ACCT 2813 Chapter 12
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.
The capacity of a bottleneck can be effectively increased by:
-focusing business process improvement efforts on the bottle neck. -subcontracting some of the processing that would be done in that area.
Which of the following may be an advantage of making a part rather than buying it?
-less dependence on outside suppliers. -a smoother flow of parts and materials for production.
Potential advantages of dropping product line or other segment includes:
an overall increase in net operating income and avoiding more fixed costs than the company loses in contribution margin.
The machine or process that is limiting overall output is a(n) ______________.
bottleneck
A company is considering buying a component part that they currently make. Which of the following items related to the equipment currently being used to make the component are relevant to the decision?
Salvage value and alternative uses for the equipment
Which of the following are ways in which to calculate the benefit of selecting one alternative over another?
-The difference between the net operating income for the two 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.
When considering accepting a special order:
-normal sales must not be affected. -there must be idle capacity.
________________ can make a product line look LESS profitable than it really is.
Allocating common fixed costs
When making a decision to either go to a movie or rent a DVD, the cost of the movie ticket is an example of what cost(s)?
Avoidable and Relevant Costs
When deciding whether to drive your car or take a train to a destination, the costs for your car insurance and driver's license are ____________ costs.
irrelevant
In order to prevent confusion and keep attention focused on critical information, it is desirable to _______________.
isolate relevant costs from irrelevant costs
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) _____________.
make or buy decision
A one-time sale that is not considered part of the company's normal ongoing business is referred to as a(n) ________________.
special-order decision
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
Irrelevant costs include:
sunk costs and future costs that do not differ between alternatives
When making a decision, only relevant items are included in the analysis of the alternatives when using __________________.
the differential cost approach only
When considering decision alternatives, both relevant and irrelevant costs are included when using the ___________.
total cost approach
A set of activities ranging from development to production to after-sales service is called the ____________.
value chain
What should NOT be included in the analysis when making a decision?
Non-differential future costs and sunk costs
When should a special order be accepted?
When the incremental revenue from the special order exceeds the incremental costs of the order.
A business segment should only be dropped if a company can avoid more in fixed costs than it gives up in ______________.
contribution margin
The reduction in reale value of an asset through use or over time is called _______________.
real or economic depreciation
When making a decision, only ___________ costs and benefits should be included in the analysis.
relevant
Less dependence on suppliers is an advantage of _______________.
vertical integration
When demand for products exceeds the production capacity, a(n) _______________ must be made.
volume trade-off decision
To increase the strength of a chain, efforts should be concentrating on strengthening the _____________________.
weakest link
______________ refers to a company that is involved in more than one activity in the value chain.
Vertical integration
When a manager increases the capacity of a(n) ________________ , it is called relaxing the constraint.
bottleneck
When dealing with a constrained resource, managers should focus their attention on managing the ______________.
bottleneck
Anything that prevents you from getting more of what you want is a(n) _____________.
constraint
The key to effective decision making is _____________.
differential analysis
When considering decision alternatives, only relevant costs are included when using the ___________________.
differential cost approach
When making a volume-trade off decision, managers should ignore _____________.
fixed costs
If some products must be cut back because of a constraint, produce the products with the _________________.
highest contribution margin per unit of constrained resources
When making a product line decision, a company may focus on lost contribution margin and avoidable fixed costs or prepare comparative _______________.
income statements
When there is a constrained resource, the best way to increase profits is to ________________.
increase the capacity of the bottleneck
The increase in cost between tow alternatives in a(n) ______________.
incremental cost
Space being used that would other wise be idle has a(n) ______________ of zero.
opportunity
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
The potential benefit given up when selecting one alternative over another is a(n) _________________.
opportunity cost
When planning trip and deciding whether to drive or fly, the ________________ is a sunk cost and should be ignored.
original cost of the car
Isolating relevant costs is desirable because:
-all information needed for the total cost approach is rarely available. -irrelevant costs may be used incorrectly in the analysis. -critical information may be overlooked with the total cost approach.
The first step in decision making is to _______________.
define the alternatives