Marginal Analysis

Question 1

Concept: When doing a Make-or-Buy decision, would direct and fixed costs be considered?

Answer 1

Only direct costs are considered especially when considering outsourcing for a product to be made

Question 2

Concept: In a Sell-as-is or further process decision, joint costs are _____, mgmt uses ______ analysis, and decision is made ______ split-off point

Answer 2

SUNK & irrelevant, incremental, AT

Question 3

Definition: Incremental costs

Answer 3

costs that are added after making a decision

Question 4

Definition: Differential Costs

Answer 4

Costs that differ between alternatives

Question 5

In a Keep/Drop scenario, keep the segment if contribution margin is _____

Answer 5

POSITIVE

Question 6

Concept: In a Keep-or-Drop Segment decision making, irrelevant costs are ______, _______ and ________

Answer 6

Irrelevant costs are: depreciation on equipment, manager’s salary and allocated (unavoidable) fixed overhead

Question 7

Special Order is profitable if revenue is _____ than _______ costs

Answer 7

GREATER, variable

Question 8

A special order can be profitable when order price is _____ normal retail price

Answer 8

LOWER than

Question 9

If a firm wants to use excess capacity, a special order is ______ only if ______ costs are already paid in previous orders earlier in the same month

Answer 9

Accepted, Fixed

Question 10

During same month, if firm has _____ capacity and can generate more revenues before month end, the special order is _______, if ______ costs are already paid with previous orders in that same month.

Answer 10

Scenario of Special Order’s Acceptance: EXCESS, accepted, fixed costs paid already in previous orders in same month

Question 11

Equation: Marginal Revenue

Answer 11

change in total revenues/change in units produced

Question 12

When operating at _____ capacity, division A should transfer pricing a product to division B at _____ ______

Answer 12

Market Value

Question 13

Total unit costs are considered ______ in marginal analysis

Answer 13

IRRELEVANT

Question 14

At FULL capacity, what is considered an opportunity cost?

Answer 14

Lost sales.

If a division is at full capacity and another division from same firm needs to buy something from division A, then division A will have to charge a price = market price (this is the opportunity cost) to division B

Question 15

In a Make/Buy decision: what are the relevant costs?

Answer 15

Anything that would disappear if bought: DM, DL, V Selling and avoid Fixed costs