Chapter 11 accounting (and extra)
Contribution margin per unit divided by selling price per unit equals
Contribution margin ratio
Example of oppurtunity cost
Giving up a high paying job to travel overseas
an increase in cost between two alternatives
incremental cost
That point in the manufacturing process where some or all of the joint products can be recognized as individual products.
split-off point
Given the following information, calculate the unit product cost under absorption costing. Direct materials: $50/unit Direct labor: $75/unit Variable manufacturing overhead: $27/unit Fixed manufacturing overhead: $30,000 total Units: 10,000 produced and 6,000 sold
$155
A company has received a special order from a customer to make 5,000 units of a customized product. The direct materials cost per unit of the customized product is $15, the direct labor cost per unit is $5, and the manufacturing overhead per unit is $18, including $6 of variable manufacturing overhead. If the company has sufficient available manufacturing capacity, what is the minimum price that can be accepted for the special order?
$26 (15+5+6)
Example of incremental cost
A Lincoln car over and Toyota car
What are the two applications in the costing method?
Absorption and variable costing
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
Constraint
Abba, Inc. is considering dropping a product line. During the prior year, the line had sales of $207,000 and a contribution margin of $124,000. Fixed expenses consist of: Salaries $60,000 Rent 50,000 Advertising 20,000 Administrative 35,000 Total fixed expenses $165,000 The product line manager's $60,000 salary is avoidable as is the $20,000 of advertising. Of the administrative expenses, $10,000 is avoidable. The rest are general allocated expenses that will not change if the product is dropped. The rent expense is allocated to product lines based on sales and represents a share of the total cost for the building. If this product line is dropped overall net operating income will
Decrease by $34,000 (124,000 - 90,000)
Incremental and avoidable costs are synonyms for what cost?
Differential costs
Example of facility level activities
Facility upkeep: the cost of depreciation, insurance, property tax, and maintenance of the entire production plant.
Only variable costs are relevant costs. Fixed costs cannot be relevant costs. True or false?
False
Under some circumstances, a sunk cost may be a relevant cost true or false?
False
Future costs and future benefits that do not differ between alternatives are ____________ to decision making process.
Irrelevant
Example of Batch-Level Activities
Machine Setup, purchase orders, and packing equipment
When planning a road trip, the ______ is a sunk cost and should be ignored. Multiple choice question. cost of gasoline for the trip cost of parking at the motel where one will be staying original cost of the car cost of car repairs and maintenance
Original cost of the car
A one-time order that is not considered part of the company's normal ongoing business
Special order
Example of product level activities
The cost to research, develop, design, and market new models.
When companies do not have enough capacity to produce all of the products and sales volumes, companies are forced to make a......
Trade off decision
Direct materials and direct labor can be directly traced into products true or false?
True
In the context of decision making, every decision involves choosing from among at least two alternatives. True or false.
True
When making decisions, allocating common fixed costs to segments may understate the true profitability of those segments true or false?
True
Unit-level activities
activities that are performed each time a unit is produced
A machine or some other part of a process that limits the total output of the entire system
bottleneck
When considering decision alternatives, only relevant costs are included when using the _____________ cost approach
differential
a future cost that differs between any two alternatives
differential cost
Future revenue that differs between any two alternatives is known as
differential revenue
When making a decision to either buy a movie ticket or rent a DVD, the cost of the movie ticket is an example of a(n) ______ cost. (2)
incremental and avoidable
When a product is past the split-off point, but is not yet a finished product, it is called a(n) ____________ product
intermediate
Costs and benefits that should be ignored when making decisions are called ______ costs and benefits.
irrelevant
Costs that are incurred up to the split-off point in a process that produces joint products
joint costs
Two or more products that are produced from a common input
joint products
a decision concerning whether an item should be produced internally or purchased from an outside supplier
make or buy decision
The potential benefit that is given up when one alternative is selected over another
opportunity cost
a benefit that should be considered when making decisions?
relevant benefit
a cost that should be considered when making decisions?
relevant cost
A decision as to whether a joint product should be sold at the split-off point or sold after further processing
sell or process further decision
a cost that has already been incurred and that cannot be changed by any decision made now or in the future
sunk cost
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
When a resource, such as space in the factory, has no alternative use, its opportunity cost is ______.
zero
Common fixed costs should not be allocated to business segments for decision making purposes true or false?
True
example of avoidable cost
Watching a movie at home instead of buying a movie ticket
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
avoidable cost
When making a product line decision, a company may focus on lost contribution margin and avoidable fixed costs or prepare comparative _______________ ______________ showing the effects of either keeping or dropping the product line.
income statements
The reduction of resale value of an asset through use or over time is called _____ or _____ depreciation.
real, economic
An action that increases the amount of a constrained resource. Equivalently, an action that increases the capacity of the bottleneck
relaxing (or elevating) the constraint
example of sunk cost
sitting through bad movie because you paid for it. Or buying a used car
Allocated common costs are ______ avoidable and/or relevant to a decision.
sometimes
It is profitable to continue processing a joint product after the split-off point so long as the incremental ____________ from such processing ___________ the incremental processing costs incurred after the ___________ ______ point.
Revenue, exceeds, spilt-off
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.
to keep
A financial advantage occurs when differential benefits are___________ than differential costs. Vice versa.
Greater
When a company has a constraint and wishes to maximize profits, it should favor the products that have the highest?
contribution margin per unit of the constraining resource