CH 11 Smart Book

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.

Blank 1: opportunity or relevant

A cost that can be eliminated by choosing one alternative over another is a(n) _______________ cost.

Blank 1: avoidable or relevant

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

Non-differential future costs Sunk costs

The machine or process that is limiting overall output is a(n) ______. opportunity cost bottleneck irrelevant cost contribution margin per unit of the constrained resource

bottleneck

When a constraint exists, companies need to focus on maximizing ______. contribution margin per unit net income from sales contribution margin per unit of constraint net sales

contribution margin per unit of constraint

The first step in decision making is to ______. identify relevant costs and benefits perform a differential analysis define the alternatives

define the alternatives

When making a product line decision, a company may focus on lost contribution margin and avoidable fixed costs or prepare comparative ______. balance sheets statements of cash flow income statements

income statements

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

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. relevant irrelevant avoidable

irrelevant

The costs incurred up to the split-off point in a process in which two or more products are produced from a common input are known as ______ costs. joint relevant intermediate opportunity

joint

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

joint

Determining whether to carry out an activity in the value chain internally or use a supplier is a ______ decision. make or buy utilization of a constrained resource product line special order

make or buy

When a manager increases the capacity of the bottleneck, it is called __________________ or elevating the constraint.

relaxing

When planning a trip and deciding to drive your car or take the train, gasoline is a(n) ______ cost. relevant irrelevant sunk

relevant

Deciding what to do with a joint product at the split-off point is a ______ decision. sell or process further product line make or buy (outsource) special order

sell or process further

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

Blank 1: special or specialty Blank 2: order

Differential revenue is an example of a(n) ______ benefit. irrelevant sunk relevant avoidable

relevant

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

avoidable

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

constraint

A one-time order that is not considered part of the company's normal ongoing business is called a ______ order. relevant special supplier standard

special

The costs provided by a well-designed activity-based costing system are ______ relevant to a decision. potentially always not ever

potentially

When making a decision, irrelevant items are included in the analysis of both alternatives when using ______. the total cost approach only the differential cost approach only both the differential and total cost approaches neither the differential nor total cost approach

the total cost approach only

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

joint

When a resource, such as space in the factory, has no alternative use, its opportunity cost is ______. not determinable negative zero infinite

zero

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

Blank 1: sell Blank 2: process Blank 3: further

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

total

When making a decision only ______ costs and benefits should to be included in the analysis. irrelevant opportunity relevant unavoidable

relevant

Select all that apply 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 ______. annual depreciation charges salvage value alternative uses for the equipment original cost

salvage value alternative uses for the equipment

Select all that apply Potential advantages of dropping a product line or other segment include ______. an overall decrease in other product line sales increasing relevant costs that the company incurs avoiding more fixed costs than the company loses in contribution margin 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

Which of the following can make a product line look less profitable than it really is? Common variable costs Allocated common fixed costs

Allocated common fixed costs

Product ABC has a contribution margin per unit of $10.00. Each unit of ABC requires 5 minutes of machine time and 10 minutes of labor time. Product XYZ has a contribution margin per unit of $15.00 and each unit requires 10 minutes of machine time and 5 minutes of labor time. If the company's constraint is labor hours, the contribution margin per unit of constraint for Product XYZ is $ ___________ per minute.

Blank 1: 3 or three

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

constraint

If some products must be cut back because of a constraint, produce the products with the highest ______. net operating income per unit contribution margin per unit of constrained resource contribution margin per unit of product

contribution margin per unit of constrained resource

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

differential

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

When making a volume-trade off decision, managers should ignore ______. fixed costs variable costs contribution margin

fixed costs

Two or more products produced from a common input are called ______. intermediate products joint products joint costs opportunity costs

joint products

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 drop

keep

As it applies to sell or process further decisions, which term refers to a product that is in the process of being made? Opportunity cost Intermediate product Joint product Joint cost

Intermediate product

When there is a constrained resource, the best way to increase profits is to ______. keep the capacity of the bottleneck the same increase the capacity of the bottleneck decrease the capacity of the bottleneck

increase the capacity of the bottleneck

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

isolate relevant costs from irrelevant costs

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 ______. XYZ ABC

ABC Reason: The company should fill the demand for the product with the highest CM per unit of the constrained resource. ABC's is $2 per minute of machine time (CM of $10 ÷ 5 minutes) while XYZ's is only $1.50 per minute of machine time (CM of $15 ÷ 10 minutes).

