Chapter 12 theory

Question 1

Avoidable Cost

Answer 1

A cost that can be eliminated by choosing one alternative over another in a decision. (Relevant Cost) (Also called differential costs)

Question 2

Sunk Cost

Answer 2

A cost that has already been incurred and that cannot be changed by any decision made now or in the future (NEVER RELEVANT) .

Question 3

Future Cost

Answer 3

A cost that is not relevant and would be incurred regardless of what you decide. EX. deciding between two different office buildings. Lightbulbs are needed for either building so its a future cost that is not relevant

Question 4

Opportunity Cost

Answer 4

The potential benefit that is given up when one alternative is selected over another.

Question 5

Vertical Integration

Answer 5

The involvement by a company in more than one of the activities in the entire value chain from development through production, distribution, sales, and after-sales service

Question 6

Make or buy decision

Answer 6

A decision concerning whether an item should be produced internally or purchased from an outside supplier

Question 7

Advantages of vertical integration

Answer 7

An integrated company is less dependent on its suppliers and may be able to ensure a smoother flow of parts and materials for production than a nonintegrated company.

Also, some companies feel that they can control quality better by producing their own parts and materials, rather than by relying on the quality control standards of outside suppliers

Question 8

Advantages of external suppliers

Answer 8

By pooling demand from a number of companies, a supplier may be able to enjoy economies of scale. which results in higher quality and lower costs than would be possible if the company were to attempt to make the parts or provide the service on its own.

Question 9

Is opportunity cost shown in the ledger?

Answer 9

No

Question 10

special orders

Answer 10

A one-time order that is not considered part of the company’s normal ongoing business.

Question 11

constraint

Answer 11

A limitation under which a company must operate, such as limited available machine time or raw materials, that restricts the company’s ability to satisfy demand.

Question 12

Bottleneck

Answer 12

A machine or some other part of a process that limits the total output of the entire system

Question 13

Relaxing (or elevating) the constraint

Answer 13

An action that increases the amount of a constrained resource. Equivalently, an action that increases the capacity of the bottleneck.

Question 14

Ways capacities of a bottleneck can be improved #1

Answer 14

Working overtime on the bottleneck

Question 15

Ways capacities of a bottleneck can be improved #2

Answer 15

Subcontracting some of the processing that would be done at the bottleneck.

Question 16

Ways capacities of a bottleneck can be improved #3

Answer 16

Investing in additional machines at the bottleneck.

Question 17

Ways capacities of a bottleneck can be improved #4

Answer 17

Shifting workers from processes that are not bottlenecks to the process that is the bottleneck.

Question 18

Ways capacities of a bottleneck can be improved #5

Answer 18

Focusing business process improvement efforts on the bottleneck.

Question 19

Ways capacities of a bottleneck can be improved #6

Answer 19

Reducing defective units. Each defective unit that is processed through the bottleneck and subsequently scrapped takes the place of a good unit that could have been sold.

Question 20

Joint Products

Answer 20

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

Question 21

Split-off point

Answer 21

That point in the manufacturing process where some or all of the joint products can be recognized as individual products

Question 22

Joint Costs

Answer 22

Costs that are incurred up to the split-off point in a process that produces joint products.

Question 23

Sell or process further decision

Answer 23

A decision as to whether a joint product should be sold at the split-off point or sold after further processing