Chapter 6 SB
Stephens, Inc. is considering dropping a product line. During the prior year, the line had sales of $170,000, variable costs of $86,000 and total fixed expenses of $110,000. Of the fixed expenses, $95,000 are avoidable. If Stephens drops the product line, net operating income will Blank______.
$11,000. The company will lose $84,000 in contribution margin ($170,000 - $86,000). If $95,000 of the fixed costs are avoidable, net income will increase by $11,000.
Product DGH has a monthly demand of 7,000 units. Its contribution margin is $18 per unit and $36 per direct labor hour. Product _____ RBG has a monthly demand of 5,000 units. Its contribution margin is $15 per unit and $60 per direct labor hour. If the company only has 2,000 direct labor hours available, the company should produce units of Product DGH_____ and units of Product RBG
1500, 5000
What type of cost is never relevant and should be disregarded when making decisions?
Sunk
Opportunity costs should Blank______ be included in a sourcing decision.
always
A cost that can be eliminated in whole or in part by choosing one alternative over another is a(n) Blank______ cost.
avoidable
When considering decision alternatives, only relevant costs are included when using the ______ cost approach.
differential
When deciding whether to fly or take the train on a trip, the cost of putting your pet in a boarding facility while you are away is a(n) Blank______ cost.
irrelevant
Joint costs are Blank______.
irrelevant in decisions regarding what to do with a product after split-off
Joint costs incurred prior to the split-off point are Blank______ relevant in decisions regarding what to do from the split-off point forward.
never
Allocated common costs are Blank______.
only relevant to decisions if they are avoidable
The reduction in resale value of an asset through use or over time is called __________or ______________ depreciation.
real, economic
Allocated common costs are Blank______ avoidable and/or relevant to a decision.
sometimes
When making a decision, only relevant items are included in the analysis of the alternatives when using Blank______.
the differential cost approach only
When making a decision, irrelevant items are included in the analysis of both alternatives when using Blank______.
the total cost approach only
To increase the strength of a chain, efforts should be concentrated on strengthening Blank______.
the weakest link
When considering decision alternatives, both relevant and irrelevant costs are included when using the _____ cost approach.
total
When demand for products exceeds the production capacity, a Blank______ decision must be made.
volume trade-off
The total cost approach and the differential approach methods of decision analysis Blank______ provide the same correct answer.
will always
Which of the following techniques describe how a bottleneck should be managed?
- Ensure there is minimal lost time at the bottleneck due to breakdowns and set-ups. - Focus business process improvement efforts on the bottleneck. - Find ways to increase the capacity of the bottleneck.
Which of the following are ways in which to calculate the benefit of selecting one alternative over another?
- The difference between the net operating income for the two alternatives. - An analysis that looks at all costs and benefits and identifies those that are differential. - An analysis that just looks at the relevant costs and benefits.
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) Blank______ cost.
- avoidable - incremental
A company must make a volume trade-off decision when they Blank______.
- do not have enough capacity to satisfy all product demand - must trade off units of one product for units of another
To effectively deal with a constraint Blank______.
- improvements should focus on the constraint - efforts should be focused on the weakest link
ABC Lumber spent $500 cutting down a tree which resulted in 40 pieces of unfinished lumber that sell for $20.00 each and 100 bags of sawdust that sell for $1.00 each. For $8.00, an unfinished piece of lumber can be processed into a piece of finished lumber that sells for $35.00. For $0.75, a bag of sawdust can be processed into a Presto Log that sell for $1.25. Based on this information, Blank______.
- the pieces of unfinished lumber should be processed into finished lumber - the bags of sawdust should be sold without additional processing
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 Blank______.
ABC
Which of the following attempts to match the sunk cost of an asset with the periods that benefit from that cost?
Accounting depreciation only
A special order should be accepted Blank______.
when the incremental revenue from the special order exceeds the incremental costs of the order