Managerial Accounting Chapter 12

False

(T/F) Allocation of joint product costs is needed for decision making.

Avoidable Cost

A cost that can be eliminated by choosing one alternative over another in a decision.

Sell or Process Further

A decision as to whether a joint product should be sold at the split-off point or sold after further processing.

Special Order

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

Intermediate Product

A product that is past the split off point, but is not yet a finished product.

Relaxing the constraint

An action that increases the amount of a constrained resource. Equivalently, an action that increases the capacity of the bottleneck.

Sunk Cost

Any cost that has been incurred already and cannot be changed.

Joint Products

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

True

(T/F) Improper allocation of joint costs can lead to incorrect decisions.

True

(T/F) Allocation of Joint costs is needed for inventory valuation.

True

(T/F) Joint costs are common costs that are incurred to produce two or more products.

Relevant benefit

A benefit that differs between alternatives in a decision.

Make or Buy Decsions

A decision concerning whether an item should be produced internally or bought.

Differential Cost (Relevant Cost)

A difference in cost between two alternatives.

Differential Revenue

A difference in revenue between any two alternatives.

Constraint

A limitation under which a company must operate, such as limited available machine time.

Bottleneck

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

Joint Costs

Costs that are incurred up to the split-off point in in a process that products join products.

Linear Programming

If a company has more than one potential constraint, the proper combination of products can be found using.

Keep the line

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

Split off point

That point in the manufacturing process where some or all of the joint products can be recognized as individual products.

Vertical Integration

The involvement by a company in more than one of the activities in the entire value chain.

Opportunity Cost

The potential benefit that is given up when one alternative is selected over another.