Acct 202 Exam 2
Product ABC has a contribution margin per unit of $10. Each unit of ABC requires 5 minutes of machine time. Product XYZ has a contribution margin per unit of $15 and each unit requires 10 minutes of machine time. If the company's constraint is machine hours, to maximize profit, they should first fill the demand for: Product XYZ Product ABC
Product ABC
Which of the following are ways in which to calculate the benefit of selecting one alternative over another? The difference b/w the net operating income for the 2 alternatives. An analysis that looks at just the sunk costs of each of 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.
The difference b/w the 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 differ
A cost that can be eliminated by choosing one alternative over another is a(n) _________ cost.
Avoidable
T or F: Opportunity costs are not found in accounting records because they are not relevant to decisions.
False
What 2 things do you need to figure out what the highest price you would pay for an additional pound of materials?
Highest contribution margin of all the products plus direct materials.
Costs that are relevant in a given decision situation: Will never be relevant in another decision situation. May not be relevant in another decision situation. Will be relevant in all decision situations.
May not be relevant in another decision situation.
T or F: Mingling irrelevant and relevant costs may cause confusion and distract attention from critical info.
True
T or F: Only future costs that differ b/w alternatives are relevant in decision making.
True
Which term refers to a company that is involved in more than one activity in the value chain? Non-integrated value chain Horizontal integration Integrated value chain Vertical Integration
Vertical Integration
When should a special order be accepted? Almost always, because it means more business and income, and will keep the employees productive. When the incremental revenue from the special order exceeds the incremental costs of the order. When the incremental costs from the special order exceeds the incremental revenue of the order.
When the incremental revenue from the special order exceeds the incremental costs of the order.
A(n) _______ requires a manager to decide which products or services should be cut back.
bottleneck
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 sunk irrelevant opportunity
relevant
Effectively managing an organization's constraints is a key to increased: products employees costs profits
profits
The best way to handle a constrained resource is to _____ the capacity of the bottleneck.
relax
When making a decision to drive or take the train on a trip, the cost of the train ticket is a: relevant cost irrelevant cost unavoidable cost sunk cost
relevant cost
A one-time order that is not considered part of the company's normal ongoing business is a ______ order. special supplier relevant standard
special
Costs that have already been incurred and cannot be avoided regardless of what a manager decides to do are ________ costs. sunk differential relevant avoidable
sunk
When making decisions, managers should ignore __________ costs.
sunk
A set of activities ranging from development to production to after-sales service is called: the value chain vertical intergration a marketing strategy
the value chain
All activities from development to production to after-sales service are called______
value chain
When a company is involved in more than one activity in the entire value chain it is______.
vertically integrated
When a resource, such as space in a factory, has no alternative use, its opportunity cost is: negative infinite zero not determinable
zero
Which of the following are ways to increase the capacity of a bottle neck: Pick all that apply Selling some of the machines at the bottle neck Shifting workers from processes that are not bottlenecks to the process that is the bottleneck Investing in additional machines at the bottleneck Not spending any overtime hours on the bottleneck
Shifting workers from processes that are not bottlenecks to the process that is the bottleneck Investing in additional machines at the bottleneck
Potential advantages of dropping a product or other segment include: Pick all that apply. increasing relevant costs that the company incurs an overall decrease in other product line sales an overall increase in bet operating income avoiding more fixed costs than the company loses in contribution margin
an overall increase in bet operating income avoiding more fixed costs than the company loses in contribution margin
Managers may choose to retain an unprofitable product line because it: Pick all that apply attracts customers is an alternative to a profitable one helps sell other products
attracts customers helps sell other products
A cost that can be eliminated in whole or in part by choosing one alternative over another is a(n) _______ cost. irrelevant sunk avoidable incremental
avoidable
The machine or process that is limiting overall output is called a(n) ________.
bottleneck
If dropping a product line enables a company to avoid more in __________ costs than is loses in contribution margin, then its overall net operating income would improve by eliminating the product line.
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
To maximize total contribution margin when a constrained resource exists, produce the products with the: lowest contribution margin per unit of the constrained resource highest contribution margin per unit of the constrained resource lowest unit contribution margin highest contribution margin
highest contribution margin per unit of the constrained resource
When deciding whether to drive your care or take the train to a destination, the costs for your car insurance and driver's license are: irrelevant costs relevant costs avoidable costs
irrelevant costs
Determining whether to carry out an activity in the value chain internally or use a supplier is a ______ decision. special order product line make or buy utilization of a constrained resource
make or buy
Any final decision to drop or add a business segment is going to hinge primarily on the impact the decision will have on net _____ _____.
operating income
Which of the following should be included in the analysis when making a decision? Opportunity costs Avoidable costs Sunk costs Relevant costs Future costs that don't differ b/w alternatives Differential costs
Opportunity costs Avoidable costs Relevant costs Differential costs
When making a product line decision, a company may focus on lost ________ __________ and avoidable fixed costs or prepare comparative income statements.
contribution margin
If some products must be cut back b/c of a constraint, produce the products w/ the highest: contribution margin per unit of product. net operating income per unit. contribution margin per unit of constrained resource.
contribution margin per unit of constrained resource.
When a constraint exists, companies need to focus on maximizing: contribution margin per unit of constraint net income from sales net sales contribution margin per unit
contribution margin per unit of constraint