. a) relevant b) avoidable c) irrelevant d) sunk

a) relevant

Which of the following can make a product line look less profitable than it really is? a) Common Variable Costs b) Allocated Common Fixed Costs

b) Allocated common fixed costs

Potential advantages of dropping a product line or other segment include ______. a) increasing relevant costs that the company incurs b) an overall increase in net operating income c) avoiding more fixed costs than the company loses in contribution margin d) an overall decrease in other product line sales

b) an overall increase in net operating income c) avoiding more fixed costs than the company loses in contribution margin

If, by dropping a product line, a company cannot avoid as much in fixed costs as it loses in contribution margin, the company should ______ the product line. a) drop b) keep

b) keep

Anything that prevents you from getting more of what you want is a(n) ________________.

constraint

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

fixed

As it applies to sell or process further decisions, which term refers to a product that is in the process of being made? a) Joint cost b) Joint product c) Opportunity cost d) Intermediate product

d) Intermediate product

To maximize total contribution margin when a constrained resource exists, produce the products with the ______. a) lowest contribution margin per unit of the constrained resource b) lowest unit contribution margin c) highest unit contribution margin d) highest contribution margin per unit of the constrained resource

d) highest contribution margin per unit of the constrained resource

A one-time order that is not considered part of the company's normal ongoing business is called a ______ order. a) supplier b) relevant c) standard d) special

d) special

Which of the following are ways to increase the capacity of a bottleneck? (select all that apply) a) Shifting workers from processes that are not bottlenecks to the process that is the bottleneck b) Investing in additional machines at the bottleneck c) Selling some of the machines at the bottleneck d) Not spending any overtime hours on the bottleneck

a) Shifting workers from processes that are not bottlenecks to the process that is the bottleneck b) Investing in additional machines at the bottleneck