Managerial Accounting Ch 11

Managers may choose to retain an unprofitable product line because it

-attracts customers -helps sell other products

Potential advantages of dropping a product line or other segment includes

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

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

-difference between net operating income for the 2 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 techniques describe how a bottleneck should managed

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

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

When considering accepting a special order

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

bottleneck

a machine or some other part of a process that limits the total output of the entire system

Joint costs incurred prior to the split off point ______ relevant in decisions regarding what to do from the split off point forward

are not

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 ____ cost

avoidable, incremental cost

When a manager increases the capacity of the capacity of constraint or _______, it is called relaxing the constraint

bottleneck

The benefit from relaxing the constraint equals

constrained margin per unit of the constrained resource

Anything that prevents you from getting more of what you want is a

constraint

when a constraint exists, companies need to focus on maximizing

contribution margin per unit of constraint

Focusing on future costs and benefits that are not the same between alternatives is

differential analysis

When considering decision alternatives, only relevant costs are included when using the ________ _______ approach

differential cost

What is an advantage of buying a part instead of making it?

economies of scale can result in higher quality and lower costs from suppliers

A business segment should only be dropped if a company can save more in _____ costs than it loses in contribution margin

fixed

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

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 making a product line decision, a company may focus on lost and avoidable fixed costs or prepare comparative

income statements

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

increase the capacity of the bottleneck

When choosing between two models of an appliance, the cost of upgrades in the deluxe model is an example a ______ cost

incremental

Synonyms for differential costs include

incremental and avoidable

A joint product should be processed after split off if the

incremental revenue after split off exceeds the incremental processing cost after split off

as it applies to sell or process further decisions, which term refers to a product that is in the process of being made?

intermediate product

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

isolate relevant costs from irrelevant ones

When it is 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 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

Differential costs and benefits that should be considered a decision

may be qualitative or quantitive

Allocated common costs are

only relevant to decisions if they are avoidable

When making a decision only ________ costs and benefits should be included in the analysis

relevant

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

salvage value alternative uses for equipment

Deciding what to do with a joint product at the split off point is a _______ or _______ ________ decision

sell or process further decision

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

special

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

sunk cost

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

sunk costs and non differential future costs

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

the differential cost approach only

Opportunity costs are not found in accounting records because

they are not cash outlays. They are relevant to decisions though

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

total cost approach

Activities ranging from development to production to after sales service are called a

value chain

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

vertical integration

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

vertically integrated

When should a special order be accepted?

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

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

zero

To effectively deal with a constraint

-improvements should focus on the constraint -efforts should be focused on the weakest link

Isolating relevant costs is desirable because

-irrelevent 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

When selecting one alternative over another, opportunity costs

-represent forgone economic activity -are sometimes zero

An increase in cost between two alternatives is a

incremental

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

joint products

If, by dropping a product line, a company cannot avoid as much in fixed costs as it loses in CM, the company should _____ the product line

keep

Determining whether to carry out an activity in the value chain internally or use a supplier is a ____ decision

make or buy

Is 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

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 incurred after the split off point

revenue

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 demand for products exceeds the production capacity, a _______ _______-_______ decision must be made

volume trade off