Chapter 13
Some decisions have only one alternative and cannot consider steps in decision making.
False
When a constraint exists, managers can only increase profits by making the products with the highest contribution margin per unit of the constrained resource.
False
Which of the following involves increasing the capacity of a bottleneck?
Relaxing the constraint
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
A future cost that is not the same between any two alternatives is known as a(n) _______ incremental, or avoidable cost
differential
Focusing on future costs and benefits that are not the same between the choices is
differential analysis
The key to effective decision making is
differential analysis
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 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
In order to prevent confusion and keep attention focused on critical information, it is desirable to
isolate relevant costs from irrelevant costs
When making a decision _____ costs and benefits should to be included in the analysis.
only relevant
Differential revenue is an example of a(n) ____ benefit
relevant
Deciding what to do with a joint product at the split-off point is a ______ decision
sell or process further
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
Product ABC has a contribution margin per unit of $10.00. Each unit of ABC requires 5 minutes of machine time. Product XYZ has a contribution margin per unit of $15.00 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
ABC
Opportunity costs are not found in accounting records because they are not relevant to decisions.
False
Which of the following should not be included in the analysis when making a decision?
Sunk costs, Non-differential future costs
A cost that can be eliminated by choosing one alternative over another is a(n) _______ cost
avoidable
The step that limits total output because it has the smallest capacity is called a constraint or
bottleneck
The step that limits total output because it has the smallest capacity is the
bottleneck
A limited resource of some type that restricts the company's ability to satisfy demand is a(n)
constraint
Anything that prevents you from getting more of what you want is a(n)
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
Isolating relevant costs is desirable because
critical information may be overlooked with the total cost approach all information needed for the total cost approach is rarely available irrelevant costs may be used incorrectly in the analysis
The product line manager's $60,000 salary is avoidable as is the $20,000 of advertising. Of the administrative expenses, $10,000 is avoidable. The rest are general allocated expenses that will not change if the product is dropped. The rent expense is allocated to product lines based on sales and represents a share of the total cost for the building. If this product line is dropped overall net operating income will
decrease by $34,000
The first step in decision making is to
define the alternatives
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
Stephens, Inc. is considering dropping a product line. During the prior year, the line had sales of $170,000, variable costs of $86,000 and total fixed expenses of $110,000. Of the fixed expenses, $95,000 are avoidable. If Stephens drops the product line, net operating income will
increase by $11,000
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
Two or more products that are produced from a common input are known as ______ products
joint
Two or more products produced from a common input are called
joint products
When a constraint exists, companies need to focus on identifying the
product mix that maximizes total contribution margin
When a manager increases the capacity of the bottleneck, it is called _____or elevating the constraint.
relaxing
The point in the manufacturing process at which joint products can be recognized as separate products is called the ____ point
split-off
Costs that have already been incurred and cannot be avoided regardless of what a manager decides to do are ____ costs
sunk
Costs that have no impact on future cash flows and are irrelevant to decisions are _____ costs
sunk
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 making a decision, irrelevant items are included in the analysis of both alternatives when using
the total cost approach only
When considering decision alternatives, both relevant and irrelevant costs are included when using the ______ cost approach
total
Less dependence on suppliers is an advantage of
vertical integration
When a resource, such as space in the factory, has no alternative use, its opportunity cost is
zero
Product ABC has a contribution margin per unit of $10.00. Each unit of ABC requires 5 minutes of machine time and 10 minutes of labor time. Product XYZ has a contribution margin per unit of $15.00 and each unit requires 10 minutes of machine time and 5 minutes of labor time. If the company's constraint is labor time, the contribution margin per unit of constraint for Product XYZ is $ ______ per minute
3
Which of the following may be advantages of making a part rather than buying it (i.e. vertical integration)?
A smoother flow of parts and materials for production., Less dependence on outside suppliers.
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
When making a volume-trade off decision, managers should ignore
fixed costs
Future costs and benefits that do not differ between alternatives are _____costs to the decision-making process.
irrelevant
The split-off point is the point in the manufacturing process at which the _____products can be recognized as separate products.
joint
The potential benefit given up when selecting one alternative over another is a(n) _____ cost
opportunitiy
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
sourcing
A decision to carry out one of the activities in the value chain internally, rather than to purchase externally from a supplier, is called a(n) _____ decision
sourcing
A company is considering buying a component part that they currently make using some existing equipment. Relevant costs to this sourcing decision include
variable overhead, outside purchase price
Being less dependent on suppliers and making profits on both parts and the final product are advantages of
vertical integration
When demand for products exceeds the production capacity, a(n) _____ ____ ____ decision must be made
volume trade off
When a product is past the split-off point, but is not yet a finished product, it is called a(n) ______ product
intermediate
