Ch 11: Differential Analysis: The Key to Decision Making

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, they should first fill the demand for Product________

ABC

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

bottleneck

the machine or process that is limiting overall output is called

bottleneck

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

constraint

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

contribution margin per unit of constrained resource.

when a constraint exists, companies need to focus on maximizing...

contribution margin per unit of constraint

to maximize total contribution margin when a constrained resource exists, product the products with the ___________

highest contribution margin per unit of the constrained resource.

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

increase the capacity of the bottleneck

allocated common costs are _________

only relevant to decisions if they are avoidable

A one-time sales that is not considered part of the company's normal ongoing business is referred to as an ________________ _________________ decision.

special order

when making a decision, irrelevent items are included in the analysis of both alternatives when using __________.

the total cost approach only

to increase the strength of a chain, efforts should be concentrated on strengthening _____________

the weakest link

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

vertical integration

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

- focus business process improvement efforts on the bottleneck - find ways to increase the capacity of the bottleneck - ensure there is minimal lost time at the bottleneck due to breakdowns and set-ups.

the capacity of a bottleneck can be effectively increased by:

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

when considering accepting a special order:

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