Chapter 6 Smartbook A306

When a company is involved in more than one activity in the entire value chain, it is horizontally integrated. True/False

False - vertically

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

Irrelevant

Which of the following should not be included in the analysis when making a decision? Non-differential future costs Opportunity costs Avoidable costs Sunk costs

Non-differential future costs Sunk costs

What type of cost is never relevant and should be disregarded when making decisions? Multiple choice question. Opportunity Sunk Incremental Marginal

Sunk

Andrews Co. can purchase 20,000 units of Part XYZ from a supplier for $18 per part. Andrews' per unit manufacturing costs for 20,000 units is as follows: Cost Per Unit Total Variable manufacturing cost $12 $240,000 Supervisor salary $3 $60,000 Depreciation $1 $20,000 Allocated fixed overhead $7 $140,000 If the part is purchased, the supervisor position will be eliminated. The special equipment has no other use and no salvage value. Total allocated fixed overhead would be unaffected by the decision. The company should Blank______.

The avoidable costs of making the product are the variable costs plus the supervisor salary or $15 per unit. The total savings is $60,000 ($18 buy price - $12 variable cost - $3 supervisor salary = $3 advantage to make × 20,000 units).

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.

avoidable incremental

Potential advantages of dropping a product line or other segment include Blank______. Multiple select question. avoiding more fixed costs than the company loses in contribution margin increasing relevant costs that the company incurs an overall increase in net operating income an overall decrease in other product line sales

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

The first step in decision making is to

define the alternatives

Focusing on future costs and benefits that are not the same between the choices is Multiple choice question. defining the alternatives the total cost approach differential analysis irrelevant cost analysis

differential analysis

The key to effective decision making is Multiple choice question. knowing there are at least two alternatives differential analysis considering opportunity costs

differential analysis

When making a volume-trade off decision, managers should ignore ______

fixed cost

To maximize total contribution margin when a constrained resource exists, produce the products with the

highest contribution margin per unit of the constrained resource

Synonyms for differential costs include ______ cost.

incremental and avoidable

Differential costs and benefits that should be considered in a decision

may be qualitative or quantitative

Whether to perform various organization activities such as payroll and accounting internally or use an external provider is a ______ decision.

sourcing

When making a decision, only relevant items are included in the analysis of the alternatives when using .

the differential cost approach

When considering accepting a special order, ______

there must be idle capacity normal sales must not be affected

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

total

Activities ranging from development to production to after-sales service are called a(n)

value chain

When demand for products exceeds the production capacity, a ______ decision must be made.

volume trade-off