Chapter 13 Managerial Accounting

Which of the following should not be included in the analysis when making a decision?

Sunk costs Non-differential future costs

A cost that can be eliminated by choosing one alternative over another is a(n) _____________ cost

avoidable

A cost that can be eliminated in whole or in part by choosing one alternative over another is a(n) _________________ cost

avoidable

Given a reference value of $5,500 and a differential value of $3,200, the value-based price will be greater than $3,200 and less than $5,500

false

In general, the less sensitive customers are to price, the __________ the optimal selling price will be

higher

The costs incurred up to the split-off point in a process in which two or more products are produced from a common input are known as ____________ costs

joint

The target costing approach was developed because ______________

most of a product's cost is determined in the design stage the market really determines prices

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 given up when selecting one alternative over another is a(n) ___________ cost

opportunity

Deciding what to do with a joint product at the split-off point is a(n) ______________ or __________ ___________ decision

sell process further

Deciding what to do with a joint product at the split-off point is a ______________ decision

sell or process further

Costs that have no impact on future cash flows and are irrelevant to decisions are _____________ costs

sunk

The process of determining the maximum allowable cost for a product and developing a profitable prototype is called ______________

target costing

If a company is using a resource that could be used for some other purpose, the opportunity cost of that resource is _____________________

the profit from the best alternative use of the resource

Companies establish selling prices based on the economic worth of benefits their goods and services provide to customers when using

value based

Establishing selling prices based on the economic worth of benefits that their goods and services provide to customers is the basis of ______________

value-based pricing

Less dependence on suppliers is an advantage of ______.

vertical integration

Synonyms for differential costs include_____________ cost

avoidable incremental

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

income statements

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.

keep

When planning a trip and deciding whether to drive or fly, the ______ is a sunk cost and should be ignored.

original cost of the car

Differential revenue is an example of a(n) _____________ benefit

relevant

Costs that have already been incurred and cannot be avoided regardless of what a manager decides to do are ______________ costs

sunk

As it applies to sell or process further decisions, which term refers to a product that is in the process of being made?

Intermediate product

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

joint

Two or more products produced from a common input are called _______________

joint products

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

True

Costs and benefits that always differ between alternatives are _____________ costs and benefits

relevant

When making a decision only ___________ costs and benefits should to be included in the analysis

relevant

When making a decision, irrelevant items are included in the analysis of both alternatives when using ____________

the total cost approach only

A business segment should only be dropped if a company can avoid more in fixed costs than it gives up in __________________

contribution margin

The first step in decision making is to _____________

define the alternatives

Isolating relevant costs is desirable because _____________

-Critical information may be overlooked with the total cost approach -All information needed for the total cost approach is rarely available - Irrelevant costs may be used incorrectly in the analysis

Given a reference value of $3,500 and a differential value of $4,200, the value-based price will be greater than or equal to $___________ and less than or equal to $_________

3500 7700

Which of the following can make a product line look less profitable than it really is?

Allocated common fixed costs

Costs and benefits that always differ between alternatives are ______________ costs and benefits

relevant

A one-time order that is not considered part of the company's normal ongoing business is called a ____________________ order

special

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

The market is instrumental in determining a product's price through the laws of ___________ and __________

supply and demand

The process of determining the maximum allowable cost for a product and developing a profitable prototype is called ___________ ___________

target costing

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

income statements

In general, the more sensitive customers are to price, the ________________ the optimal selling price will be

lower

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

make or buy

Determining whether to carry out an activity in the value chain internally or use a supplier is a ______ decision

make or buy

Opportunity costs are not found in accounting records because they are not relevant to decisions.

False

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

False Reason: Depreciation spreads sunk costs across the life of the assets and is not relevant.

True or False: Some decisions have only one alternative and cannot consider steps in decision making.

False Every decision involves choosing from at least two alternatives, even if the alternatives are yes or no.

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 _______________

alternative uses for the equipment salvage value

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

When a product is past the split-off point, but is not yet a finished product, it is called a _______________ product

intermediate

Costs and benefits that should be ignored when making decisions are called ___________ costs and benefits

irrelevant

Future costs and benefits that do not differ between alternatives are _______________ costs to the decision-making process

irrelevant

Costs incurred up to the split-off point in a process in which two or more products are produced from a common input are called ___________ costs

joint

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

total