Accounting Module 6
Determining whether to carry out an activity in the value chain internally or use a supplier is a ______ decision.
Make or buy decision
avoidable cost
a cost that can be eliminnated by choosing one alternative over another.
sunk cost
a cost that has already been committed and cannot be recovered
Potential advantages of dropping a product line or other segment include
avoiding more fixed costs than the company loses in contribution margin and overall increase in net operating income
The machine or process that is limiting overall output is a
bottleneck
differential analysis
focusing on the future costs and benefits that differ between the alternatives
differential revenue
future revenue that differs between any two alternatives
Allocated commonfixed costs
makes a product line look less profitable than it really is
Joint costs incurred prior to the split-off point are Blank______ relevant in decisions regarding what to do from the split-off point forward.
never
when making a decision ___ costs & benefits should be included in the analysis
only relevant
Deciding what to do with a joint product at the split-off point is a(n)
sell, process, further
When demand for products exceeds the production capacity, a(n)
volumn trade off decision
The point in the manufacturing process at which joint products can be recognized as separate products is called the Blank______ point.
split off
A business segment should only be dropped if a company can avoid more in fixed costs than it gives up in
Contribution margin
A company must make a volume trade-off decision when they ______.
Do not have enough capacity to satisfy all product demand must trade off units of one product for units of another
total cost approach
considering both relevant and irrelevant cost
differential cost
a future cost that differs between any two alternatives. Differntail costs are always relevant costs.
One of the dangers in allocating common____ cosdts is that such allocations can make a product line look less profitable than it really is.
common fixed costs
irrelevant costs
future costs and benefits that do not differ between alternatives are ___ costs to the decision making process.
incremntal cost
is an increase in cost between two alternatives
When making a product line decision, a company may focus on lost contribution margin and avoidable fixed costs or prepare comparative
income statement
opportunity cost
The potential benefit given up when selecting one alternative over another
When a product is past the split-off point, but is not yet a finished product, it is called a(n)
intermediate
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
vertical integration
Being less dependent on suppliers and making profits on both parts and the final product
what are two anaylsis that should not be included in the decision making
sunk costs & Non-differential future costs
The first step in decision making is to
define the alternatives
What is the key to effective decision making?
differential analysis. Focusing on the future costs and benefits that differ between the alternatives.