A306 smartbook ch 6

When making a decision whether to keep an existing piece of equipment or replace it, which of the following is (are) considered a sunk cost? Both the original purchase price and annual depreciation expense. Only the original purchase price. Only the annual depreciation expense. Neither the original purchase price or annual depreciation expense.

Both the original purchase price and annual depreciation expense.

Which term refers to a company that is involved in more than one activity in the value chain? Multiple choice question. Non-integrated value chain Horizontal integration Vertical integration Integrated value chain

Vertical integration

When considering decision alternatives, only relevant costs are included when using the ---- cost approach.

differential

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

differential analysis

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

differential analysis

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

false

A business segment should only be dropped if a company can save more in Blank______ costs than it loses in contribution margin. Multiple choice question. mixed product fixed variable

fixed

A business segment should only be dropped if a company can save more in Blank______ costs than it loses in contribution margin. Multiple choice question. mixed variable fixed product

fixed

When making a volume-trade off decision, managers should ignore Blank______. Multiple choice question. fixed costs contribution margin variable costs

fixed costs

A one-time sale that is not considered part of the company's normal ongoing business is referred to as a(n) ---- ----

special order

When considering accepting a special order, Blank______. Multiple select question. opportunity costs should never be considered there must be idle capacity incremental revenue should equal increment cost normal sales must not be affected

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

Isolating relevant costs is desirable because Blank______. multiple slection: all information needed for the total cost approach is rarely available managers prefer to see all costs and benefits associated with a decision critical information may be overlooked with the total cost approach irrelevant costs may be used incorrectly in the analysis

all information needed for the total cost approach is rarely available critical information may be overlooked with the total cost approach irrelevant costs may be used incorrectly in the analysis

A cost that can be eliminated in whole or in part by choosing one alternative over another is a(n) Blank______ cost. Multiple choice question. sunk incremental irrelevant avoidable

avoidable

Synonyms for differential costs include Blank______ cost. multiple selection: irrelevant avoidable incremental sunk

avoidable incremental

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. Multiple select question. incremental irrelevant avoidable sunk

avoidable and incremental

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

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

A limited resource of some type that restricts the company's ability to satisfy demand is a(n) Blank______. Multiple choice question. constraint special order opportunity cost volume-trade off

constraint

Anything that prevents you from getting more of what you want is a(n

constraint

A business segment should only be dropped if a company can avoid more in fixed costs than it gives up in Blank______. Multiple choice question. contribution margin variable costs net operating income segment sales

contribution margin

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

differential analysis

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

false

A business segment should only be dropped if a company can save more in Blank______ costs than it loses in contribution margin. Multiple choice question. fixed variable mixed product

fixed

To maximize total contribution margin when a constrained resource exists, produce the products with the Blank______. Multiple choice question. highest contribution margin per unit of the constrained resource lowest contribution margin per unit of the constrained resource highest unit contribution margin lowest unit contribution margin

highest contribution margin per unit of the constrained resource

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______. Multiple choice question. decrease by $60,000 increase by $11,000 increase by $9,000 increase by $26,000

increase by $11,000

Future costs and benefits that do not differ between alternatives are Blank______ costs to the decision-making process. Multiple choice question. opportunity relevant sunk irrelevant

irrelevant

In order to prevent confusion and keep attention focused on critical information, it is desirable to Blank______. ignore relevant costs and focus on irrelevant one combine relevant and irrelevant costs to obtain a total cost isolate relevant costs from irrelevant costs

isolate relevant costs from irrelevant costs

Differential costs and benefits that should be considered in a decision Blank______. Multiple choice question. are always qualitative may be qualitative or quantitative are always quantitative

may be qualitative or quantitative

When planning a trip and making a decision to drive or take the train, the cost of car repairs and maintenance is a(n) Blank______ cost.

relevant

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 Blank______. Multiple select question. salvage value original cost annual depreciation charges alternative uses for the equipment

salvage value and alternative uses for the equipment

When making a decision, qualitative differences between alternatives Blank______ be ignored. Multiple choice question. should not should may or may not

should not

Determining whether to carry out an activity in the value chain internally or use a supplier is a Blank______ decision. Multiple choice question. sourcing utilization of a constrained resource special order product line

sourcing

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

sunk

Irrelevant costs include Blank______. Multiple select question. all fixed costs sunk costs future costs that do not differ between alternatives future costs that differ between alternatives

sunk costs future costs that do not differ between alternatives

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

sunk costs and Non-differential future costs

When a constraint exists, companies need to focus on maximizing Blank______. Multiple choice question. net sales net income from sales total contribution margin

total contribution margin

Activities ranging from development to production to after-sales service are called ---- -----

value chain

When demand for products exceeds the production capacity, a Blank______ decision must be made. Multiple choice question. sourcing sell or process volume trade-off product line Correct Answer

volume trade-off