Managerial final

When should a special order be accepted?

When the incremental revenue from the special order exceeds the incremental costs of the order

a business segment should only be dropped if

a company can save more in fixed costs that it loses in contribution margin

The machine process that is limiting overall output is a

bottleneck

a 12 month budget that rolls forward one month (or quarter) as the current month (or quarter) is completed

continuous or perpetual budget

Ways to increase capacity of bottleneck

investing in additional machines at the bottleneck, shifting workers from the processes that isn't bottlenecks to the process that is the bottleneck

possible advantages of making a product 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 of the activities in the value chain internally rather than buy externally from a supplier

make or buy decision

The best way to handle a constrained resource is to

maximize the capacity of the bottleneck

to maximize total contribution margin when a constrained resource exists

produce the products with the highest contribution margin per unit of the constrained resource

important chart (order of budgets)

sales budget->selling and admin expense budget production budget-><-ending inventory budget DM DL MOH Cash budget Budgeted income statement Budgeted balance sheet

contribution margin per unit=

selling price per unit-variable cost per unit