[Chapter 3] Notes: Activity Resource Usage Model Flashcards
_____________ involves an important tactical decision that requires management to determine how best to utilize unused capacity.
SPECIAL-ORDER SCENARIOS
_______________________ consists of choosing among alternatives with an immediate or limited end in view.
TACTICAL DECISION MAKING
Some tactical decisions tend to be short-run in nature, although they can often have long-run consequences
TRUE
Tactical decisions are often small-scale actions that serve a larger purpose
TRUE
A general tactical decision-making model is outlined in a six-step process. What are these six steps?
[1] Define problem.
[2] Identify alternatives.
[3] Predict costs and benefits.
[4] Compare costs and benefits.
[5] Assess qualitative factors.
[6] Select alternative.
A _______________________ is a set of procedures that, if followed, will lead to a decision.
DECISION MODEL
___________________ is the use of relevant cost and revenue data to identify the alternative that provides the greatest net benefit to the organization.
TACTICAL COST ANALYSIS
Tactical cost analysis includes _______________, ________________, and _________________________________.
predicting, identifying, and comparing relevant costs and revenues
In choosing between two alternatives, both relevant and irrelevant costs and revenues should be considered.
FALSE.
Only the costs and revenues relevant to the decision should be considered.
__________________ are future costs (revenues) that differ across alternatives.
RELEVANT COSTS (REVENUES)
If a future cost is the same for more than one alternative, it has an effect on the decision.
FALSE.
Irrelevant costs have no effect on the decision.
What do you call a future cost that is the same for more than one alternative and has no effect on the decision?
IRRELEVANT COSTS
Past costs are always relevant.
FALSE.
Past costs are never relevant. However, they are often used as the basis for predicting future costs.
______________________ is the net benefit sacrificed or forgone when one alternative is chosen over another.
OPPORTUNITY COSTS
______________ is a past cost that has already occurred and cannot be changed by future actions.
SUNK COSTS
Sunk costs are relevant to tactical decisions.
FALSE.
Sunk costs are irrelevant to tactical decisions.
Depreciation is an example of a sunk cost.
TRUE
Understanding cost behavior is basic in determining ___________.
RELEVANCY
__________________________ can help sort out the behavior of various activity costs and assess their relevance.
ACTIVITY RESOURCE USAGE MODEL
The activity resource usage model focuses and use of resources and has two categories. What are these categories?
[1] Flexible resources
[2] Committed resources
This category of resources are those that are acquired as used and needed.
FLEXIBLE RESOURCES
This category of resources are those that are acquired in advance of usage.
COMMITTED RESOURCES
____________________ is the cost of acquiring activity capacity.
RESOURCE SPENDING
The amount paid for the supply of an activity is the ________________.
ACTIVITY COST.
For flexible resources, the resources demanded are greater than the resources supplied.
FALSE.
The resources demanded equal the resources supplied.
For flexible resources, if the demand for an activity changes across alternatives, then resource spending will change.
TRUE
_________________ are acquired in advance of usage through implicit contracting, and they are usually acquired in lumpy amounts.
COMMITTED RESOURCES
Up-front resource spending is a sunk cost and never relevant
TRUE
For flexible resource category, if demand changes, the cost is?
RELEVANT
For flexible resource category, if demand is constant, the cost is?
NOT RELEVANT
For committed resource category, if the demand increase is less than the unused capacity, the cost is?
NOT RELEVANT
For committed resource category, if the demand increase is greater than the unused capacity, the cost is?
RELEVANT
For committed resource category, if the demand decrease (permanent) involves reducing the acitivity capacity?
RELEVANT
For committed resource category, if the demand decrease (permanent) involves no change in the activity capacity?
NOT RELEVANT
What are some applications of the activity resource model?
[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
A decision of whether to make or to buy components or services used in making a product or providing a service.
MAKE-OR-BUY DECISIONS
_____________ refers to the relocation of a business function to another company.
OUTSOURCING
What do you call the process of relocating a business outside of the country?
OFFSHORING
What do you call the return of a previously offshored business function to the original country of origin?
RESHORING
__________________ of each activity represents the cost of flexible resources.
VARIABLE COMPONENT
___________________ represents the cost of committed resources acquired in advance of usage.
FIXED COST COMPONENT
__________________ indicates how many units of the activity (as measured by its driver) must be acquired at a time.
UNITS OF PURCHASE
______________________ uses relevant cost analysis to determine whether a segment or line of business should be kept or dropped.
KEEP-OR-DROP DECISION.
___________________ determines whether a segment should be dropped or kept.
TRACEABLE INCOME (LOSS)
_______________________ is equal to the CM minus direct fixed costs.
PRODUCT (or segment) MARGIN
____________________ focuses on whether a specially priced order should be accepted or rejected.
SPECIAL-ORDER DECISION
_________________ occurs when a special-order sale takes away from (or eats into) the sale of a regular product or service
CANNIBALIZATION
__________________ is “special” because the price is lower than normal.
SPECIAL PRICE
Join products have common processes and costs of production up to a ___________________. At that point, they become distinguishable
SPLIT-OFF POINT
All of the joint production costs are relevant to the sell or process futher decision.
FALSE.
By the time the split-off point is reached, all joint costs are sunk, and therefore, irrelevant.
________________________ 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.
FORENSIC ACCOUNTANT
Name two common forensic accounting tasks.
[1] dispute resolution
[2] litigation support
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.
THE WALLSTREET JOURNAL TEST
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.
THE WALLSTREET JOURNAL TEST
