SB Ch 06

differential cost

a difference in cost between two alternatives

When deciding whether to fly or take the train on a trip, the cost of putting your pet in a boarding facility while you are away is a(n) ______ cost. Multiple choice question. a.sunk b.relevant c.irrelevant

c

segment margin

contribution margin-traceable fixed costs

constraint

limitation or restriction

3 Steps to decision making:

1. Define the alternatives 2. Identify relevant costs and benefits 3. Perform a differential analysis

bottleneck

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

Relaxing (or elevating) the constraint

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

Direct (traceable) cost

Can be traced to a particular product, service or department

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

False

If some products must be cut back because of a constraint, produce the products with the highest: Multiple choice question. a. contribution margin per unit of constrained resource b. net operating income per unit c. contribution margin per unit of product

a

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

a and b

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(n) ______ cost. Multiple select question. a.sunk b.incremental c.avoidable d.irrelevant

b, c

Differential revenue is an example of a(n) ______ benefit. Multiple choice question. a.sunk b.avoidable c.relevant d.irrelevant

c

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

c

The key to effective decision making is: Multiple choice question. a.knowing there are at least two alternatives b.considering opportunity costs c.differential analysis

c

To maximize total contribution margin when a constrained resource exists, produce the products with the: Multiple choice question. a. lowest contribution margin per unit of the constrained resource b. highest unit contribution margin c. highest contribution margin per unit of the constrained resource d. lowest unit contribution margin

c

______ margin is best for short-term ______ margin is best for long-run

contribution margin segment margin

Focusing on future costs and benefits that are not the same between alternatives is: Multiple choice question. a.irrelevant cost analysis b.the total cost approach c.defining the alternatives d.differential analysis

d

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

income statements

An increase in cost between two alternatives is a(n) _______ cost

incremental

is there opportunity cost when units of idle capacity > units in the special order

no

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.

opportunity

gross margin

revenues-cost of goods sold

contribution margin

revenues-variable costs

split-off point

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

differential revenue

the difference in revenue between two alternatives

opportunity cost

the most desirable alternative given up as the result of a decision

relevant costs

those costs and revenues that differ across alternatives

joint products

two or more products that are produced from a common input

vertically integrated

when a company is involved in more than one activity in the entire value chain

True or false: Some decisions only have one alternative.

False

indirect (shared) cost

Part of the overall operation

When making a decision, qualitative differences between alternatives _______ be ignored. Multiple choice question. a.should not b.should c.may or may not

a

relevant benefit

a benefit that should be considered when making decisions

make or buy decision

a decision concerning whether an item should be produced internally or purchased from an outside supplier

special order

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

When considering accepting a special order: Multiple select question. a.there must be idle capacity b.normal sales must not be affected c.opportunity costs should never be considered d.incremental revenue should equal increment cost

a,b

Space being used that would otherwise be idle has a(n) ______ cost of zero

avoidable

joint costs

costs that are shared in the manufacturing and marketing of several products in a product line

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

special(ty) order

When demand for products exceeds the production capacity, a __________ ________ ________ decision must be made

volume trade off

avoidable cost

a cost that can be eliminated by choosing one alternative over another

sunk cost

a cost that has already been committed and cannot be recovered

segment

any part of an organization or any activity in an organization that a manager seeks cost, revenue, or profit data

is there opportunity cost when units of idle capacity < units in the special order

yes

sell or process further decision

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

incremental cost

an increase in cost between two alternatives

When a constraint exists, companies need to focus on maximizing Multiple choice question. a. contribution margin per unit b. net income from sales c. total contribution margin d. net sales

c