ACCT 2813 Chapter 12

contribution margin

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

Salvage value and alternative uses for the equipment

A company is considering buying a component part that they currently make. Which of the following items related to the equipment currently being used to make the component are relevant to the decision?

sunk

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.

make or buy decision

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) _____________.

constraint

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

sunk costs and future costs that do not differ between alternatives

Irrelevant costs include:

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

Isolating relevant costs is desirable because:

vertical integration

Less dependence on suppliers is an advantage of _______________.

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

Potential advantages of dropping product line or other segment includes:

opportunity

Space being used that would other wise be idle has a(n) ______________ of zero.

define the alternatives

The first step in decision making is to _______________.

incremental cost

The increase in cost between tow alternatives in a(n) ______________.

bottleneck

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

opportunity cost

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

real or economic depreciation

The reduction in reale value of an asset through use or over time is called _______________.

Non-differential future costs and sunk costs

What should NOT be included in the analysis when making a decision?

bottleneck

When a manager increases the capacity of a(n) ________________ , it is called relaxing the constraint.

Allocating common fixed costs

________________ can make a product line look LESS profitable than it really is.

opportunity

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.

-focusing business process improvement efforts on the bottle neck. -subcontracting some of the processing that would be done in that area.

The capacity of a bottleneck can be effectively increased by:

Vertical integration

______________ refers to a company that is involved in more than one activity in the value chain.

-normal sales must not be affected. -there must be idle capacity.

When considering accepting a special order:

total cost approach

When considering decision alternatives, both relevant and irrelevant costs are included when using the ___________.

differential cost approach

When considering decision alternatives, only relevant costs are included when using the ___________________.

bottleneck

When dealing with a constrained resource, managers should focus their attention on managing the ______________.

the differential cost approach only

When making a decision, only relevant items are included in the analysis of the alternatives when using __________________.

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

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

highest contribution margin per unit of constrained resources

If some products must be cut back because of a constraint, produce the products with the _________________.

differential analysis

The key to effective decision making is _____________.

weakest link

To increase the strength of a chain, efforts should be concentrating on strengthening the _____________________.

relevant

When making a decision, only ___________ costs and benefits should be included in the analysis.

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

When should a special order be accepted?

increase the capacity of the bottleneck

When there is a constrained resource, the best way to increase profits is to ________________.

-less dependence on outside suppliers. -a smoother flow of parts and materials for production.

Which of the following may be an advantage of making a part rather than buying it?

isolate relevant costs from irrelevant costs

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

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 ____________ costs.

volume trade-off decision

When demand for products exceeds the production capacity, a(n) _______________ must be made.

Avoidable and Relevant Costs

When making a decision to either go to a movie or rent a DVD, the cost of the movie ticket is an example of what cost(s)?

-do not have enough capacity to satisfy the demand for all of its products. -must trade off units of one product for units of another due to limited production capacity.

A company must make a volume trade-off decision when they...

income statements

When making a product line decision, a company may focus on lost contribution margin and avoidable fixed costs or prepare comparative _______________.

fixed costs

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

original cost of the car

When planning trip and deciding whether to drive or fly, the ________________ is a sunk cost and should be ignored.

special-order decision

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

value chain

A set of activities ranging from development to production to after-sales service is called the ____________.