Chapter 12

Effectively managing an organization's constraints is a key to increased:

Profits

Differential revenue is an example of a ______ benefit

Relevant

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

Sell or process further

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

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 _____ or _____ decision.

Make/buy

If a cost is traced to a segment using activity based costing it:

May or may not be an avoidable cost of the segment

When a manager increases the capacity of constraint or ______ it is called relaxing the constraint

Bottleneck

A limited resource of some type that restricts the company's ability to satisfy demand is a _____

Constraint

An increase in cost between two alternatives is a ______ cost

Incremental

A one-time sale that is not considered part of the company's normal ongoing business is referred to as a _______ _______ decision

Special order

Which of the following should not be included in the analysis when making a decision? Sunk costs Opportunity costs Non-differential future costs Avoidable costs

Sunk costs Non-differential future costs

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

The total cost approach only

A set of activities ranging from development to production to after-sales service is called

The value chain

When considering accepting a special order

There must be idle capacity Normal sales must not be affected

Two or more products produced from a common input are called

joint products

Space being used that would otherwise be idle has a(n) __________ cost of zero.

opportunity

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 a company is involved in more than one activity in the entire value chain, it is

Vertically integrated

When the demand for products exceeds the production capacity, a ____ _____ _____ decision must be made

Volume trade off

When a constraint exists, companies need to focus on maximizing

contribution margin per unit of the constraint

The first step in decision making is to:

Define the alternatives

Synonyms for differential costs include

Avoidable and Incremental costs

The key to effective decision making is

Differential analysis

When considering decision alternatives, only relevant costs are included when using the

Differential cost

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 products for units of another due to limited production capacity

T/F: Depreciation of existing assets is relevant to decisions

False

T/F: Opportunity costs are not found in accounting records because they are not relevant to decisions

False

The capacity of a bottleneck can be effectively increased by:

-subcontracting some of the processing that would be done in that area. -focusing business process improvement efforts on the bottleneck

Joint costs are incurred prior to the split-off point ______ relevant in decisions regarding what to do from the split-off point forward

Are not

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 ______ cost

Avoidable and incremental

To effectively deal with a constraint:

Improvements should focus on the constraint Efforts should be focused on the weakest link

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 ______ cost

Irrelevant

Joint costs are

Irrelevant in decisions regarding what to do with a product after split-off

Costs incurred up to the split-off point in a process in which two or more products are produced from a common input are called ______ costs

Joint

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

Deciding to what to do with a joint product at the split-off point is a:

Sell or process further decision

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

Sunk

T/F: Mingling irrelevant costs may cause confusion and distract attention from critical information

True

The machine or process that is limiting overall output is called

bottleneck

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

It is profitable to continue processing a joint product after the split-off point so long as ...

the incremental revenue from such processing exceeds the incremental processing costs incurred after the split-off point