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

highest contribution margin per unit of the constrained resource

Select all that apply A company must make a volume trade-off decision when they ______. must trade off units of one product for units of another due to limited production capacity have excess capacity that is not currently being utilized 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 do not have enough capacity to satisfy the demand for all of its products

When planning a trip and deciding whether to drive or fly, the ______ is a sunk cost and should be ignored. original cost of the car cost of gasoline for the trip cost of car repairs and maintenance monthly parking fee that must be paid at your apartment while you are gone

original cost of the car

Product ABC has a contribution margin per unit of $10.00. Each unit of ABC requires 5 minutes of machine time and 10 minutes of labor time. Product XYZ has a contribution margin per unit of $15.00 and each unit requires 10 minutes of machine time and 5 minutes of labor time. If the company's constraint is labor hours, the contribution margin per unit of constraint for Product XYZ is $ ________________ per minute.

Blank 1: 3 or three

Less dependence on suppliers is an advantage of ______. special orders vertical integration horizontal integration outsourcing

vertical integration

When dealing with a constrained resource, managers should focus their attention on managing the ______. bottleneck production value chain employees

bottleneck

When a resource, such as space in the factory, has no alternative use, its opportunity cost is ______. infinite negative zero not determinable

zero

Costs and benefits that should be ignored when making decisions are called ______ costs and benefits. relevant opportunity incremental irrelevant differential

irrelevant

The potential benefit given up when selecting one alternative over another is a(n) ______ cost. opportunity irrelevant sunk avoidable

opportunity

The point in the manufacturing process at which joint products can be recognized as separate products is called the ______ point. intermediate sell or process split-off opportunity

split-off

Andrews Co. can purchase 20,000 units of Part XYZ from a supplier for $18 per part. Andrews' per unit manufacturing costs for 20,000 units is as follows: Cost Per Unit Total Variable manufacturing cost $12 $240,000 Supervisor salary $3 $60,000 Depreciation $1 $20,000 Allocated fixed overhead 47 $140,000 If the part is purchased, the supervisor position will be eliminated. The special equipment has no other use and no salvage value. Total allocated fixed overhead would be unaffected by the decision. The company should ______. continue to make the part — $60,000 advantage continue to make the part — $40,000 advantage buy the part — $80,000 advantage buy the part — $100,000 advantage

continue to make the part — $60,000 advantage Reason: The avoidable costs of making the product are the variable costs plus the supervisor salary or $15 per unit. The total savings is $60,000 ($18 buy price - $12 variable cost - $3 supervisor salary = $3 advantage to make × 20,000 units).

Two or more products produced from a common input are called ______. intermediate products joint products opportunity costs joint costs

joint products

If a cost is traced to a segment using activity-based costing, it ______ an avoidable cost of the segment. may or may not be is always is never

may or may not be

Costs that have no impact on future cash flows and are irrelevant to decisions are ______ costs. . marginal sunk unavoidable avoidable

sunk

True or false: Depreciation of existing assets is relevant to decisions. True False

False Reason: Depreciation spreads sunk costs across the life of the assets and is not relevant.

Some decisions only have one alternative.

False Reason: Every decision involves choosing from at least two alternatives, even if the alternatives are yes or no.

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

Blank 1: volume Blank 2: trade Blank 3: off

Select all that apply Irrelevant costs include ______. sunk costs future costs that do not differ between alternatives future costs that differ between alternatives all fixed costs

sunk costs future costs that do not differ between alternatives

Costs that have already been incurred and cannot be avoided regardless of what a manager decides to do are ______ costs. differential avoidable relevant sunk

sunk

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

Blank 1: income or profit Blank 2: statements or statement

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

Blank 1: income or profit Blank 2: statements or statement

Select all that apply Which of the following may be an advantage of making a part rather than buying it? Less dependence on outside suppliers A smoother flow of parts and materials for production More dependence on suppliers Higher quality and lower cost because the supplier company enjoys economies of scale

Less dependence on outside suppliers A smoother flow of parts and materials for production

Which of the following involves increasing the capacity of a bottleneck? Elevating the value chain Relaxing the constraint Increasing the contribution margin per unit Decreasing opportunity costs

Relaxing the constraint Reason: Opportunity costs do not represent actual dollar outlays, rather they represent economic benefits that are forgone as a result of pursuing some course of action.

Select all that apply Isolating relevant costs is desirable because ______. irrelevant costs may be used incorrectly in the analysis 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

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

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

contribution margin

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

False Reason: Opportunity costs are not found in accounting records because they are not cash outlays. Opportunity costs are relevant to decisions.

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

True

Which of the following can make a product line look less profitable than it really is? Allocated common fixed costs Common variable costs

Allocated common fixed costs

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

Blank 1: make Blank 2: buy, outsource, or outsourcing

When making a product line decision, a company may focus on lost contribution margin and avoidable fixed costs or prepare comparative ______. balance sheets income statements statements of cash flow

income statements

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

intermediate