Ch 10 Flashcards
What is differential analysis?
The key to making comparisons that focus on the costs and benefits between alternatives
What are relevant costs?
Costs that differ between alternatives
True or false: Only those costs and benefits that differ in total between alternatives are relevant in a decision
True
What is an avoidable cost?
A cost that can be eliminated by choosing one alternative over another
True or false: Managers use the same cost factors for different purposes in order to accurately compare alternatives
False. Managers need different costs for different purposes
What is a value chain?
All activities, from development, production, to sales
What does it mean when a company is said to be vertically integrated?
When a company is involved in more than one activity in the entire value chain
What does it mean when a company is said to be vertically integrated?
When a company is involved in more than one activity in the entire value chain
What is a make or buy decision?
A decision to carry out one of the activities in the value chain internally, rather than buy externally from a supplier
True or false: Idle space that has no alternative use has an opportunity cost of zero
True
True or false: If a space has another use for an alternative, the opportunity cost is equal to the sales of the product that could be produced
False. The opportunity cost is equal to the segment margin of the alternative produced product
What is a special order?
A one-time order that is not considered part of the company’s normal ongoing business
True or false: When considering special orders, managers must keep in mind idle capacity
True
What is a constraint?
When a limited resource of some type restricts the company’s ability to satisfy demand
What is a constraint?
When a limited resource of some type restricts the company’s ability to satisfy demand
