Key Terms IX Flashcards
Avoidable cost
Any cost that can be eliminated (in whole or in part) by choosing one alternative over another in a decision-making situation. This term is synonymous with relevant costs and differential cost
Bottleneck
A machine or process that limits total output because it is operating at capacity
Corner point
A potential solution in a linear programming problem
Differential cost
A difference in cost between any two alternatives
Feasible region
An area that shows all the possible combinations of two products
Iso-contribution line
Traces all of the combinations of two products that could produce a particular total contribution
Joint cost
Cost that is incurred up to the split-off point in producing joint products
Joint products
Two or more items that are produced from a common input
Make or buy decision
A decision as to whether an item should be produced internally or purchased from an outside supplier
Objective function
Shows a number of possible outputs that maximise total contribution
Optimal combination of product
The best that can be achieved given the constraints and the nature of the objective function
Relaxing (or elevating) the constraint
Increasing the capacity of a bottleneck
Relevant costs
A cost that differs between alternatives in a particular decision. This term is synonymous with avoidable cost and differential cost
Sell or process further decisions
A decision as to whether a joint product should be sold at the split-off point or processed further and sold at a later time in a different form
Sensitivity analysis
Involves calculating the effect of other possibilities, such as a rise in the market price of a product
