Chapter 7

When a limited resource of some type restricts a company's ability to satisfy demand, the company has...

a constrained resource

A make or buy decision is..

a decision to carry out an activity internally or buy externally from a supplier

Incremental Analysis is...

a decision-making approach that compares the relevant costs and benefits of decision alternatives

Discontinuing a complementary product can have...

a negative effect on related products.

Advantages of dropping a division or other segment include..

an overall increase in net operating income avoiding more direct fixed costs than the company loses in contribution margin

When performing a keep-or-drop analysis..

common fixed costs should be excluded from the analysis

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

contribution margin per unit of constrained resource

Once you have identified a problem, the next step is to determine the possible solutions which are called..

decision alternatives

Irrelevant costs include..

future costs that do not differ between alternatives and sunk costs

Incremental analysis...

is also called differential analysis, may be referred to as relevant costing

Continue-or-discontinue decisions are commonly known as..

keep-or-drop decisions

Sales revenue minus all fixed and variable costs attributable to a particular division is..

segment margin

It is profitable to continue processing a product instead of selling as is when...

the incremental revenue exceeds the incremental manufacturing cost