Chapter 11

Synonyms for differential costs include ______ cost.

-incremental -avoidable

Deciding what to do with a joint product at the split-off point is a ______ decision.

sell or process further

A cost that can be eliminated in whole or in part by choosing one alternative over another is a(n) ______ cost.

avoidable

When planning a road trip, the ______ is a sunk cost and should be ignored.

original cost of the car

If a company is using a resource that could be used for some other purpose, the opportunity cost of that resource is

the segment margin from the best alternative use of the resource

When considering decision alternatives, both relevant and irrelevant costs are included when using the ______ cost approach

total

Irrelevant costs include

-future costs that do not differ between alternatives -sunk costs

When making a decision to either buy a movie ticket or rent a DVD, the cost of the movie ticket is an example of a(n) ______ cost.

-incremental -avoidable

Two or more products produced from a common input are called

joint products

The first step in decision making is to

define the alternatives

When making a product line decision, a company may focus on lost contribution margin and avoidable fixed costs or prepare comparative _____ _____ showing the effects of either keeping or dropping the product line.

income statement

When making a product line decision, a company may focus on lost contribution margin and avoidable fixed costs or prepare comparative ______ ______ showing the effects of either keeping or dropping the product line.

income statement

When planning a trip and deciding to drive your car or take the train, gasoline is a(n) ______ cost.

relevant

When making a decision, irrelevant items are included in the analysis of both alternatives when using

the total cost approach only

Being less dependent on suppliers and realizing profits from the parts and materials that it is "making" rather than "buying," as well as profits from its regular operations, are advantages of

vertical integration

Which of the following can make a product line look less profitable than it really is?

Allocated common fixed costs

When deciding whether to fly or take the train on a trip, the cost of putting your pet in a boarding facility while you are away is a(n) ______ cost.

irrelevant

In order to prevent confusion and keep attention focused on critical information, it is desirable to

isolate relevant costs from irrelevant costs

Costs and benefits that always differ between alternatives are ______ costs and benefits.

relevant

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 called a ______ order.

special

Future costs and benefits that do not differ between alternatives are ______ costs to the decision-making process.

irrelevant

The costs provided by a well-designed activity-based costing system are ______ relevant to a decision.

potentially

True or false: Mingling irrelevant and relevant costs may cause confusion and distract attention from critical information.

True

Costs that have no impact on future cash flows and are irrelevant to decisions are _____ costs.

sunk

The split-off point is the point in the manufacturing process at which the _____ products can be recognized as separate products

joint

If, by dropping a product line, a company cannot avoid as much in fixed costs as it loses in contribution margin, the company should ______ the product line.

keep

A decision to carry out one of the activities in the value chain internally rather than to purchase externally from a supplier is a ______ decision.

make or buy

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

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

A future cost that is not the same between any two alternatives is known as a(n) _____, incremental, or avoidable costs.

differential

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

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 making a product line decision, a company may focus on lost contribution margin and avoidable fixed costs or prepare comparative

income statements

If a cost is traced to a segment using activity-based costing, it______ an avoidable cost of the segment.

may or may not be

The potential benefit given up when selecting one alternative over another is a(n) ______ cost.

opportunity

If the part is purchased, the supervisor position will be eliminated. The special equipment has no other use and no salvage value. Total allocated fixed overhead would be unaffected by the decision. The company should

continue to make the part — $60,000 advantage

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

Which of the following should not be included in the analysis when making a decision?

-Sunk costs -Non-differential future costs

When a resource, such as space in the factory, has no alternative use, its opportunity cost is

zero

True or false: The accounting depreciation of an existing asset is relevant to decisions.

True

When a product is past the split-off point, but is not yet a finished product, it is called

intermediate

A company is considering buying a component part that they currently make. Items related to the equipment being used to make the component that are relevant to this decision include

-salvage value -alternative uses for the equipment

A business segment should only be dropped if a company can avoid more in fixed costs than it gives up in

contribution margin

When there is a constrained resource, the best way to increase profits is to

increase the capacity of the bottleneck

Costs and benefits that should be ignored when making decisions are called _____ costs and benefits

irrelevant

The costs incurred up to the split-off point in a process in which two or more products are produced from a common input are known as _____ costs.

joint

Determining whether to carry out an activity in the value chain internally or use a supplier is a ______ decision.

make or buy

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

Opportunity costs are not found in accounting records because they are not relevant to decisions.

False

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

In the context of decision making, every decision involves choosing from among at least two alternatives.

True

True or false: Effectively managing an organization's constraints is a key to increased profits.

True

Anything that prevents you from getting more of what you want is a(n)

constraint

When a shortage or limited resource of some type restricts a company's ability to satisfy demand, the company has a(n)

constraint

When a constraint exists, companies need to focus on maximizing

contribution margin per unit of constraint

If some products must be cut back because of a constraint, produce the products with the highest

contribution margin per unit of constrained resource

When demand for products exceeds the production capacity, a(n) _____ _____-_____ decision must be made.

volume trade-off