Accounting Ch 10-12

Which of the following techniques describe how a bottleneck should be managed?

-Find ways to increase the capacity of the bottleneck -Ensure there is minimal lost time at the bottleneck due to the breakdowns and set-ups -Focus business process improvement efforts on the bottleneck

Isolating relevant costs is desirable

-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

In order to prevent confusion and keep attention focused on critical information, it is desirable to:

-Isolate relevant costs from irrelevant costs

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

-Non-differential future costs -Sunk costs

Compensation should:

-Only be tied to balanced scorecard measures after the organization has been successfully managed with it for some time

Which of the following evaluation measures are used for investment center managers only- not for cost or profit center managers?

-Return on investment (ROI) -Residual Income

Which of the following statements are true?

-The more frequently interest is compounded, the faster the balance grows -Compound interest means that interest is paid on interest

The net present value of a project is:

-Used in determine whether or not a project is an acceptable capital investment -The difference between the present value of cash inflows and present value of cash outflows for a project

When making a capital budgeting decision, it is most useful to calculate the payback period

-as part of the screening process -if a company is "cash poor"

Potential advantages of dropping a product line or other segment include:

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

A future cost that is not the same between any two alternatives is know as a(n) ______ incremental, or avoidable cost

-differential

The basic premise of the payback method is the ____, the more desirable the investment

-faster the cost of the investment is recovered

Investment required/Annual net cash inflow is the formula to find the factor that enables calculation of the:

-internal rate of return

One dollar earned today is worth:

-more than one dollar earned at a future point in time

When a company's objective is to maximize ROI:

-only the product with the highest ROI should be retained

The capacity of a bottleneck can be effectively increases by:

-subcontracting some of the processing that would be done in that area -Focusing business process improvement efforts on the bottleneck

The internal rate of return is:

-the rate of return on an investment project over its useful life

Spicer Dentistry is considering the purchase of new x-ray machine. The machine costs $2,400 and has a useful life of 10 years. The new machine is expected to reduce operating costs by $400 per year. The payback period for the x-ray machine is ___ years

2,400/$400= 6 years

True or False: For a typical company current financial measures are the best and only indication of future financial performance

False

True or False: When a capital investment decision is being made between two or more alternatives, the project with the shortest payback period is always the most desirable investment

False

When a company's objective is to maximize ROI:

Only the product with the highest ROI should be retained

The simple rate of return is also referred to as the ____ or ____ rate of return

accounting, unadjusted

Another term for the minimum required rate of return is the cost of ____

capital

How managers plan significant investments in projects the have long term implications such as purchasing new equipment or introducing new products is called:

capital budgeting

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

constraint

The first step in decision making is to

define the alternatives

An adaption of residual income that has been adopted by many companies is called:

economic value added

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

fixed costs

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.

incremental, avoidable

The manager of a(n) _____ center has control over costs, revenue, and investments in operating assets

investment

When the annual net cash inflow is the same each year, the payback period equals the _____ required divided by the annual net cash _____

investment, inflow

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

joint

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

joint

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

keep

A decision to carry out one of the activities in the value chain internally, rather than to buy externally from a supplier, is called a(n)_____ or _____ decision

make, buy

When managers are evaluated on residual income, rather than on return on investment (ROI), they will be _____ likely to pursue projects that will benefit the entire company

more

When a manager is evaluated on residual income, an investment is acceptable when:

net operating income for the investment is above the minimum required return on average operating assets

Space being used that would otherwise be idle has a(n) _____ cost of zero

opportunity

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

opportunity

The length of time that it takes for a project to recover its initial cost from the net cash inflows that it generates is the ______ ______

payback period

The performance of two different investment centers should be evaluated by comparing the _____ change in residual income from year to year for the two investment centers

percentage

Comparing actual net income to budgeted net income is often done to evaluate the manager of a(n)_____ center

profit

When making a decision only_____ costs and benefits should to be included in the analysis

relevant

Deciding what to do with a joint product at the split-off point is a(N) _____ or ____ _____

sell or process further

A one-time order that is not considered part of the company's normal ongoing business is a ______ order

special

In decentralized organizations, decision-making authority is:

spread throughout the organization

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

sunk

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

the profit from the best alternative use of the resource

Being less dependent on suppliers and making profits on both parts and the final product are advantages of ______ ______

vertical integration

We demand for products exceeds the production capacity, a ___ ____-_____ decision must be made

volume trade-off

Water World is planning to build a new attraction at its water park. A new wave pool has a project profitability index of 0.09, and a new water slide has a profitability index of 0.14. The best choice of Water World is the:

water slide

When a resource, such as space in the factory, has no alternative use, its opportunity cost is:

zero