Managerial Accounting SmartBook ch 13

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?

- Non-differential future costs - Sunk costs

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?

- alternative uses for the equipment - salvage value

Potential advantages of dropping a product line or other segment include:

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

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

1. income 2. statement

Being less dependent on suppliers and making profits on both parts and the final product are advantages of _____ _____.

1. vertical 2. integration

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

1. volume 2. trade 3. off

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

An increase in cost between two alternatives is a(n) _____ cost.

incremental

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

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 buy externally from a supplier is a ______ decision.

make or buy

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

make or buy

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

opportunity

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

opportunity

When planning a trip and deciding whether to drive or fly, the ______ is a sunk cost and should be ignored.

original cost of the car

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

profits

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

relevant

Differential revenue is an example of a(n) ______ benefit.

relevant

When making a decision only ______ costs and benefits should to be included in the analysis.

relevant

A one-time order that is not considered part of the company's normal ongoing business is called a ______ order.

special

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

Costs that have already been incurred and cannot be avoided regardless of what a manager decides to do are ______ costs.

sunk

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

the total cost approach only

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

true

Less dependence on suppliers is an advantage of ______.

vertical integration

Isolating relevant costs is desirable because ______.

- managers prefer to see all costs and benefits associated with a decision - critical information may be overlooked with the total cost approach - irrelevant costs may be used incorrectly in the analysis

A company must make a volume trade-off decision when they ______.

- must trade off units of one product for units of another due to limited production capacity - do not have enough capacity to satisfy the demand for all of its products

A one-time sale that is not considered part of the company's normal ongoing business is referred to as a(n) _____ _____ decision.

1. special 2. order

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

1. total 2. cost

True or false: Opportunity costs are not found in accounting records because they are not relevant to decisions.

false

True or false: Some decisions only have one alternative.

false

A business segment should only be dropped if a company can save more in ______ costs than it loses in contribution margin.

fixed

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

When making a volume-trade off decision, managers should ignore ______.

fixed costs

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

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 profit from the best alternative use of the resource

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

Allocated common fixed costs

Andrews Co. can purchase 20,000 units of Part XYZ from a supplier for $18 per part. Andrews' per unit manufacturing costs for 20,000 units is ______. Cost Per Unit Total Variable manufacturing cost $12 $240,000 Supervisor salary $3 $60,000 Depreciation $1 $20,000 Allocated fixed overhead $7 $140,000 If the part is purchased, the supervisor position would be eliminated. The special equipment has no other use and no salvage value. Total allocated fixed overhead would be unaffected by the decision. Should the company buy the part or continue to make it?

continue to make — $60,000 advantage.

When a constraint exists, companies need to focus on maximizing ______.

contribution margin per unit of constraint

The first step in decision making is to ______.

define the alternatives

True or false: Depreciation of existing assets is relevant to decisions.

false