Managerial Accounting Chp 10

________ is the act of using another company to provide goods or services that your company requires.

Outsourcing

The managerial decision-making process has which of the following as its third step? Review, analyze and evaluate the results of the decision. Decide, based upon the analysis, the best course of action. Identify alternative courses of action to achieve a goal or solve a problem. Perform a comprehensive differential (differential) analysis of potential solutions.

Perform a comprehensive differential (differential) analysis of potential solutions.

outsourcing

act of using another company to provide goods or services that your company requires

avoidable cost

cost that can be eliminated (in whole or in part) by choosing one alternative over another

sunk cost

cost that cannot be avoided because it has already occurred

unavoidable cost

cost that does not go away in the short-run by choosing one alternative over another

irrelevant cost

cost that has no effect on the decision being made because it is the same under either alternative

relevant cost

cost that influences the decision being made

opportunity costs

costs associated with not choosing the other alternative

joint costs

costs that have been shared by products up to the split-off point

short-term decision analysis

determining the appropriate elements of information necessary for making a decision that will impact the company in the short term, usually 12 months or fewer, and using that information in a proper analysis in order to reach an informed decision among alternatives

products or services with the highest contribution margin have the _______ impact on income

largest

When should a segment be dropped?

only when the decrease in total contribution margin is less than the decrease in fixed cost

bottleneck

point at which a constraint slows production

split-off point

point at which some products are removed from production and sold while others receive additional processing

segment

portion of the business that management believes has sufficient similarities in product lines, geographic locations, or customers to warrant reporting that portion of the company as a distinct part of the entire company

When operating in a constrained environment, which products should be produced?

products with the highest contribution margin per unit of the constrained process

relevant range

quantitative range of units that can be produced based on the company's current productive assets; for example, if a company has sufficient fixed assets to produce up to 10,000 units of product, the relevant range would be between 0 and 10,000 units

Which of the following is not a qualitative decision that should be considered in an outsourcing decision? employee morale product quality company reputation relevant costs

relevant costs

Mallory's Video Supply has changed its focus tremendously and as a result has dropped the selling price of DVD players from $45 to $38. Some units in the work-in-process inventory have costs of $30 per unit associated with them, but Mallory can only sell these units in their current state for $22 each. Otherwise, it will cost Mallory $11 per unit to rework these units so that they can be sold for $38 each. How much is the financial impact if the units are processed further?

$5 per unit profit

irrelevant revenue

revenue that has no effect on the decision being made

relevant revenue

revenue that influences the decision being made

constraint

scarce resource that limits output or productive capacity of an organization

unit contribution margin

selling price per unit minus variable cost per unit

differential analysis

type of analysis that considers only the differences between variables that are important to the analysis

unit contribution margin per production restraint

unit contribution margin divided by the production restrain

________ are the costs associated with not choosing the other alternative.

Opportunity costs

Many outsourced jobs have resulted in "offshoring" jobs, rather than using domestic outsourcing. If a U.S. company wants to offshore a service like customer service, for example, what are some of their considerations? In your answer, address offshoring disadvantages as compared with domestic outsourcing.

First and foremost, customer service quality is a consideration, followed closely by the ability of the offshore personnel to speak clearly in English and to understand the customer's needs. Chief operating officers should also make sure that the call centers are adequately staffed and run in an ethical manner, similar to the main company contracting with the outsourced service. Offshoring disadvantages should be weighed against domestic outsourcing in the areas of time zone problems, politically correct labor choices, rising labor costs abroad, as well as culture and language.

What is a general rule to remember with respect to a sell-or-process-further environment, and what costs are irrelevant to the decision?

In general, if the differential revenue from processing further is greater than the differential costs, then it will be profitable to process a joint product after the split-off point. Any costs incurred prior to the split-off point are irrelevant to the decision to process further, as those are sunk costs, and only future costs are relevant costs. Joint product costs are common costs that are incurred simultaneously to produce a variety of end products. Even though they are common costs, they are routinely allocated to the joint products.

Identify the cost as relevant or irrelevant for Felipe's Restaurant and Pie Shop. Then identify the type of cost (sunk, fixed, variable, or opportunity). Felipe's decision not to attend graduate school

Irrelevant and Opportunity

Identify the cost as relevant or irrelevant for Felipe's Restaurant and Pie Shop. Then identify the type of cost (sunk, fixed, variable, or opportunity). Felipe's culinary school tuition

Irrelevant and Sunk

Identify the cost as relevant or irrelevant for Felipe's Restaurant and Pie Shop. Then identify the type of cost (sunk, fixed, variable, or opportunity). Painting dining area last year

Irrelevant and Sunk

What are some of the qualitative issues that a special order can create?

One issue is the concern for how existing customers will feel if they discover that the company offered a lower price to the special-order customer for the same goods or services. If the goods in the special order are modified, and thus cheaper for that reason, current customers may prefer the modified, cheaper version of the product. The company would need to determine if selling the new version of the project would hurt profitability or the company's reputation.

Your roommate at school believes that all fixed costs are always avoidable. Do you agree? How would you explain your point of view to your roommate?

Primarily disagree, but there are a few times where fixed costs can be avoided or partially avoided. Variable costs are avoidable costs since variable costs do not exist if the product is no longer made, or if the portion of the business (such as a segment or division) that generated the variable costs ceases to operate. Fixed costs, on the other hand, may be unavoidable, partially unavoidable, or avoidable only in certain circumstances. When a company discontinues a product or service, certain fixed costs may not be required.

_______ would include consequences such as potential loss of current customers or displacement of jobs.

Qualitative factors

Identify the cost as relevant or irrelevant for Felipe's Restaurant and Pie Shop. Then identify the type of cost (sunk, fixed, variable, or opportunity). Rent

Relevant and Fixed

Identify the cost as relevant or irrelevant for Felipe's Restaurant and Pie Shop. Then identify the type of cost (sunk, fixed, variable, or opportunity). Baker wages

Relevant and Variable

Identify the cost as relevant or irrelevant for Felipe's Restaurant and Pie Shop. Then identify the type of cost (sunk, fixed, variable, or opportunity). Berries for pies

Relevant and Variable

Which of the following is sometimes referred to as the "Anti Chain Store Act"?

Robinson-Patman Act

In the decision by a grocery company that is trying to decide whether to keep or drop the bakery department in its grocery stores, what would the bakery manager's salary be in relationship to the decision if the manager will be laid off?

The bakery manager's salary would be avoidable and therefore differential in the analysis.

managing scarce resources will help reduce

bottlenecks

normal capacity

company's maximum production level, without adding additional production resources, or within the company's relevant range

quantitative factor

component of a decision-making process that can be measured numerically

qualitative factor

component of a decision-making process that cannot be measured numerically

differential cost

difference between costs for alternatives

differential revenue

difference between revenues for alternatives

special order

one-time order that does not typically affect current sales