SB Ch 06
differential cost
a difference in cost between two alternatives
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) ______ cost. Multiple choice question. a.sunk b.relevant c.irrelevant
c
segment margin
contribution margin-traceable fixed costs
constraint
limitation or restriction
3 Steps to decision making:
1. Define the alternatives 2. Identify relevant costs and benefits 3. Perform a differential analysis
bottleneck
A machine or some other part of a process that limits the total output of the entire system
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.
Direct (traceable) cost
Can be traced to a particular product, service or department
True or false: Depreciation of existing assets is relevant to decisions.
False
If some products must be cut back because of a constraint, produce the products with the highest: Multiple choice question. a. contribution margin per unit of constrained resource b. net operating income per unit c. contribution margin per unit of product
a
A company must make a volume trade-off decision when they Multiple select question. a.must trade off units of one product for units of another due to limited production capacity b.do not have enough capacity to satisfy the demand for all of its products c.have excess capacity that is not currently being utilized
a and b
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. Multiple select question. a.sunk b.incremental c.avoidable d.irrelevant
b, c
Differential revenue is an example of a(n) ______ benefit. Multiple choice question. a.sunk b.avoidable c.relevant d.irrelevant
c
The first step in decision making is to: a.identify relevant costs and benefits b.perform a differential analysis c.define the alternatives
c
The key to effective decision making is: Multiple choice question. a.knowing there are at least two alternatives b.considering opportunity costs c.differential analysis
c
To maximize total contribution margin when a constrained resource exists, produce the products with the: Multiple choice question. a. lowest contribution margin per unit of the constrained resource b. highest unit contribution margin c. highest contribution margin per unit of the constrained resource d. lowest unit contribution margin
c
______ margin is best for short-term ______ margin is best for long-run
contribution margin segment margin
Focusing on future costs and benefits that are not the same between alternatives is: Multiple choice question. a.irrelevant cost analysis b.the total cost approach c.defining the alternatives d.differential analysis
d
When making a product line decision, a company may focus on lost contribution margin and avoidable fixed costs or prepare comparative _________ _________
income statements
An increase in cost between two alternatives is a(n) _______ cost
incremental
is there opportunity cost when units of idle capacity > units in the special order
no
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
gross margin
revenues-cost of goods sold
contribution margin
revenues-variable costs
split-off point
that point in the manufacturing process where some or all of the joint products can be recognized as individual products
differential revenue
the difference in revenue between two alternatives
opportunity cost
the most desirable alternative given up as the result of a decision
relevant costs
those costs and revenues that differ across alternatives
joint products
two or more products that are produced from a common input
vertically integrated
when a company is involved in more than one activity in the entire value chain
True or false: Some decisions only have one alternative.
False
indirect (shared) cost
Part of the overall operation
When making a decision, qualitative differences between alternatives _______ be ignored. Multiple choice question. a.should not b.should c.may or may not
a
relevant benefit
a benefit that should be considered when making decisions
make or buy decision
a decision concerning whether an item should be produced internally or purchased from an outside supplier
special order
a one-time order that is not considered part of the company's normal ongoing business
When considering accepting a special order: Multiple select question. a.there must be idle capacity b.normal sales must not be affected c.opportunity costs should never be considered d.incremental revenue should equal increment cost
a,b
Space being used that would otherwise be idle has a(n) ______ cost of zero
avoidable
joint costs
costs that are shared in the manufacturing and marketing of several products in a product line
A one-time sale that is not considered part of the company's normal ongoing business is referred to as a(n) _______ _______ decision
special(ty) order
When demand for products exceeds the production capacity, a __________ ________ ________ decision must be made
volume trade off
avoidable cost
a cost that can be eliminated by choosing one alternative over another
sunk cost
a cost that has already been committed and cannot be recovered
segment
any part of an organization or any activity in an organization that a manager seeks cost, revenue, or profit data
is there opportunity cost when units of idle capacity < units in the special order
yes
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.
incremental cost
an increase in cost between two alternatives
When a constraint exists, companies need to focus on maximizing Multiple choice question. a. contribution margin per unit b. net income from sales c. total contribution margin d. net sales
c