Managerial Acct- pre chapter 11: Differential Analysis: The Key to Decision Making

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

volume trade-off

salvage value

the estimated value of a fixed asset at the end of its useful life

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

zero

Differential

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

relevant

Costs and benefits that always differ between alternatives are ______ costs and benefits. When making a decision only ______ costs and benefits should to be included in the analysis.

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

allocated common fixed costs

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

false, Reason: Depreciation spreads sunk costs across the life of the assets and is not relevant.

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

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

make or buy

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

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

profits

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

special

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

total cost

When a product is past the split-off point, but is not yet a finished product, it is called a(n) ___ ___. 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

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

constraint

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

income statements

What type of cost is never relevant and should be disregarded when making decisions?

sunk

sunk

Costs that have already been incurred and can not be changed by decisions made in the current period or in future periods are called ____ costs.

True or false: Some decisions only have one alternative.

Every decision involves choosing from at least two alternatives, even if the alternatives are yes or no.

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 ______.

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

Irrelevant costs include ______.

future costs that do not differ between alternatives sunk costs

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

may or may not be Reason: Costs that are traced to a segment are not always avoidable. For example, depreciation on equipment may be easily traced to a segment, but may not be an avoidable cost.

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

Synonyms for differential costs include ______ cost.

avoidable incremental

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 as follows: Variable manufacturing cost- $12 p/u total: $240,000 Supervisor salary- $3 p/u total: $60,000 Depreciation- $1 p/u total: $20,000 Allocated fixed overhead- $7 p/u total: $140,000 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 reason: Depreciation is not a relevant cost. The avoidable costs of making the product are= (the variable costs plus the supervisor salary) or $15 per unit. The total savings is $60,000 ($18 buy price - $12 variable cost - $3 supervisor salary = $3 advantage to make X 20,000 units).

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

contribution margin per unit of constraint

Isolating relevant costs is desirable because ______. STUDY!

irrelevant costs may be used incorrectly in the analysis. all information needed for the total cost approach is rarely available. critical information may be overlooked with the total cost approach.

Two or more products that are produced from a common input are known as _____ products.

joint

Variable

may or may not differ between alternatives.

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

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

potentially

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

vertical integration