ch8 vocab Flashcards
avoidable fixed costs
fixed costs that can be eliminated as a result taking a particular course of action
constraint
a factor that restricts production or sale of a product
contract manufacturers
manufactures who make products for other companies, not for themselves
cost-plus pricing
an approach to pricing used by price-setters; cost-plus pricing begins with the product’s total costs and adds the company’s desired profit to determine a cost-plus price
offshoring
having work preformed overseas. Offshored work can either be performed by the company itself or by outsourcing the work to another country
opportunity cost
the benefit forgone by choosing a particular alternative course of action
outsourcing
a make-or-buy decision: Managers decide whether to buy a product or service or produce it in-house
product line income statement
an income statement that shows the operating income of each product line, as well as the company as a whole
relevant information
expected future data that differs among alternatives
segment margin
the income resulting from subtracting only the direct fixed costs of a product line from its contribution margin. The segment margin contains no allocation of common fixed costs
segment margin income statement
a product line income statement that contains no allocation of common fixed costs. Only direct fixed costs that can be traced to specific product lines are subtracted from the product line’s contribution margin. All common fixed costs remain unallocated, and are shown only under the company total
sunk cost
a past cost that cannot be changed regardless of which future action is taken
target costing
an approach to pricing used by price-takers; target costing begins with the revenue at market price and subtracts the company’s desired profit to arrive at the target total costs
unavoidable fixed costs
fixed costs that will continue to be incurred even if a particular course of action is taken
