Chapter 11

Question 1

the expected future data that differ among alternative courses of action

Answer 1

relevant information

Question 2

cost that can be eliminated as a result of choosing one alternative over another in a decision making situation

Answer 2

avoidable cost

Question 3

all costs are considered avoidable, except

Answer 3

sunk cost and future cost that do not differ the alternatives at hand

Question 4

expected future costs which differ between the decision alternatives

Answer 4

relevant costs

Question 5

never relevant in decisions because they are not avioidable and they must be eliminated from manager’s decision framework

Answer 5

sunk/historical cost

Question 6

depreciation relating to bv of old equipment is not relevant in decision making

Answer 6

true

Question 7

profits lost by the diversion of an input factor from one use to another

Answer 7

opportunity cost

Question 8

intermediate or near future cash outlay; relevant to decisions

Answer 8

out-of-pocket costs

Question 9

contrasts choices by comparing differential revenues, differential costs, and differential contribution margins.

Answer 9

incremental or differential analysis approach

Question 10

steps of incremeental or differential analysis approach

Answer 10

1. gather all costs associated with each alternative
2. drop sunk costs and non-differential costs
3. select the best alternative

Question 11

shows all the items of revenue and cost data (whether relevant or not) under the different alternatives and compares the net income results

Answer 11

total project analysis approach

Question 12

in a total project analysis approach, comparative income statements under this approach are prepared in a

Answer 12

contribution format

Question 13

types of decisions

Answer 13

1. make or buy
2. add or drop a product or other segments
3. sell now or process further
4. special sales pricing
5. utilization of scarce resources
6. shutdown or continue operations
7. pricing

Question 14

production level at which the cost of buying = cost of making it

Answer 14

point of indifference cost volume

Question 15

used to describe those manufacturing costs that are incurring is producing the joint products up to the split off point

Answer 15

joint product costs

Question 16

point in the manufacturing process at which joint product can be recognized as separate products

Answer 16

split-off point

Question 16

costs incurred after the split-off point for the benefit of only one particular product

Answer 16

separable costs

Question 17

always profitable to continue processing a joint product after the split-off so long as

Answer 17

incremental revenue from such processing > incremental processing costs

Question 18

a one time order that is not considered part of the company’s on going business

Answer 18

special order

Question 19

when capacity becomes pressed because of scarce resources, the firm is said to have

Answer 19

constraint

Question 20

important measure of profitability

Answer 20

contribution margin per unit of scarce resource used

Question 21

shutdown point formula

Answer 21

(fixed cost if operations are continued-shutdown costs)/contribution margin per unit

Question 22

cost plus pricing

Answer 22

cost + [ mark up % x cost ]

Question 23

cost base is defined as the cost to manufacture one unit and therefore excludes all selling general and administrative expenses

Answer 23

absorption approach

Question 24

cost base consists of all the variable costs associated with product including variable selling, general, and administrative expenses

Answer 24

contribution approach

Question 25

set marginal revenue equal marginal cost

Answer 25

contribution approach

Question 26

process of determining the maximum allowable cost for new product and then developing sample that can be profitably manufactured and distributed

Answer 26

target costing

Question 28

are irrelevant in decisions regarding what to do from the split off point forward because they have alresdy been incurred hence sunk cost

Answer 28

joint product cost