Chapter 12: Differential Analysis - The Key to Decision Making

अब Quizwiz के साथ अपने होमवर्क और परीक्षाओं को एस करें!

Constraint

A limitation under which a company must operate, such as limited available machine time or raw materials, that restrict a 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 business

From a decision-making point of view, should joint costs be allocated among joint products?

Although allocation of joint product costs is needed for some purposes, allocations of this kind are extremely misleading for decision making

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

Sunk Cost

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

Joint Costs

Costs that are incurred up to the split-off point in a process that produces joint products

Give at least four examples of possible constraints.

Examples of constraints include direct labor time, machine time, raw material, space, etc.

What guideline should be used in determining whether a joint product should be sold at the split-off point or processed further?

It is profitable to continue processing a joint product after the split-off point, so long as the incremental revenue from such processing exceeds the incremental processing cost incurred after the split-off point

If a product is generating a loss, should it be discontinued? Explain.

No; a product should only be discontinued if its contribution margin is less that its fixed costs

Are all future costs relevant in decision making? Explain.

No; future costs that do not differ between alternatives should be ignored in decision making

Are sunk costs always fixed costs? Explain.

No; sunk costs are any costs that have already been incurred and cannot be avoided regardless of what a manager decides to do

Are variable costs always relevant costs? Explain.

No; variable costs are only relevant if they differ between alternatives

What is the danger in allocating common fixed costs among products or other segments of an organization?

One of the great dangers is allocating common fixed costs is that such allocations can make a product line or other business segment look less profitable than it really is

How does opportunity cost enter into a buy or make decision?

Opportunity costs enter into a make or buy decision because they represent economic benefits that are forgone as a result of pursuing some course of action

Relevant Benefit

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

Sell or Process Further Decision

A decision as to whether a joint product should be sold at the split-off point or sold after further processing

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

How will relating product contribution margins to the amount of the constrained resource they consume help a company maximize its profits?

Profits are maximized when the total contribution margin is maximized; a company can maximize its total contribution margin by focusing on the products with the greatest amount of contribution margin per unit of the constrained resource

Split-Off Point

That point in the manufacturing process where some or all of the joint products can be recognized as individual products

Vertical Integration

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


संबंधित स्टडी सेट्स

Human growth and Development quiz 2

View Set

Final Exam Prep: Review|Chapters 13-14

View Set

chapter three (diag equip inst.)

View Set

Abeka 7th grade Science Reading quiz AA

View Set

Audit Ch 13 - Property, Plant, and Equipment

View Set

*NOS 110 COMPREHENSIVE STUDY GUIDE

View Set

Ch. 15- Mood Disorders: Depression

View Set