[Chapter 3] Notes: Activity Resource Usage Model

Question 1

_____________ involves an important tactical decision that requires management to determine how best to utilize unused capacity.

Answer 1

SPECIAL-ORDER SCENARIOS

Question 2

_______________________ consists of choosing among alternatives with an immediate or limited end in view.

Answer 2

TACTICAL DECISION MAKING

Question 3

Some tactical decisions tend to be short-run in nature, although they can often have long-run consequences

Answer 3

TRUE

Question 4

Tactical decisions are often small-scale actions that serve a larger purpose

Answer 4

TRUE

Question 5

A general tactical decision-making model is outlined in a six-step process. What are these six steps?

Answer 5

[1] Define problem.
[2] Identify alternatives.
[3] Predict costs and benefits.
[4] Compare costs and benefits.
[5] Assess qualitative factors.
[6] Select alternative.

Question 6

A _______________________ is a set of procedures that, if followed, will lead to a decision.

Answer 6

DECISION MODEL

Question 7

___________________ is the use of relevant cost and revenue data to identify the alternative that provides the greatest net benefit to the organization.

Answer 7

TACTICAL COST ANALYSIS

Question 8

Tactical cost analysis includes _______________, ________________, and _________________________________.

Answer 8

predicting, identifying, and comparing relevant costs and revenues

Question 9

In choosing between two alternatives, both relevant and irrelevant costs and revenues should be considered.

Answer 9

FALSE.

Only the costs and revenues relevant to the decision should be considered.

Question 10

__________________ are future costs (revenues) that differ across alternatives.

Answer 10

RELEVANT COSTS (REVENUES)

Question 11

If a future cost is the same for more than one alternative, it has an effect on the decision.

Answer 11

FALSE.

Irrelevant costs have no effect on the decision.

Question 12

What do you call a future cost that is the same for more than one alternative and has no effect on the decision?

Answer 12

IRRELEVANT COSTS

Question 13

Past costs are always relevant.

Answer 13

FALSE.

Past costs are never relevant. However, they are often used as the basis for predicting future costs.

Question 14

______________________ is the net benefit sacrificed or forgone when one alternative is chosen over another.

Answer 14

OPPORTUNITY COSTS

Question 15

______________ is a past cost that has already occurred and cannot be changed by future actions.

Answer 15

SUNK COSTS

Question 16

Sunk costs are relevant to tactical decisions.

Answer 16

FALSE.

Sunk costs are irrelevant to tactical decisions.

Question 17

Depreciation is an example of a sunk cost.

Answer 17

TRUE

Question 18

Understanding cost behavior is basic in determining ___________.

Answer 18

RELEVANCY

Question 19

__________________________ can help sort out the behavior of various activity costs and assess their relevance.

Answer 19

ACTIVITY RESOURCE USAGE MODEL

Question 20

The activity resource usage model focuses and use of resources and has two categories. What are these categories?

Answer 20

[1] Flexible resources
[2] Committed resources

Question 21

This category of resources are those that are acquired as used and needed.

Answer 21

FLEXIBLE RESOURCES

Question 22

This category of resources are those that are acquired in advance of usage.

Answer 22

COMMITTED RESOURCES

Question 23

____________________ is the cost of acquiring activity capacity.

Answer 23

RESOURCE SPENDING

Question 24

The amount paid for the supply of an activity is the ________________.

Answer 24

ACTIVITY COST.

Question 25

For flexible resources, the resources demanded are greater than the resources supplied.

Answer 25

FALSE.

The resources demanded equal the resources supplied.

Question 26

For flexible resources, if the demand for an activity changes across alternatives, then resource spending will change.

Answer 26

TRUE

Question 27

_________________ are acquired in advance of usage through implicit contracting, and they are usually acquired in lumpy amounts.

Answer 27

COMMITTED RESOURCES

Question 28

Up-front resource spending is a sunk cost and never relevant

Answer 28

TRUE

Question 29

For flexible resource category, if demand changes, the cost is?

Answer 29

RELEVANT

Question 30

For flexible resource category, if demand is constant, the cost is?

Answer 30

NOT RELEVANT

Question 31

For committed resource category, if the demand increase is less than the unused capacity, the cost is?

Answer 31

NOT RELEVANT

Question 32

For committed resource category, if the demand increase is greater than the unused capacity, the cost is?

Answer 32

RELEVANT

Question 32

For committed resource category, if the demand decrease (permanent) involves reducing the acitivity capacity?

Answer 32

RELEVANT

Question 33

For committed resource category, if the demand decrease (permanent) involves no change in the activity capacity?

Answer 33

NOT RELEVANT

Question 34

What are some applications of the activity resource model?

Answer 34

[1] make or buy a component
[2] keep or drop a segment or product line
[3] to accept or reject a special order (at less than the usual price)
[4] to process a product further or to sell it at the split-off point

Question 35

A decision of whether to make or to buy components or services used in making a product or providing a service.

Answer 35

MAKE-OR-BUY DECISIONS

Question 36

_____________ refers to the relocation of a business function to another company.

Answer 36

OUTSOURCING

Question 37

What do you call the process of relocating a business outside of the country?

Answer 37

OFFSHORING

Question 38

What do you call the return of a previously offshored business function to the original country of origin?

Answer 38

RESHORING

Question 39

__________________ of each activity represents the cost of flexible resources.

Answer 39

VARIABLE COMPONENT

Question 40

___________________ represents the cost of committed resources acquired in advance of usage.

Answer 40

FIXED COST COMPONENT

Question 41

__________________ indicates how many units of the activity (as measured by its driver) must be acquired at a time.

Answer 41

UNITS OF PURCHASE

Question 42

______________________ uses relevant cost analysis to determine whether a segment or line of business should be kept or dropped.

Answer 42

KEEP-OR-DROP DECISION.

Question 43

___________________ determines whether a segment should be dropped or kept.

Answer 43

TRACEABLE INCOME (LOSS)

Question 44

_______________________ is equal to the CM minus direct fixed costs.

Answer 44

PRODUCT (or segment) MARGIN

Question 45

____________________ focuses on whether a specially priced order should be accepted or rejected.

Answer 45

SPECIAL-ORDER DECISION

Question 46

_________________ occurs when a special-order sale takes away from (or eats into) the sale of a regular product or service

Answer 46

CANNIBALIZATION

Question 47

__________________ is “special” because the price is lower than normal.

Answer 47

SPECIAL PRICE

Question 48

Join products have common processes and costs of production up to a ___________________. At that point, they become distinguishable

Answer 48

SPLIT-OFF POINT

Question 49

All of the joint production costs are relevant to the sell or process futher decision.

Answer 49

FALSE.

By the time the split-off point is reached, all joint costs are sunk, and therefore, irrelevant.

Question 50

________________________ helps the court understand the accounting issues in the case by providing analyses, evaluations, and opinions regarding the nature, amount, and impact of such issues.

Answer 50

FORENSIC ACCOUNTANT

Question 51

Name two common forensic accounting tasks.

Answer 51

[1] dispute resolution
[2] litigation support

Question 52

This is an ethics rule of thumb that cautions employees not to do or say anything that would make them uncomfortable if it were published on the front page of The Wall Street Journal or any other prominent new or social media site.

Answer 52

THE WALLSTREET JOURNAL TEST

Question 53

This is an ethics rule of thumb that cautions employees not to do or say anything that would make them uncomfortable if it were published on the front page of The Wall Street Journal or any other prominent new or social media site.

Answer 53

THE WALLSTREET JOURNAL TEST