Smartbook 6
True or false: Some decisions only have one alternative.
False
A cost that can be eliminated by choosing one alternative over another is a(n) ___ cost.
avoidable
A cost that can be eliminated in whole or in part by choosing one alternative over another is a(n) ______ cost.
avoidable
When making a volume-trade off decision, managers should ignore:
fixed costs
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
Future costs and benefits that do not differ between alternatives are ______ costs to the decision-making process.
irrelevant
A decision to carry out one of the activities in the value chain internally, rather than to buy externally from a supplier, is called a(n) ___ or ___ decision.
make buy
Differential costs and benefits that should be considered in a decision:
may be qualitative or quantitative
If a company is using a resource that could be used for some other purpose, the opportunity cost of that resource is:
profit from best alternative
Differential revenue is an example of a(n) ______ benefit.
relevant
A one-time order that is not considered part of the company's normal ongoing business is a _______ order.
special
A one-time sale that is not considered part of the company's normal ongoing business is referred to as a(n) ___ ___ decision.
special order
A cost that has already been incurred and cannot be avoided regardless of what a manager decides to do is referred to as a(n) ___ cost.
sunk
If some products must be cut back because of a constraint, produce the products with the highest:
contribution margin per unit of constrained resource
Focusing on future costs and benefits that are not the same between alternatives is:
differential analysis
Which of the following should not be included in the analysis when making a decision?
Non-differential future costs Sunk costs
The first step in decision making is to:
define the alternatives
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 planning a trip and making a decision to drive or take the train, the cost of car repairs and maintenance is a(n) _________ cost.
relevant
A limited resource of some type that restricts the company's ability to satisfy demand is a(n)
constraint
Costs and benefits that should be ignored when making decisions are called ______ costs and benefits.
irrelevant
A decision to carry out one of the activities in the value chain internally rather than to buy externally from a supplier is a ________ decision.
make or buy
Space being used that would otherwise be idle has a(n) ___ cost of zero.
relevant
When making a decision only ______ costs and benefits should to be included in the analysis.
relevant
When a constraint exists, companies need to focus on maximizing
total contribution margin
Determining whether to carry out an activity in the value chain internally or use a supplier is a ________ decision.
make or buy
Synonyms for differential costs include ______ cost.
incremental avoidable
When considering accepting a special order:
normal sales must not be affected there must be idle capacity
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
When making a decision, qualitative differences between alternatives _______ be ignored.
should not
When should a special order be accepted?
When the incremental revenue from the special order exceeds the incremental costs of the order
The key to effective decision making is:
differential analysis
A future cost that is not the same between any two alternatives is known as a(n) ___ , Unavailable, incremental, or avoidable cost.
differential
When demand for products exceeds the production capacity, a ___ ___ - ___ decision must be made.
Blank 1: volume Blank 2: trade Blank 3: 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: Cost Per Unit Total Variable manufacturing cost $12 $240,000 Supervisor salary $3 $60,000 Depreciation $1 $20,000 Allocated fixed overhead $7 $140,000 If the part is purchased, the supervisor position would be eliminated. The special equipment has no other use and no salvage value. Total allocated fixed overhead would be unaffected by the decision. Should the company buy the part or continue to make it?
Continue to make — $60,000 advantage. 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 X 20,000 units).
True or false: Depreciation of existing assets is relevant to decisions.
False
A company must make a volume trade-off decision when they
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
