Accounting 231 - Ch. 10 LearnSmart

Which of the following can make a product line look less profitable than it really is?

Allocated Common Fixed Costs

The potential benefit given up when selecting one alternative over another is a(n) ___ cost.

Opportunity

When trying to decide if a particular cost is avoidable, irrelevant costs include:

Sunk Costs; Future Costs that do not differ between alternatives

If a company is using a resource that could be used for some other purpose, the opportunity cost of that resource is:

The profit from the best alternative use of the resource

When should a special order be accepted?

When the incremental revenue from the special order exceeds the incremental costs of the order

True or False: Effectively managing an organization's constraints is a key to increased profits.

True

Which of the following are ways in which to calculate the benefit of selecting one alternative over another?

An analysis that looks at all costs and benefits and identifies those that are differential; The difference between the net operating income for the two alternatives; An analysis that just looks at the relevant costs and benefits

Managers may choose to retain an unprofitable product line because it:

Attracts customers; It helps sell other products

One of the benefits of dropping a product line is that a company can eliminate the product line's ___ fixed costs.

Avoidable

When a limited resource of some type restricts a company's ability to satisfy demand, the company has a(n) ___.

Bottleneck

Which of the following are synonyms for avoidable cost?

Incremental Cost; Differential Cost

When a product is past the split-off point, but is not yet a finished product, it is called a(n) ___ product.

Intermediate

When is it profitable to continue processing a joint product after the split-off point?

It is profitable when the incremental revenue exceeds the incremental processing cost

Costs incurred up to the split-off point in a process in which two or more products are produced from a common input are called ___ costs.

Joint

The split-off point is the point in the manufacturing process at which the ___ products can be recognized as separate products.

Joint

Two or more products that are produced from a common input are known as ___ products.

Joint

Two or more finished products produced from a common input are:

Joint Products

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

False

One of the great dangers in allocating common ___ costs is that such allocations can make a product line look less profitable than it really is.

Fixed

A cost that has already been incurred and cannot be avoided regardless of what a manager decides to do is referred to as a(n) ___ cost.

Sunk

Costs that have already been incurred and cannot be avoided regardless of what a manager decides to do are ___ costs.

Sunk

When choosing between two alternatives, such as replacing or not replacing the machine, do not include ___ costs in the analysis because these costs will be the same under each alternative.

Sunk

When making decisions, managers should ignore ___ costs.

Sunk

True or False: Allocating joint costs to products at the split-off point is misleading for decision making about the products.

True

It is profitable to continue processing a joint product after the split-off point, so long as the incremental ___ from such processing exceeds the incremental processing cost incurred after the split-off point.

Revenue

Joint costs are traditionally allocated among the different products at the split-off point. A typical approach is to allocate the joints costs according to the relative ___ value of the end products.

Sales

Deciding what to do with a joint product at the split-off point is a(n) ___ or ___ decision.

Sell or Process Further

Which of the following are ways to increase the capacity of a bottleneck?

Shifting workers from processes that are not bottlenecks to the process that is the bottleneck; Investing in additional machines at the bottleneck

Which of the following does not have an opportunity cost?

Space being used that has no alternative use

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

Special Order

What is the point in the manufacturing process at which joint products can be recognized as separate products?

Split-off Point

Any final decision to drop or add a business segment is going to hinge primarily on the impact the decision will have on net ___ ___.

(Net) Operating Income

A business segment should only be dropped if a company can avoid more in fixed costs than it gives up in:

Contribution Margin

When making a product line decision, a company may focus on lost ___ ___ and avoidable fixed costs or prepare comparative income statements.

Contribution Margin

If some products must be cut back because of a constraint, produce the products with the highest:

Contribution margin per unit of constrained resource

Effectively managing an organization's constraints is a key to increased:

Profits

Joint Costs:

Are irrelevant in decisions regarding what to do with a product after split-off; Cannot be avoided once a process is started

The machine or process that is limiting overall output is called a(n) ___.

Bottleneck

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

Costs that are relevant in one decision situation:

May not be relevant in another

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

Value Chain

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, the should first fill the demand for ___.

Product ABC

Costs that differ between alternatives are called ___ costs.

Relevant

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

Highest contribution margin per unit of the constrained resource

When the total amount of the cost will be the same regardless of the alternatives selected in a decision, what should be done about the cost in the decision analysis?

Ignore the cost

The best way to handle a constrained resource is to ___ the capacity of the bottleneck.

Increase

Bad decisions can easily result from erroneously including ___ costs and benefits when analyzing alternatives.

Irrelevant

When deciding whether to drive your car or take a train to a destination, the costs for your car insurance and driver's license are:

Irrelevant Costs

If, by dropping a product line, a company cannot avoid as much in fixed costs as it loses in contribution margin, the company should:

Keep the product line

A decision to carry out one of the activities in the value chain internally rather than to buy externally from a supplier is a ___ decision.

Make or Buy

The decision to add or drop a product line should be based on the impact the decision will have on:

Net Operating Income

Which of the following should not be included in the analysis when making a decision?

Non-Differential Future Costs; Sunk Costs

When a company is involved in more than one activity in the entire value chain, it is ___ ___.

Vertically Integrated

Which of the following statements are TRUE?

Allocation of joint costs is needed for inventory valuation; Joint costs are common costs that are incurred to produce two or more products; Improper allocation of joint costs can lead to incorrect decisions

Only rarely will enough information be available to prepare a detailed income statement for both alternatives in a decision. This makes isolating ___ costs desirable.

Relevant

When making a decision to continue using a current machine versus purchasing a new machine, what type of costs need to be included in the analysis?

Relevant

When making a decision to drive or take the train on a trip, the cost of the train ticket is a:

Relevant Cost

When planning a trip and deciding to drive your car or take the train, gasoline is a:

Relevant Cost

When making a decision to either go to a movie or rent a DVD, choosing the movie instead of the DVD means that the cost of renting the DVD would be eliminated. This is an example of a(n):

Relevant Cost; Avoidable Cost

Which of the following is considered a sunk cost when planning a trip?

The original cost of the car