ACCT 2120 chapter 12
synonyms for differential costs
-avoidable -incremental
irrelevent costs include
-future costs that do not differ between alternatives -sunk costs
average costs:
-often misleading -contain sunk costs
potential advantages of dropping a product line or segment include
-overall increase in NOI -avoiding more fixed costs that the company loses in CM
what kind of costs are not included in analysis when making decisions
-sunk costs -non-differential future costs
when considering accepting a special order
-there must be ideal capacity -normal sales must not be effected
how to increase the capacity of a bottleneck
-working overtime on the bottleneck -subcontracting some of the processes -investing in additional machines -focusing improvement efforts on the bottleneck
a cost that can eliminated by choosing one alternative over another
avoidable cost
total cost approach
both relevant and irrelevant costs are included
only relevant costs are included when using the ___ _____ approach
differential cost
advantage of buying a part instead of making it
economies of scale can result in higher quality and lower costs from suppliers
true or false, some decisions only have one alternative
false
true or false: depreciation of existing assets is relevant to decision making
false: depreciation is a sunk cost and is not relevant
when making a volume trade off decision, managers should ignore:
fixed costs
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 a product is past the split off point but is not yet a finished product it is...
intermediate
two or more products that are produced in common input are known as...
joint products
a one time sale that is not part of a companys normal ongoing business
special order decision
what is split off point
the point in the manufacturing process where each joint product can be recognized as a separate product
When a company is involved in more than one activity in the entire value chain, it is
vertically integrated
