Chapter 13 Flashcards
Differential Analysis Steps
- Define the alternatives
- Identify the criteria for choosing amongst them
- Relevant costs and benefits should be considered
Differential Analysis
Focusing on the future costs and benefits that differ between the alternatives
Differential Revenue
Differs b/w two alternatives
Incremental cost
An increase in cost b/w two alternatives
Avoidable cost
A cost that can be eliminated by choosing one alternative over another
Opportunity costs
the potential benefit that is given up when one alternative is selected over another
Contribution Margin Approach
compare contribution margin lost by product discontinued to fixed costs avoided
Comparative Income Approach
create comparative income statements showing results with and without the digital watch segment. (takes longer)
xx Allocated fixed costs can distort the keep/drop decision
Vertical Integration
When a company is involved in more than one activity in the entire value chain
“Make or Buy” Decision
A decision to carry out one of the activities in the value chain internally, rather than to buy externally from a supplier.
Economies to scale
The more you produce a particular product the better you get at producing it and faster. Need to retain control over activities to stay competitive.
Special order
A one-time order that is not considered part of the company’s normal ongoing business, only incremental cost, and benefits relevant
Volume-trade of decisions
companies are forced to make these decisions when they do not have enough capacity to produce all of the products and sales volumes demanded by their customers
Constraint
limited resources restrict a company’s ability to satisfy demand
Bottleneck
The Machine of the process is the limited overall output
